<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KIRKLAND'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TENNESSEE 5990 62-1287151
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
805 N. PARKWAY, JACKSON, TN 38305
(901) 668-2444
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT E. ALDERSON
PRESIDENT AND CHIEF OPERATING OFFICER
805 N. PARKWAY
JACKSON, TN 38305
(901) 668-2444
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
BARRY M. ABELSON, ESQ. THOMAS R. BROME, ESQ.
ROBERT A. FRIEDEL, ESQ. CRAVATH, SWAINE & MOORE
PEPPER HAMILTON LLP 825 EIGHTH AVENUE
3000 TWO LOGAN SQUARE NEW YORK, NY
PHILADELPHIA, PA 19103 (212) 474-1000
(215) 981-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, no par value.................................. $ 63,250,000 $ 18,659
=========================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933. Includes
shares of Common Stock subject to the over-allotment option granted to the
Underwriters.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated April 30, 1998
PROSPECTUS
SHARES
KIRKLAND'S, INC.
COMMON STOCK
---------------------------
All of the shares of common stock, no par value (the "Common Stock"), of
Kirkland's, Inc. ("Kirkland's" or the "Company") offered hereby (the "Offering")
are being sold by the Company, except for any shares sold pursuant to the
Underwriters' over-allotment option which will be sold by certain shareholders
of the Company (the "Option Shareholders"). Prior to the Offering, there has
been no public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $ and $ per
share. See "Underwriting" for a list of the factors to be considered in
determining the initial public offering price. At the request of the Company,
the Underwriters have reserved up to 5% of the shares of Common Stock offered
hereby for sale at the initial public offering price to employees of the Company
and other persons associated with the Company.
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "KIRK."
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
---------------------------
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.
<TABLE>
<CAPTION>
=====================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3).................................. $ $ $
=====================================================================================================================
</TABLE>
(1) The Company, each of its operating subsidiaries and the Option Shareholders
have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $750,000. The Option Shareholders will not be required to pay any of
these expenses.
(3) The Option Shareholders have granted the Underwriters a 30-day option to
purchase up to additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares to the public at the Price to
Public shown above. If such option were exercised in full, the total Price
to Public and Underwriting Discounts and Commissions would be $ and
$ , respectively, and the Option Shareholders would receive
$ . No proceeds from the sale of shares pursuant to an exercise of
the over-allotment option will be received by the Company. See
"Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1998.
---------------------------
LEHMAN BROTHERS
THE ROBINSON-HUMPHREY COMPANY
BANCAMERICA ROBERTSON STEPHENS
MORGAN KEEGAN & COMPANY, INC.
, 1998.
<PAGE> 3
The Company currently operates 141 stores in 25 states. The Company's
existing stores are located in middle markets such as Little Rock, Arkansas;
Birmingham, Alabama; and Tulsa, Oklahoma as well as in metropolitan markets such
as Atlanta, Dallas and Houston and small markets such as Paducah, Kentucky;
Florence, Alabama; and Lancaster, Pennsylvania. The following map and store list
show the number of stores that Kirkland's operates in each state and the cities
in which the Company's stores are located.
[In the printed version, a gatefold is included which contains a map indicating
the cities where Kirkland's stores are located and a group of photographs
depicting various merchandise displays together with the Company's logo.]
<TABLE>
<S> <C> <C> <C> <C> <C>
ALABAMA-8 GEORGIA-7 KENTUCKY-4 MISSOURI-4 OHIO-8 TEXAS-18
Birmingham(2) Atlanta(6) Louisville St. Louis(2) Dayton(2) Houston(7)
Huntsville Columbus Lexington Springfield Cincinnati(3) Dallas(5)
Montgomery Florence Joplin Canton Corpus Christi
Mobile ILLINOIS-6 Paducah Cleveland Austin(2)
Dothan Chicago(4) NEBRASKA-1 Dublin Lubbock
Florence Moline LOUISIANA-9 Lincoln Amarillo
Tuscaloosa St. Louis Monroe OKLAHOMA-2 El Paso
Baton Rouge(2) NEW MEXICO-2 Tulsa
ARKANSAS-3 IOWA-3 New Orleans(2) Albuquerque(2) Oklahoma City VIRGINIA-6
Little Rock(2) Davenport Lafayette Roanoke
Fayetteville Cedar Rapids Shreveport NORTH PENNSYLVANIA-2 Richmond(3)
Des Moines Slidell CAROLINA-9 Lancaster Lynchburg
FLORIDA-16 Houma Charlotte(2) Erie Chesapeake
Jacksonville(2) INDIANA-5 Greensboro
Tallahassee Evansville MARYLAND-2 Fayetteville SOUTH WEST
Orlando(3) Ft. Wayne Baltimore Wilmington CAROLINA-2 VIRGINIA-2
Tampa(2) Indianapolis Waldorf Durham Myrtle Beach Charleston
Fort Walton South Bend Cary Spartanburg Barboursville
Panama City Terre Haute MICHIGAN-1 Raleigh
Naples Olcemos High Point TENNESSEE-12
Pensacola KANSAS-2 Jackson
St. Petersburg Kansas City(2) MISSISSIPPI-7 Knoxville(2)
Vero Beach Jackson(2) Memphis(3)
Daytona Beach Tupelo Nashville(4)
Coral Springs Harrisburg Chattanooga
Biloxi Johnson City
Columbus
Meridian
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The "Kirkland's" logo, Cedar Creek(R) private label brand and Now That's
Real Style!(R) are registered trademarks and/or service marks of the Company.
The Company also claims common law trademark rights in the Kirkland
Collection(TM) for which the Company has filed an application for federal
registration in the United States Patent and Trademark Office. All other
trademarks or service marks appearing in this Prospectus are trademarks or
service marks of the companies that utilize them.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Historically, Kirkland's, Inc. has operated Kirkland's
stores through separate corporations (collectively, the "Kirkland Companies"),
and Kirkland's, Inc. has served as a management company for the Kirkland
Companies. Unless the context otherwise requires, all references to the
"Company" or "Kirkland's," with respect to any date or period prior to
completion of the Offering, mean Kirkland's, Inc. together with all Kirkland
Companies. The outstanding shares of the Kirkland Companies will be acquired by
Kirkland's, Inc. in connection with the Offering. Unless the context otherwise
requires, all information in this Prospectus (i) gives retroactive effect to (a)
a -for-one stock split of the Common Stock which will occur immediately
prior to the completion of the Offering, and (b) the contribution to Kirkland's,
Inc. of all of the outstanding common stock of the Kirkland Companies and (ii)
assumes that the Offering is consummated at an initial public offering price of
$ per share on , 1998. See "Use of Proceeds" and "Certain
Transactions - Pre-Offering Transactions."
THE COMPANY
Kirkland's is a leading specialty retailer of decorative home accessories
and gifts. The Company's stores offer a broad selection of distinctive
merchandise, including framed art, candles, lamps, picture frames, rugs, garden
accessories and artificial plants, as well as an extensive assortment of holiday
merchandise. The Company's stores are designed to provide style-conscious
customers, the majority of whom are women age 25 and older, with a distinctive
shopping experience characterized by a diverse, ever-changing merchandise
selection at surprisingly attractive prices. Management believes that the
Company's exclusive focus on decorative home accessories and gifts has led to
its emergence as a leader in its retail category and a destination store for
many mall shoppers. Kirkland's has generated operating income in each year since
opening its first store in 1966, and currently maintains one of the highest
operating margins among comparable specialty retailers.
The Company's 141 stores in 25 states average approximately 4,400 square
feet per store and are located primarily in enclosed malls. Although originally
focused in the Southeast, the Company has expanded beyond that region.
Currently, 58 of the Company's stores are located outside the Southeast,
including 11 of the 20 new stores opened during 1997. In addition to operating
in many middle markets, the Company also has stores in major metropolitan
markets such as Atlanta, Houston, Chicago and Dallas, as well as in smaller
markets. The Company has been able to operate stores successfully across a broad
range of demographic and geographic markets.
Kirkland's has developed and refined a merchandising strategy that
differentiates it from other retailers of products for the home. The Company's
merchandising strategy is to (i) offer distinctive, high quality home
accessories and gifts at affordable prices, (ii) maintain a breadth of product
categories, (iii) provide a carefully edited selection of the best-selling items
within each category, rather than merchandising complete product collections and
(iv) present merchandise in a visually appealing manner to create an inviting
atmosphere which inspires decorating ideas. The Company believes that this
strategy creates a shopping experience which appeals to the style-conscious as
well as the price-conscious shopper.
The Company's goal is to be the leading specialty retailer of decorative
home accessories and gifts in each of its markets. The following elements of the
Company's business strategy, which have evolved over 32 years of successful
operations, differentiate Kirkland's from its competitors and position the
Company for continued growth:
Distinctive, Item-Focused Merchandising. While a Kirkland's store
contains items covering a broad range of complementary product categories,
the store emphasizes only the best-selling items within each category. The
Company does not seek to dictate a design theme to its customers, nor does
it necessarily seek to dominate any particular product category. The
Company instead takes a disciplined approach to identifying fashionable
merchandise reflecting the latest trends, selecting and test-marketing
products
3
<PAGE> 5
and monitoring and reacting to individual item sales. No single merchandise
category accounted for more than 15% of net sales in 1997.
Changing Merchandise Mix. The merchandise mix in a Kirkland's store
changes frequently throughout the year, in response to both market and
sales trends and changes in seasons. The Company's information systems
permit close tracking of individual item sales, enabling management to
react quickly to both fast-selling and slow-moving items. In addition, the
Company strategically increases selling space devoted to gifts and holiday
merchandise during peak selling seasons such as Christmas and Easter. The
Company believes that its ever-changing mix of merchandise creates an
exciting environment for customers, encouraging frequent return visits to
its stores.
Visually Appealing Store Environment. Kirkland's distinguishes itself
through its stores' "interior design" look, achieved by its emphasis on
visual merchandising. Using multiple types of fixtures, the Company groups
complementary merchandise creatively throughout the store, rather than
displaying products strictly by category or product type. This visual
presentation helps customers to picture the merchandise in their own homes
and thus inspires decorating ideas. As a result, this strategy provides the
opportunity for add-on sales and also encourages customers to browse for
longer periods of time.
Competitive Pricing. Kirkland's merchandise ranges in price from
approximately $5 to approximately $250, with most items selling for under
$30. Kirkland's shoppers regularly experience the satisfaction of paying
noticeably less for items similar or identical to those sold by other
retailers or through catalogs. Consequently, the Company does not routinely
engage in promotions or sales and typically holds only two regular sales
events each year. Management believes that the Company's competitive
pricing is an important element in making Kirkland's a destination store
for many mall shoppers.
Flexible Real Estate Strategy. The Company's stores are predominantly
located in enclosed malls in middle, metropolitan and smaller markets. The
Company believes that its stores' broad appeal makes Kirkland's a desirable
tenant for community, regional and super-regional malls targeting both
middle and upper-income customers as well as for selected non-mall venues.
The flexibility of the Kirkland's concept enables the Company to select the
most promising real estate opportunities that meet requisite economic and
demographic criteria within the Company's target markets.
Kirkland's opened its first store in 1966 and expanded steadily thereafter,
focusing primarily on middle markets in the Southeast. The Company accelerated
its expansion beginning in 1990, more than doubling its store base from 50
stores at the end of 1990 to 104 stores at the end of 1995. In June 1996, Advent
International Corporation led a leveraged recapitalization of the Company. See
"Certain Transactions - Recapitalization." Since then, the Company has made
considerable investments in management and infrastructure to support an
increased rate of expansion in the future. The net proceeds from the Offering
will reduce the Company's total indebtedness and position the Company
financially for continued growth.
The Company anticipates that its future expansion will come primarily from
opening new stores, expanding or remodeling existing stores and introducing new
retail formats. The Company intends to open approximately 25 stores in 1998 and
approximately 30 stores in 1999, and believes that there are currently over 500
additional malls in the United States that could provide attractive locations
for the Kirkland's concept. The Company is also engaged in a selective expansion
and remodeling program to update store appearance and expand store size. The
Company intends to expand six stores in 1998 and seven stores in 1999, and to
remodel a like number of stores in each of those years. In addition, the Company
has developed several new retail formats, including temporary stores, outlet
stores, strip center stores and more upscale stores called "the Kirkland
Collection," which it believes have significant potential to create new channels
through which to reach and expand Kirkland's target customer base.
The Company is incorporated in Tennessee, its principal executive offices
are located at 805 N. Parkway, Jackson, Tennessee 38305, and its telephone
number is 901-668-2444. The Company's Internet website address is
http://www.kirklands.com.
4
<PAGE> 6
THE OFFERING
Common Shares Offered by the
Company..........................
Common Shares Outstanding after
the Offering(1)..................
Use of Proceeds.................. To repay indebtedness, including
mandatorily redeemable preferred stock.
Proposed Nasdaq Symbol........... KIRK
- ---------------
(1) Excludes an aggregate of 23,004 shares of Common Stock reserved for issuance
under the Company's 1996 Executive Incentive and Non-Qualified Stock Option
Plan, 1998 Incentive Plan and Employee Stock Purchase Plan. Options to
purchase 10,154 shares of Common Stock have been granted under the Company's
1996 Executive Incentive and Non-Qualified Stock Option Plan, of which
options to purchase shares will be exercisable upon completion of the
Offering.
PRE-OFFERING TRANSACTIONS
The following transactions will occur immediately prior to the completion
of this Offering: (i) a -for-one stock split of the Common Stock; (ii) the
recapitalization or exchange of all of the outstanding shares of Class A
Preferred Stock ("Class A Preferred Stock") and Class B Preferred Stock ("Class
B Preferred Stock") of Kirkland's, Inc. and the Kirkland Companies into or for
42,679 shares of Common Stock; and (iii) the contribution of all of the
outstanding shares of common stock of the Kirkland Companies to Kirkland's,
Inc., resulting in the Kirkland Companies becoming wholly-owned subsidiaries of
Kirkland's, Inc. Subsequent to these transactions, but prior to completion of
the Offering, Kirkland's, Inc. and the Kirkland Companies will issue 11,905
shares of common stock upon the exercise of outstanding warrants, and such
shares of the Kirkland Companies will be contributed to Kirkland's, Inc. All of
these transactions are herein collectively referred to as the "Pre-Offering
Transactions." See "Use of Proceeds" and "Certain Transactions - Pre-Offering
Transactions".
5
<PAGE> 7
SUMMARY COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $85,326 $99,901 $112,035 $127,946 $153,584 $26,178 $ 30,615
Gross profit..................... 33,080 38,088 43,200 47,508 56,586 7,559 9,505
Operating expenses............... 17,177 19,572 24,192 27,915 35,004 7,392 9,178
Severance charge(1).............. -- -- -- -- 756 -- --
Recapitalization expenses........ -- -- -- 854 -- -- --
Owners' compensation(2).......... 12,314 15,123 13,926 -- -- -- --
Depreciation and amortization.... 1,581 1,847 2,362 3,383 4,142 1,003 1,156
------- ------- -------- -------- -------- ------- --------
Operating income(loss)........... 2,008 1,546 2,720 15,356 16,684 (836) (829)
Interest expense, net(3)......... 719 814 1,253 6,247 10,099 2,508 2,313
Other income, net................ (184) (255) (221) (147) (154) (57) (64)
Income tax provision (benefit)... -- -- -- 2,693 2,817 (923) (920)
------- ------- -------- -------- -------- ------- --------
Net income(loss)................. 1,473 987 1,688 6,563 3,922 (2,364) (2,158)
Accretion of redeemable preferred
stock and dividends
accrued(4)..................... -- -- -- 2,313 3,755 939 998
------- ------- -------- -------- -------- ------- --------
Net income (loss) allocable to
common stock................... $ 1,473 $ 987 $ 1,688 $ 4,250 $ 167 $(3,303) $ (3,156)
======= ======= ======== ======== ======== ======= ========
PRO FORMA DATA(5):
Pro forma net income (loss)...... $ 7,603 $ (1,283)
======== ========
Pro forma net income (loss) per
common share:
Basic.......................... $ $
======== ========
Diluted........................ $ $
======== ========
Pro forma weighted average number
of common shares outstanding:
Basic..........................
======== ========
Diluted........................
======== ========
OTHER DATA:
EBITDA(6)........................ $16,087 $18,771 $ 19,229 $ 19,740 $ 21,736 $ 224 $ 391
Net cash provided by (used in)
operating activities........... 3,422 2,040 1,269 11,065 8,669 (7,564) (7,874)
Net cash provided by (used in)
investing activities........... 2,818 2,652 (4,130) (4,205) (5,479) (735) (903)
Net cash provided by (used in)
financing activities........... 772 1,320 3,278 (982) (3,537) (617) 73
SELECTED STORE DATA:
Comparable store net sales
increase(7).................... 7.1% 4.4% 0.7% 1.4% 5.2% 4.8% 3.7%
Number of stores at end of
period......................... 80 91 104 120 138 120 140
Average net sales per store (in
thousands)(8).................. $ 1,159 $ 1,159 $ 1,145 $ 1,147 $ 1,178 $ 216 $ 220
Average gross square footage per
store(9)....................... 3,753 3,821 3,942 4,091 4,186 4,174 4,382
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED(10)
--------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 13,793 $14,754
Total assets................................................ 44,596 44,596
Total long-term and short-term debt, including mandatorily
redeemable Class C Preferred Stock........................ 92,682 43,585
Common stock warrants....................................... 879 --
Redeemable convertible preferred stock (Class A and Class B
Preferred Stock).......................................... 47,584 --
Shareholders' deficit....................................... (105,651) (7,130)
</TABLE>
- ---------------
(1) The 1997 severance charge represents the total salary continuation payments
which the Company is required to make to a former management employee who
resigned in 1997.
(2) Owners' compensation represents distributions to the Company's shareholders
during the periods when Kirkland's, Inc. and the Kirkland Companies were
Subchapter S corporations, prior to the Recapitalization. Such distributions
ceased upon the Recapitalization. See "Certain
Transactions - Recapitalization."
(3) Interest expense includes amounts associated with the Class C Preferred
Stock of $990,000 and $1.8 million in 1996 and 1997, respectively, and
$450,000 and $385,000 for the three months ended March 31, 1997 and 1998,
respectively. Interest expense also includes the accretion to the fair value
of detachable put warrants to purchase Common Stock, issued by the Company
in connection with its issuance of subordinated debt, of $190,000 and
$389,000 in 1996 and 1997, respectively, and $97,000 for the three months
ended March 31, 1997. The holders of these warrants agreed to terminate the
put as of January 1, 1998.
(4) Reflects the accretion of the Class A Preferred Stock and Class B Preferred
Stock to its redemption value and the accrual of dividends on such preferred
stock at 8% annually.
(5) Assumes the Pre-Offering Transactions were effected as of the beginning of
the period. Also assumes repayment of $20.0 million of subordinated debt
(together with accrued interest) and $12.2 million of senior debt and the
purchase or redemption of all outstanding Class C Preferred Stock (together
with amounts classified as interest associated with such preferred stock)
from the proceeds of the sale of the shares of Common Stock offered hereby.
See "Use of Proceeds," "Capitalization," "Unaudited Pro Forma Condensed
Combined Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) The term EBITDA as used herein represents income before income taxes, net
interest expense, depreciation and amortization expense, owners'
compensation and non-recurring charges. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flow from
operations or any other measure of income or cash flow that is prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity, EBITDA has been presented because
the Company believes it is commonly used in this or a similar format by
investors to analyze and compare operating performance as well as to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. EBITDA may differ in method of calculation from similarly
titled measures used by other companies. This information should be read in
conjunction with the Combined Statement of Cash Flows contained in the
Combined Financial Statements and notes thereto included elsewhere in this
Prospectus.
(7) For periods ended on or before December 31, 1996, comparable stores were
defined as those stores opened prior to January 1 of the preceding fiscal
year. Effective January 1, 1997, in response to increased expansion and
remodeling activity, the Company modified the way comparable store net sales
are calculated to more accurately reflect the Company's ongoing expansion
and remodeling program. Commencing January 1, 1997, the Company excluded
from comparable store net sales calculations each store that was expanded,
remodeled or relocated during the applicable period. Each such store is
returned to the comparable store base on January 1 of the first year
following the one-year anniversary of the expansion, remodeling or
relocation.
(8) Calculated using net sales of all stores open at both the beginning and the
end of the period.
(9) Calculated using gross square footage of all stores open at both the
beginning and the end of the period. Gross square footage includes the
storage, receiving and office space that generally occupies approximately
30% of total store space.
(10) Adjusted to give effect to the Pre-Offering Transactions and the sale of
the shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds," "Capitalization"
and "Unaudited Pro Forma Condensed Combined Financial Statements."
7
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in shares of the Common Stock offered by this Prospectus.
AGGRESSIVE EXPANSION STRATEGY; MANAGEMENT OF GROWTH
The Company intends to pursue an expansion strategy involving opening more
stores than it has in recent years, and its future operating results will depend
to a substantial extent upon its ability to open and operate new stores
successfully. In addition to planned openings of new mall-based stores, the
Company plans to expand by developing new retail formats both in malls and
non-mall venues. The new formats may involve different risks than the Company's
current mall-based activities. The Company also has an ongoing expansion and
remodeling program, and intends to expand and remodel six stores in 1998 and
seven stores in 1999, and to remodel (without expanding) a like number of stores
in each of those years. The Company will also enter certain new markets in new
regions of the United States which may present competitive and merchandising
challenges that are different from those currently encountered by the Company in
its existing markets. In addition, the Company's ability to open new stores on a
timely basis will depend upon a number of factors, including the ability to
properly identify and enter new markets, locate suitable store sites, negotiate
acceptable lease terms, access adequate inventory, secure capital resources and
financing, construct or refurbish sites, hire, train and retain skilled managers
and personnel, and manage other factors, some of which may be beyond the
Company's control. The Company's senior credit facility, which the Company is
seeking to amend, also places a limit on the number of new stores which the
Company is permitted to open during any given year. The failure by the Company
to open new stores on a timely basis or otherwise to achieve its expansion plans
could materially adversely affect the Company's business, results of operations
and financial performance. There can be no assurance that the Company's new
stores, when opened, will be profitable or achieve sales or profitability levels
comparable to the Company's existing stores. Furthermore, the Company believes
that its expansion within existing markets could adversely affect the financial
performance of the Company's existing stores within those markets.
To manage its expansion, the Company will need to continually evaluate the
adequacy of its existing systems and procedures and to adapt accordingly. In
addition, the success of the Company's expansion program will be dependent on
its ability to promote and/or recruit enough qualified district managers, store
managers and sales associates to support the expected growth in the number of
its stores, and there can be no assurance that the training and supervision of a
large number of new managers and associates will not adversely affect the
performance of the Company's stores. In addition, the Company relies upon its
existing management information systems for operating and monitoring all major
aspects of its business, including sales, warehousing, distribution, purchasing,
inventory control, merchandise planning and replenishment, as well as various
financial functions. Any failure by the Company to upgrade such systems or
unexpected difficulties encountered with such systems as its business expands,
or in general any disruption in these systems, could adversely affect the
Company's results of operations and financial performance.
The Company believes that cash generated from operations and available
borrowings under revolving credit facilities will be sufficient to satisfy its
currently anticipated working capital and capital expenditure requirements
through the end of 1999. However, in connection with its expansion strategy, the
Company may be required to seek additional funds, and there can be no assurance
that such funds will be available on satisfactory terms. Failure to obtain such
financing could delay or prevent the Company's planned expansion, which could
adversely affect the Company's results of operations and financial performance.
MERCHANDISING RISKS; INVENTORY
The Company's success depends, in large part, on its ability to anticipate
and respond, in a timely manner, to changing merchandise trends and consumer
demands. Accordingly, any failure by the Company to identify and respond to
emerging trends could adversely affect consumer acceptance of the merchandise in
the Company's stores and the Company's image with its customers, which in turn
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, if the Company
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miscalculates either the market for the merchandise in its stores or its
customers' purchasing habits, it may be faced with a significant amount of
unsold inventory, which could have a material adverse effect on the Company's
business, financial condition and results of operations. A major shift in
consumer demand away from gift items and home accessories could also have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company purchases its products from approximately 140 vendors with
which it has no long-term purchase commitments or exclusive contracts. None of
the Company's vendors supplied more than 8% of the Company's merchandise
purchases in 1997 or during the first quarter of 1998. The Company's results of
operations could be adversely affected by a disruption in purchases from any of
its key vendors, any of which could discontinue selling to the Company at any
time.
FOREIGN-SOURCED MERCHANDISE
Many of the Company's vendors are importers of merchandise manufactured in
the Far East, Mexico and India. While the Company believes that buying from
vendors instead of directly from manufacturers reduces or eliminates the risks
involved with relying on products manufactured abroad, its vendors are subject
to those risks, and it remains subject to those risks to the extent that their
effects are passed through by its vendors to the Company or cause disruptions in
supply. These risks include fluctuations in the value of currencies, increases
in customs duties and related fees resulting from position changes by the United
States Customs Service, import controls and trade barriers (including the
unilateral imposition of import quotas), loss of "most favored nation" ("MFN")
trading status, restrictions on the transfer of funds, work stoppages, economic
uncertainties, changes in foreign government regulations and, in certain parts
of the world, political instability causing disruption of trade from the
countries in which the suppliers of the Company's vendors are located.
The Company's ability to obtain merchandise cost-effectively through
importers from manufacturers in China, from which the Company currently
purchases approximately 30% of its merchandise, is subject to retention by China
of its MFN tariff status and its compliance with certain other requirements.
Pursuant to MFN status, products imported for the Company from China currently
receive the lower tariff rates made available to most of the United States'
major trading partners. In the case of China, however, this MFN treatment is
made possible under the Trade Act of 1974 by virtue of certain Presidential
findings that waive restrictions that would otherwise render China ineligible
for MFN treatment. China's MFN status is reviewed annually. Although the
President has waived these restrictions each year since 1979, there can be no
assurance that China will continue to enjoy MFN status in the future. If
products manufactured in China enter the United States without the benefit of
MFN treatment, such products will be subject to significantly higher duty rates,
ranging between 20% and 66% of customs value. Any such increased duties or
tariffs could significantly increase the cost or reduce the supply of products
from China. In addition, the United States Trade Representative is monitoring
China due to concerns regarding the protection of intellectual property rights
and market barriers to United States exports to and investments in China.
China's failure to comply with the terms of agreements entered into with the
United States regarding these matters could result in sanctions against China,
and the imposition of new duties on certain imports from China potentially
including products to be supplied to the Company. Any significant increase in
duties or tariffs on the products imported for the Company from China could have
a material adverse effect on the Company's results of operations and financial
condition.
Historically, instability in the political and economic environments of the
countries in which the Company's vendors obtain its products has not had a
material adverse effect on the Company's operations. The Company cannot predict,
however, the effect that future changes in economic or political conditions in
such foreign countries could have on operations. Although the Company believes
that it could access alternative sources in the event of disruptions or delays
in supply due to the impact of future changes in economic or political
conditions in foreign countries on its vendors, such disruptions or delays could
adversely affect the Company's results of operations unless and until
alternative supply arrangements could be made. In addition, merchandise
purchased from alternative sources may be of lesser quality or more expensive
than merchandise currently purchased abroad by the Company.
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Although the majority of the foreign-sourced products sold by the Company
are not currently subject to quotas, countries in which the Company's vendors
obtain these products may, from time to time, impose new or adjust prevailing
quotas or other restrictions on exported products, and the United States may
impose new duties, tariffs and other restrictions on imported products, any of
which could disrupt the supply of such products to the Company and adversely
affect its operations. Other restrictions on the importation of products
obtained for the Company by vendors are periodically considered by the United
States Congress, and no assurances can be given that tariffs or duties on such
products may not be raised, resulting in higher costs to the Company, or that
import quotas with respect to such products may not be imposed or made more
restrictive.
COMPETITION
The business in which the Company is engaged is highly competitive. The
Company competes with a variety of specialty stores, department stores, discount
stores and catalog retailers that carry merchandise in one or more categories
also carried by the Company. One or more of its competitors are present in
substantially all of the malls in which the Company has stores. Many of the
Company's competitors are larger than the Company and have access to
significantly greater financial, marketing and other resources than the Company.
The Company believes that its stores compete primarily on the basis of
merchandise quality and selection, price, visual appeal of the merchandise and
the store and convenience of location. There can be no assurance that the
Company will continue to be able to compete successfully against existing or
future competition. Expansion by the Company into the markets served by its
competitors, entry of new competitors or expansion of existing competitors into
the Company's markets could have a material adverse effect on the Company's
business, financial condition and results of operations.
SEASONALITY; VARIATIONS IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
substantial seasonal fluctuations in its sales and operating results, which are
typical of many mall-based specialty retailers and common to most retailers
generally. Due to the importance of the fall selling season, which includes
Thanksgiving and Christmas, the fourth calendar quarter has historically
contributed, and is expected to continue to contribute, a substantial majority
of the Company's operating income and net income for the entire year. The
Company expects this pattern to continue during the current fiscal year and
anticipates that in subsequent years the fourth quarter will continue to
contribute disproportionately to its operating results, particularly during
November and December. Any factors negatively affecting the Company during the
fourth quarter in any year, including unfavorable economic conditions, could
have a material adverse effect on the Company's financial condition and results
of operations. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among other
things, the timing of new store openings, pre-opening expenses associated with
new stores, the relative proportion of new stores to mature stores, net sales
contributed by new stores, increases or decreases in comparable store sales,
adverse weather conditions, shifts in the timing of holidays and changes in the
Company's product mix. The market price of the Common Stock may fluctuate
significantly in response to changes in the Company's quarterly results of
operations.
ECONOMIC CONDITIONS AND FLUCTUATIONS IN CONSUMER SPENDING
The Company's sales are also subject to a number of factors relating to
consumer spending, including general economic conditions affecting disposable
consumer income such as employment, business conditions, interest rates, the
level of consumer debt and taxation. The Company's sales could also be adversely
affected by a weak retail environment. No assurances can be given that purchases
of home accessories and gift items will not decline during recessionary periods
or that a prolonged recession will not have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
economic downturns during the fourth quarter could adversely affect the Company
to a greater extent than if such downturns occurred at other times of the year.
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COMPARABLE STORE SALES RESULTS
Numerous factors affect comparable store sales results, including among
others, weather conditions, retail trends, the retail sales environment,
economic conditions and the Company's success in executing its business
strategy. The Company's comparable store sales results have experienced
fluctuations in the past. In addition, the Company anticipates that opening new
stores in existing markets may result in decreases in comparable store sales for
existing stores in such markets. There can be no assurance that comparable store
sales for any particular period will not decrease in the future. Variations in
the Company's comparable store sales results could cause the price of the Common
Stock to fluctuate significantly and could have a material adverse effect on the
Company.
RISKS ASSOCIATED WITH INDEBTEDNESS
Following the Offering, the Company will continue to have substantial
indebtedness and, as a result, significant debt service obligations. On a pro
forma basis, giving effect to the sale of the shares offered hereby and the
application of the estimated net proceeds therefrom on January 1, 1998, the
Company would have had total outstanding indebtedness as of March 31, 1998 of
approximately $43.6 million, including approximately $43.1 million outstanding
under its senior credit facility, and its total interest expense for the first
quarter of 1998 would have been $1.1 million. On a pro forma basis, giving
effect to the sale of the shares offered hereby and the application of the
estimated net proceeds therefrom on January 1, 1997, the Company would have had
total outstanding indebtedness as of December 31, 1997 of approximately $36.6
million, including approximately $36.1 million outstanding under its senior
credit facility, and its total interest expense for the year ended December 31,
1997 would have been $4.3 million. The degree to which the Company is leveraged
could have several material adverse effects, including, but not limited to, the
following: (i) making it more difficult for the Company to satisfy its
obligations; (ii) limiting the Company's ability to obtain additional financing
to fund future working capital, capital expenditures, acquisitions and other
general corporate requirements; (iii) increasing the Company's vulnerability to
a downturn in general economic conditions; (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate requirements; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry; and (vi) placing the Company at a competitive disadvantage
with respect to less highly leveraged competitors. The Company's senior credit
facility contains financial and operating covenants including, but not limited
to, restrictions on the Company's ability to incur additional indebtedness and
issue preferred stock, pay dividends or make other distributions, create liens,
sell assets and enter into certain mergers and consolidations.
The Company's inability to service its obligations would have a material
adverse effect on the market value and marketability of the Common Stock. In
addition, failure by the Company to comply with the covenants contained in its
bank credit facility may result in an event of default, which, if not cured or
waived, could have a material adverse effect on the Company.
MARKET CONCENTRATION
Approximately 83 of the Company's 141 stores are located in the
southeastern region of the United States. The Company's current expansion plans
anticipate that many of its new stores will be located in the states where the
Company currently has operations or in contiguous states. Consequently, the
Company's results of operations are more subject to regional economic
conditions, weather conditions, demographic and population changes and other
factors specific to a particular region than are the operations of more
geographically diversified competitors. In addition, changes in such regional
factors which reduce the appeal of the Company's stores and merchandise to local
consumers could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company expects to open new
stores in certain markets in which it is already operating, which could
adversely affect the financial performance at existing stores within those
markets.
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DEPENDENCE ON CUSTOMER TRAFFIC IN MALLS
Substantially all of the Company's existing stores are located in enclosed
malls. As a result, the Company must rely, in part, on the ability of mall
anchor tenants and other tenants to generate customer traffic in the vicinity of
the Company's stores. The Company's future operating results will also depend on
many other factors that are beyond the Company's control, including the overall
level of mall traffic and general economic conditions affecting consumer
confidence and spending.
DEPENDENCE ON KEY PERSONNEL
The Company believes that it has benefitted substantially from the
leadership and performance of its senior management, especially Carl Kirkland
(Chief Executive Officer) and Robert E. Alderson (President and Chief Operating
Officer). Although the Company maintains key man insurance in the amount of $3
million on each of Messrs. Kirkland and Alderson, the loss of the services of
either of these individuals for any reason could have a material adverse effect
on the Company's business, financial condition and results of operations. Many
members of the Company's management have substantial experience and expertise in
the Company's business and have made significant contributions to its growth and
success. As the Company continues to grow, it will continue to hire, appoint or
otherwise change senior managers and other key executives. The Company has
employment agreements with Mr. Kirkland, Mr. Alderson and other members of
senior management which expire, in the cases of Mr. Kirkland and Mr. Alderson,
in June 2000. There can be no assurance that the Company will be able to retain
its executive officers and key personnel or attract additional qualified members
to its management team beyond the stated terms of these employment agreements or
otherwise in the future.
VIOLATION OF LEASE TERMS
A substantial number of the Company's store leases contain provisions that
permit the landlord to terminate the lease upon a change in control of the
Company. The Offering and the Pre-Offering Transactions may give rise to a
change in control under certain of the Company's leases. There can be no
assurance that the Company's landlords under leases which contain the above
provisions will not attempt to terminate those leases or to alter the terms
thereunder, and that such actions would not have a material adverse effect on
the Company's business, results of operations or financial condition.
HOLDING COMPANY STRUCTURE
Upon completion of the Offering, all of the Kirkland Companies will be
subsidiaries of the Company and the Company will be a holding company that will
derive substantially all of its operating income from its subsidiaries. The
Company expects that distributions from its subsidiaries will be its principal
source of the funds to meet its obligations. The Kirkland Companies are, and any
additional subsidiaries formed following the Offering will be, separate and
distinct legal entities and will have no obligation, contingent or otherwise, to
pay any dividend or make any other distribution to the Company, other than for
interest and principal payments on indebtedness owed to the Company, if any. The
ability of the Company's subsidiaries to make payments will be subject to, among
other things, the availability of sufficient cash and restrictive covenants in
the documents governing the Company's senior credit facility which prohibit the
Company's subsidiaries from paying dividends or making other distributions to
the Company, including indebtedness owed to the Company. The Kirkland Companies
are co-borrowers under the senior credit facility, their obligations thereunder
are secured by security interests in the Kirkland Companies' assets and have
been guaranteed by the Company, and the stock of the Kirkland Companies will be
pledged by the Company to the bank as security for its guarantee. The Company's
inability to service its obligations would have a material adverse effect on the
market value and marketability of the Common Stock.
IMPACT OF YEAR 2000 ISSUE
An issue exists for all companies that rely on computers as the year 2000
approaches. The "Year 2000" issue is the result of past practice in the computer
industry of using two digits rather than four to identify the
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applicable year. This practice will result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. Independent of the Year 2000 issue, the Company intends to
install a new point-of-sale ("POS") system throughout its store network in 1998
at a cost of approximately $1.5 million, which will be Year 2000 compliant. The
Company anticipates that it will be able to test its entire system using its
internal programming staff and outside computer consultants and intends to make
the necessary modifications to prevent disruption to its operations. The Company
does not expect costs in connection with any such modifications to be material.
However, if such modifications are not completed in a timely manner or if costs
are greater than anticipated, the Year 2000 issue may have a material adverse
effect on the operations of the Company. The Company is in the process of
exploring with each of its key vendors the impact the Year 2000 issue will have
on their ability to source products for the Company and process purchase orders
with delivery requirements and terms involving years later than 1999. There can
be no assurance that the systems of vendors on which the Company's systems rely
will be modified in a timely manner to account for the Year 2000 issue, or that
a failure to so modify by a vendor, or a modification that is incompatible with
the Company's systems, will not have a material adverse effect on the operations
of the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Year 2000 Issue."
NO PRIOR PUBLIC MARKET; VOLATILITY
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price for the shares of Common
Stock to be sold in this Offering will be determined by agreement among the
Company and the representatives of the Underwriters and may bear no relationship
to the Company's book value, net worth or any other established criteria of
value or the price at which the Common Stock will trade after completion of this
Offering. The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results, general trends in
prospects for the retail industry, changes in equity analysts' recommendations
regarding the Company and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this Offering could have an adverse effect on the market price of the Common
Stock. The shares offered hereby by the Company (plus any of the
shares purchased pursuant to the exercise of the Underwriters' over-allotment
option) will be freely tradeable in the public market, except to the extent
purchased by "affiliates" or "underwriters" (as those terms are defined under
the Securities Act) of the Company. All of the remaining 146,683 shares
( shares if the Underwriters' over-allotment option is exercised in
full) to be outstanding upon consummation of this Offering will become eligible
for sale in the public market, subject to compliance with the holding period,
volume and manner of sale requirements of Rule 144 under the Securities Act,
upon the expiration of certain "lock-up" agreements not to sell such shares
until 180 days after the date of this Prospectus, as described in
"Underwriting." Holders of such shares of Common Stock have the right to require
the Company to register the shares for sale under the Securities Act in certain
circumstances and have the right to include those shares in a Company-initiated
registration. If the Company is required to include shares of Common Stock held
by these holders pursuant to these registration rights in a Company-initiated
registration, sales made by such holders may have an adverse effect on the
Company's ability to raise needed capital and on the price of the Common Stock.
In addition, if these holders exercise their demand registration rights and
cause a large number of shares to be registered and sold in the public market,
such sales may have an adverse effect on the market price of the Common Stock.
Following this Offering, the Company also intends to file registration
statements with the Securities and Exchange Commission covering 23,004 shares of
Common Stock issued or reserved for issuance under the Company's 1996 Executive
Incentive and Non-Qualified Stock Option Plan, 1998 Incentive Plan and Employee
Stock Purchase Plan. Upon effectiveness of such registration statements, any
shares subsequently issued under such plans will be eligible for sale in the
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public market, except to the extent restricted by the lock-up agreements
referred to above and subject to compliance with Rule 144 in the case of
affiliates of the Company. Sales of a large number of shares of Common Stock
issued under these plans in the public market may have an adverse effect on the
market price of the Common Stock. See "Shares Eligible for Future Sale."
CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER EFFECT OF TENNESSEE LAWS
The Company's Amended and Restated Charter (the "Charter") authorizes the
issuance of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board of
Directors. Accordingly, the Board is empowered, without shareholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could materially adversely affect the voting power or other rights
of the holders of the Common Stock (including those of the purchasers in the
Offering). Holders of the Common Stock will have no preemptive rights to
subscribe for a pro rata portion of any capital stock which may be issued by the
Company. In the event of issuance, such preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future.
The Company's Charter and Restated Bylaws (the "Bylaws") contain certain
corporate governance provisions that may deter and inhibit unsolicited changes
in control of the Company. First, the Charter provides for a classified Board of
Directors, with directors (after the expiration of the terms of the initial
classified board of directors in 1999, 2000 and 2001) serving three year terms
from the year of their respective elections and being subject to removal only
for cause and upon the vote of 80% of the voting power of all outstanding
capital stock of the Company entitled to vote (the "Voting Power"). Second, the
Charter and the Bylaws do not generally permit shareholders to call, or to
require that the Board of Directors call, a special meeting. The Charter and
Bylaws also limit the business permitted to be conducted at any such special
meeting. In addition, Tennessee law permits action to be taken by the
shareholders by written consent only if the action is consented to by holders of
the number of shares required to authorize shareholder action and if all
shareholders entitled to vote are parties to the written consent. Third, the
Bylaws establish an advance notice procedure for shareholders to nominate
candidates for election as directors or to bring other business before meetings
of shareholders of Kirkland's. Only those shareholder nominees who are nominated
in accordance with this procedure will be eligible for election as directors of
Kirkland's, and only such shareholder proposals may be considered at a meeting
of shareholders as have been presented to Kirkland's in accordance with the
procedure. Finally, the Charter provides that the affirmative vote of at least
80% of the Voting Power is required to amend or repeal the foregoing provisions
of the Charter. In addition, the Bylaws provide that the amendment or repeal by
shareholders of any Bylaws made by the Board of Directors of Kirkland's would
require the affirmative vote of at least 80% of the Voting Power.
Furthermore, the Company is subject to provisions of certain Tennessee law,
including certain Tennessee corporate takeover acts which are, or may be,
applicable to the Company. These acts are the Investor Protection Act, the
Business Combination Act and the Tennessee Greenmail Act, and these acts seek to
limit the parameters in which certain business combinations and share exchanges
occur. The existence of the Charter, Bylaws and Tennessee law provisions could
be expected to have an anti-takeover effect, including possibly discouraging
takeover attempts that might result in a premium over the market price for the
Common Stock. See "Description of Capital Stock - Anti-Takeover Effect of
Charter and Bylaw Provisions and Tennessee Laws."
CONTROL BY CERTAIN SHAREHOLDERS
The Company's current directors, executive officers, existing shareholders
and their affiliates will, in the aggregate, beneficially own approximately
% of the Company's outstanding shares of Common Stock after this Offering,
assuming no exercise of the Underwriters' over-allotment option. As a result,
these shareholders, acting together, would be able to exercise a controlling
influence over matters requiring approval by the shareholders of the Company,
including the election of directors, and over the business and affairs of
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the Company, including determinations with respect to mergers or other business
combinations involving the Company and the acquisition or disposition of assets
by the Company.
DILUTION
Investors purchasing Common Stock in the Offering will, on a pro forma
basis, incur immediate and substantial dilution in the amount of $ per
share. To the extent that currently outstanding options to purchase Common Stock
are exercised, there will be further dilution. See "Dilution."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements relating to future
events or the future financial performance of the Company. Such statements may
relate, but are not limited to, expectations of future operating results or
financial performance, capital expenditures, construction or expansion of
facilities (including new stores), plans for growth and future operations, or
financing, as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Such risks include, but are not limited to,
the matters discussed in the foregoing paragraphs under "Risk Factors." Future
events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements.
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
shares offered hereby will be approximately $50.4 million, after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company expects to use the net proceeds from the Offering as
follows: (i) $20.2 million to repay outstanding subordinated debt (including
approximately $210,000 of accrued interest); (ii) $18.0 million to purchase or
redeem all of the outstanding shares of mandatorily redeemable Class C Preferred
Stock (including approximately $900,000 of amounts classified as interest
associated with the Class C Preferred Stock); and (iii) $12.2 million to repay
outstanding senior indebtedness. Substantially all of the shares of Class C
Preferred Stock are held by affiliates of the Company. The Company will not
receive any proceeds from the sale of shares pursuant to any exercise of the
Underwriters' over-allotment option. See "Certain Transactions - Pre-Offering
Transactions."
As of March 31, 1998, the Company's senior indebtedness consisted of $55.3
million outstanding under a senior credit facility which matures in June 2002.
As of March 31, 1998, the weighted average interest rate on the senior
indebtedness expected to be repaid with net proceeds of the Offering was 9.1%.
Immediately following the completion of the Offering, the Company expects to
have remaining outstanding senior indebtedness of approximately $43.1 million.
The Company's subordinated debt consists of $20.0 million of notes bearing
interest at 12.25% until June 13, 1998 and at 12.5% thereafter and maturing on
June 30, 2003. By their terms, the notes are required to be repaid in full with
proceeds of the Offering. The Company's Class C Preferred Stock was issued in
connection with the Recapitalization and had an aggregate stated value of $17.1
million at March 31, 1998. The Company pays an annual amount equal to 9% of the
outstanding balance to the holders which has been reflected as interest expense
in the Company's Combined Financial Statements.
DIVIDEND POLICY
The Company intends to retain future earnings to finance the continued
growth and development of its business, and does not, therefore, anticipate
paying any cash dividends on its Common Stock in the foreseeable future. In
addition, the Company's senior credit facility prohibits the payment of cash
dividends without the prior written consent of two-thirds of the lenders. No
dividends have been paid on the Common Stock subsequent to 1995. Future cash
dividends, if any, will be determined by the Board of Directors, and will be
based upon the Company's earnings, capital requirements, financial condition,
debt covenants and other factors deemed relevant by the Board of Directors.
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DILUTION
The pro forma net negative tangible book value of the Company as of March
31, 1998, after giving effect to the Pre-Offering Transactions, was $57.2
million, or $ per share of outstanding Common Stock on such date. Pro
forma net negative tangible book value per share is determined by dividing the
pro forma net negative tangible book value of the Company (total tangible assets
less total liabilities) by the number of shares of Common Stock outstanding on a
pro forma basis, giving effect to the Pre-Offering Transactions. Without taking
into effect any changes in pro forma net negative tangible book value after
March 31, 1998, other than to give effect to the sale by the Company of the
shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom (after deducting estimated offering expenses
and the underwriting discounts and commissions), the as adjusted pro forma net
negative tangible book value of the Company as of March 31, 1998 would have been
$7.1 million, or $ per share. This represents an immediate increase in
pro forma net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to purchasers of
Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net negative tangible book value per share at March 31,
1998................................................... $ ()
Adjustment(1).............................................
------
Pro forma net negative tangible book value per share
before the Offering.................................... ()
Increase attributable to new shareholders.................
------
Adjusted pro forma net negative tangible book value per
share after the Offering............................... ()
------
Dilution per share to new shareholders...................... $
======
</TABLE>
- ---------------
(1) The adjustment gives effect to the Pre-Offering Transactions.
The following table sets forth, on a pro forma basis as of March 31, 1998,
giving effect to the Pre-Offering Transactions, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company,
the average price per share paid by existing shareholders, and the average price
per share to be paid by purchasers of Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ % $ % $
New investors........................ $
--------- ----- ---------- -----
Total........................... 100.0% $ 100.0%
========= ===== ========== =====
</TABLE>
The foregoing tables do not include (i) 10,154 shares of Common Stock
issuable upon exercise of outstanding options at exercise prices ranging from
$0.045 to $285.65 per share, of which shares are subject to options which
will be exercisable upon completion of the Offering, or (ii) 12,850 shares of
Common Stock reserved for future issuance under the Company's 1996 Executive
Incentive and Non- Qualified Stock Option Plan, 1998 Incentive Plan and Employee
Stock Purchase Plan. See "Management - Employee Benefit Plans."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Pre-Offering Transactions and (iii) the pro forma as
adjusted capitalization of the Company after giving effect to the Pre-Offering
Transactions and the sale of the shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom (after deducting estimated
offering expenses and underwriting discounts and commissions). The information
set forth below should be read in conjunction with the Company's Combined
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
--------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt........................................ $ 4,588 $ 4,588 $ 4,588
========= ========= =========
Long-term debt:
Senior credit facility............................... $ 50,887 $ 50,887 $ 38,687
Subordinated debt.................................... 19,775 19,775 --
Other indebtedness................................... 310 310 310
Mandatorily redeemable preferred stock(Class C)...... 17,122 17,122 --
--------- --------- ---------
Total long-term debt.............................. 88,094 88,094 38,997
--------- --------- ---------
Common stock warrants.................................. 879 -- --
--------- --------- ---------
Redeemable convertible preferred stock
(Class A and Class B Preferred Stock)................ 47,584 -- --
--------- --------- ---------
Shareholders' deficit:
Common Stock, at stated value, 92,100 shares issued
and outstanding, actual; 50,000,000 shares
authorized, shares issued and
outstanding pro forma; and 50,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted(2)............. 203 203 203
Paid-in capital...................................... 1,295 49,758 100,041
Accumulated deficit.................................. (107,149) (107,149) (107,374)
--------- --------- ---------
Total shareholders' deficit....................... (105,651) (57,188) (7,130)
--------- --------- ---------
Total capitalization......................... $ 35,494 $ 35,494 $ 36,455
========= ========= =========
</TABLE>
- ---------------
(1) See "Unaudited Pro Forma Combined Condensed Financial Statements."
(2) Excludes approximately 10,154 shares of Common Stock reserved for issuance
upon the exercise of options at exercise prices ranging from $0.045 to
$285.65 per share, outstanding at March 31, 1998, of which shares were
subject to options which will be exercisable upon completion of the
Offering.
18
<PAGE> 20
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pursuant to the terms of a Purchase, Contribution and Exchange Agreement
dated April 29, 1998, by and among Kirkland's, Inc. and each of the Company's
shareholders and warrantholders, immediately prior to completion of the Offering
as a part of the Pre-Offering Transactions: (i) all of the outstanding shares of
Class A Preferred Stock and Class B Preferred Stock of Kirkland's, Inc. and the
Kirkland Companies will be recapitalized into or exchanged for an aggregate of
42,689 shares of Common Stock, and (ii) all of the outstanding shares of common
stock of the Kirkland Companies will be contributed to Kirkland's, Inc.,
resulting in the Kirkland Companies becoming wholly-owned subsidiaries of
Kirkland's, Inc. Subsequently, but prior to completion of the Offering, the
warrantholders of Kirkland's, Inc., and the Kirkland Companies will exercise
their warrants to purchase 11,905 shares of common stock of Kirkland's, Inc. and
each of the Kirkland Companies, and the Kirkland Companies' common stock issued
upon such exercise will be contributed to Kirkland's, Inc. See "Certain
Transactions - Pre-Offering Transactions." Also pursuant to the agreement,
Kirkland's, Inc. will purchase or redeem from current shareholders all of the
outstanding shares of Class C Preferred Stock of Kirkland's, Inc. and each of
the Kirkland Companies that has Class C Preferred Stock outstanding, using a
portion of the net proceeds of the Offering.
The pro forma combined condensed balance sheet as of March 31, 1998 and the
pro forma combined condensed statements of operations for the fiscal year 1997
and the three months ended March 31, 1998 which follow give effect to: (i) the
Pre-Offering Transactions, and (ii) the Offering and the application of the
estimated net proceeds therefrom as if such transactions had occurred as of the
beginning of the period.
In the opinion of the Company all adjustments necessary to present fairly
such pro forma combined condensed statements of operations have been made. These
unaudited pro forma combined condensed statements of operations are not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the respective periods nor do they
purport to indicate the results of future operations of the Company. These
unaudited pro forma financial statements should be read in conjunction with the
accompanying notes.
19
<PAGE> 21
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-OFFERING OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 2,177 $ 2,177
Inventories........................................... 22,546 22,546
Other current assets.................................. 2,760 2,760
-------- --------
Total current assets................................ 27,483 27,483
Property and equipment, net............................. 12,894 12,894
Noncurrent deferred income taxes........................ 201 201
Debt issue costs, net................................... 4,018 4,018
-------- --------
Total assets........................................ $ 44,596 $ 44,596
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt.................. $ 4,588 $ 4,588
Accounts payable and accrued liabilities.............. 9,102 $ (576) (c) 8,141
(385) (e)
-------- ------- ------- --------
Total current liabilities........................... 13,690 (961) 12,729
Senior credit facility.................................. 50,887 (12,200) (d) 38,687
Subordinated debt....................................... 19,775 (19,775) (c) --
Other indebtedness...................................... 310 310
Class C Preferred Stock................................. 17,122 (17,122) (e) --
Common stock warrants................................... 879 $ (879) (a) --
-------- ------- ------- --------
Total liabilities................................... 102,663 (879) (50,058) 51,726
-------- ------- ------- --------
Redeemable convertible preferred stock:
Class A............................................... 35,223 (35,223) (b) --
Class B............................................... 12,361 (12,361) (b) --
-------- ------- ------- --------
47,584 (47,584) --
-------- ------- ------- --------
Shareholders' deficit:
Common stock.......................................... 203 203
Paid-in capital....................................... 1,295 879 (a) 50,283 (f) 100,041
47,584 (b)
Accumulated deficit................................... (107,149) (225) (c) (107,374)
-------- ------- ------- --------
Total shareholders' deficit......................... (105,651) 48,463 50,058 (7,130)
-------- ------- ------- --------
Total liabilities, redeemable preferred stock and
shareholders' deficit............................. $ 44,596 $ -- $ -- $ 44,596
======== ======= ======= ========
</TABLE>
- ---------------
(a) Represents the exercise by the warrantholders of Kirkland's, Inc. and
Kirkland Companies of their warrants to purchase 11,905 shares of common
stock of Kirkland's, Inc. and each of the Kirkland Companies, and the
contribution to Kirkland's, Inc. of the Kirkland Companies' common stock
issued upon such exercise.
(b) Represents the issuance of 42,689 shares of Common Stock upon the
recapitalization or exchange of all outstanding Class A Preferred Stock and
Class B Preferred Stock of Kirkland's Inc. and the Kirkland Companies.
(c) Represents the full repayment of the subordinated debt and accrued interest
thereon from the estimated net proceeds of the Offering. The accretion of
$225,000 of debt discount associated with the early extinguishment of the
subordinated debt is also reflected. See "Use of Proceeds."
(d) Represents the repayment of approximately $12.2 million of senior
indebtedness from the estimated net proceeds of the Offering. See "Use of
Proceeds."
(e) Represents the purchase or redemption of mandatorily redeemable Class C
Preferred Stock for $17.5 million (including $385,000 of accrued amounts
classified as interest associated with such preferred stock) from the
estimated net proceeds of the Offering. See "Use of Proceeds."
(f) Represents the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share, less
underwriting discounts and commissions and estimated offering expenses.
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRE-OFFERING OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................................... $153,584 $153,584
Cost of sales (including store occupancy costs)............. 96,998 96,998
-------- ------- ------- --------
Gross profit.............................................. 56,586 56,586
Operating expenses.......................................... 35,004 35,004
Severance charge............................................ 756 756
Depreciation and amortization............................... 4,142 4,142
-------- ------- ------- --------
Operating income.......................................... 16,684 16,684
Interest expense:
Senior credit facility and other indebtedness............. 5,506 $(1,159)(d) 4,347
Subordinated debt......................................... 2,484 (2,484)(c) --
Class C Preferred Stock................................... 1,800 (1,800)(e) --
Accretion of common stock warrants........................ 389 $ (389)(a) --
Interest income............................................. (80) (80)
Other income, net........................................... (154) (154)
-------- ------- ------- --------
Income before income taxes.............................. 6,739 389 5,443 12,571
Income tax provision........................................ 2,817 2,151(f) 4,968
-------- ------- ------- --------
Net income.............................................. 3,922 389 3,292 7,603
Accretion of redeemable preferred stock and dividends
accrued................................................... 3,755 (3,755)(b) --
-------- ------- ------- --------
Net income allocable to common stock........................ $ 167 $ 4,144 $ 3,292 $ 7,603
======== ======= ======= ========
Income per common share:
Basic..................................................... $ 1.67 $
======== ========
Diluted................................................... $ 1.35 $
======== ========
Weighted average number of common shares outstanding:
Basic..................................................... 100,000
======== ========
Diluted................................................... 123,590
======== ========
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRE-OFFERING OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................................. $30,615 $30,615
Cost of sales (including store occupancy costs)........... 21,110 21,110
------- ----- ----- -------
Gross profit............................................ 9,505 9,505
Operating expenses........................................ 9,178 9,178
Depreciation and amortization............................. 1,156 1,156
------- ----- ----- -------
Operating loss.......................................... (829) (829)
Interest expense:
Senior credit facility and other indebtedness........... 1,354 $(287)(d) 1,067
Subordinated debt....................................... 576 (576)(c) --
Class C Preferred Stock................................. 385 (385)(e) --
Interest income........................................... (2) (2)
Other income, net......................................... (64) (64)
------- ----- ----- -------
Income (loss) before income taxes..................... (3,078) 1,248 (1,830)
Income tax provision (benefit)............................ (920) 373(f) (547)
------- ----- ----- -------
Net loss.............................................. (2,158) 875 (1,283)
Accretion of redeemable preferred stock and dividends
accrued................................................. 998 $(998)(b) --
------- ----- ----- -------
Net loss allocable to common stock........................ $(3,156) $ 998 $ 875 $(1,283)
======= ===== ===== =======
Income (loss) per common share:
Basic................................................... $(34.04) $
======= =======
Diluted................................................. $(34.04) $
======= =======
Weighted average number of common shares outstanding:
Basic................................................... 92,714
======= =======
Diluted................................................. 92,714
======= =======
</TABLE>
- ---------------
(a) Represents the reduction in accretion resulting from the exercise of
detachable put warrants to purchase 11,905 shares of common stock of
Kirkland's, Inc. and each of the Kirkland Companies, and the contribution to
Kirkland's, Inc. of the Kirkland Companies' common stock issued upon such
exercise. The holders of these warrants agreed to terminate the put as of
January 1, 1998.
(b) Represents the reduction in accretion and dividends accrued resulting from
the issuance of 42,689 shares of Common Stock upon the recapitalization or
exchange of all outstanding Class A Preferred Stock and Class B Preferred
Stock of Kirkland's, Inc. and the Kirkland Companies.
(c) Represents the interest and amortization expense reduction resulting from
repayment of approximately $20.0 million of subordinated debt and accrued
interest from the estimated net proceeds of the Offering. See "Use of
Proceeds."
(d) Represents the interest and amortization expense reduction resulting from
repayment of approximately $12.2 million of senior indebtedness from the
estimated net proceeds of the Offering. See "Use of Proceeds."
(e) Represents the interest expense reduction resulting from repayment of all
outstanding mandatorily redeemable Class C Preferred Stock and amounts
classified as interest associated with such preferred stock from the
estimated net proceeds of the Offering. See "Use of Proceeds."
(f) Represents the tax effect of the foregoing adjustments at effective tax
rates of approximately 39.5%, excluding the accretion of common stock
warrants for 1997, and 29.9%, for the three months ended March 31, 1998.
21
<PAGE> 23
SELECTED COMBINED FINANCIAL DATA
The selected statement of income data for each of the three years in the
period ended December 31, 1997 and the selected balance sheet data as of
December 31, 1996 and 1997 have been derived from the audited combined financial
statements of the Company included elsewhere in this Prospectus. The selected
balance sheet data and the selected statement of income data as of and for the
years ended December 31, 1996 and 1997 have been derived from the Company's
financial statements for such periods audited by Price Waterhouse LLP,
independent public accountants. The selected statement of income data for the
year ended December 31, 1995 have been derived from the Company's financial
statements for such period audited by KPMG Peat Marwick LLP, independent public
accountants. The selected balance sheet data as of December 31, 1993, 1994 and
1995 and the selected statement of income data for the years ended December 31,
1993 and 1994 have been derived from the audited combined financial statements
of the Company not included in this Prospectus. The selected financial data
presented below as of March 31, 1997 and 1998 and for the three-month periods
then ended have been derived from the unaudited combined financial statements of
the Company, which, in management's opinion, include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the information set forth therein. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of results to be
expected for the entire year. The other data and selected store data for all
periods presented below have been derived from internal records of the Company's
operations. The data set forth below should be read in conjunction with the
Combined Financial Statements and notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................... $85,326 $99,901 $112,035 $127,946 $153,584 $26,178 $30,615
Gross profit...................... 33,080 38,088 43,200 47,508 56,586 7,559 9,505
Operating expenses................ 17,177 19,572 24,192 27,915 35,004 7,392 9,178
Severance charge(1)............... -- -- -- -- 756 -- --
Recapitalization expenses......... -- -- -- 854 -- -- --
Owners' compensation(2)........... 12,314 15,123 13,926 -- -- -- --
Depreciation and amortization..... 1,581 1,847 2,362 3,383 4,142 1,003 1,156
------- ------- -------- -------- -------- ------- -------
Operating income(loss)............ 2,008 1,546 2,720 15,356 16,684 (836) (829)
Interest expense:
Senior, subordinated and other
notes payable................ 777 940 1,415 5,114 7,990 1,961 1,930
Class C Preferred Stock......... -- -- -- 990 1,800 450 385
Accretion of common stock
warrants(3).................. -- -- -- 190 389 97 --
Interest income................... (58) (126) (162) (47) (80) -- (2)
Other income, net................. (184) (255) (221) (147) (154) (57) (64)
Income tax provision (benefit).... -- -- -- 2,693 2,817 (923) (920)
------- ------- -------- -------- -------- ------- -------
Net income(loss).................. 1,473 987 1,688 6,563 3,922 (2,364) (2,158)
Accretion of redeemable preferred
stock and accrual of
dividends(4).................... -- -- -- 2,313 3,755 939 998
------- ------- -------- -------- -------- ------- -------
Net income (loss) allocable to
common stock.................... $ 1,473 $ 987 $ 1,688 $ 4,250 $ 167 $(3,303) $(3,156)
======= ======= ======== ======== ======== ======= =======
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT SELECTED STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(5)................................. $16,087 $18,771 $19,229 $19,740 $21,736 $ 224 $ 391
Net cash provided by (used in) operating
activities.............................. 3,422 2,040 1,269 11,065 8,669 (7,564) (7,874)
Net cash (used in) investing activities... 2,818 2,652 (4,130) (4,205) (5,479) (735) (903)
Net cash provided by (used in) financing
activities.............................. 772 1,320 3,278 (982) (3,537) (617) 73
SELECTED STORE DATA:
Comparable store net sales increase(6).... 7.1% 4.4% 0.7% 1.4% 5.2% 4.8% 3.7%
Number of stores at end of period......... 80 91 104 120 138 120 140
Average net sales per store (in
thousands)(7)........................... $ 1,159 $ 1,159 $ 1,145 $ 1,147 $ 1,178 $ 216 $ 220
Average gross square footage per
store(8)................................ 3,753 3,821 3,942 4,091 4,186 4,174 4,382
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $11,147 $12,494 $15,017 $ 17,173 $ 15,792 $ 13,793
Total assets.............................. 22,518 25,461 32,584 45,636 49,884 44,596
Total long-term and short-term debt,
including mandatorily redeemable Class C
Preferred Stock......................... 9,491 10,479 13,291 92,134 88,597 92,682
Common stock warrants..................... -- -- -- 490 879 879
Redeemable convertible preferred stock
(Class A and Class B Preferred Stock)... -- -- -- 46,836 50,591 47,584
Shareholders' equity (deficit)............ $ 8,405 $ 9,724 $11,879 $(102,655) $(102,488) $(105,651)
</TABLE>
- ---------------
(1) The 1997 severance charge represents the total salary continuation payments
which the Company is required to make to a former management employee who
resigned in 1997.
(2) Owners' compensation represents distributions to the Company's shareholders
during the periods when Kirkland's, Inc. and the Kirkland Companies were
Subchapter S corporations, prior to the Recapitalization. Such distributions
ceased upon the Recapitalization. See "Certain
Transactions - Recapitalization."
(3) Reflects accretion to the fair value of detachable put warrants to purchase
Common Stock, issued by the Company in connection with its issuance of
subordinated debt. The holders of these warrants agreed to terminate the put
as of January 1, 1998.
(4) Reflects the accretion of the Class A Preferred Stock and Class B Preferred
Stock to its redemption value and the accrual of dividends on such preferred
stock at 8% annually.
(5) The term EBITDA as used herein represents income before income taxes, net
interest expense, depreciation and amortization expense, owners'
compensation and non-recurring charges. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flow from
operations or any other measure of income or cash flow that is prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity, EBITDA has been presented because
the Company believes it is commonly used in this or a similar format by
investors to analyze and compare operating performance as well as to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. EBITDA may differ in method of calculation from similarly
titled measures used by other companies. This information should be read in
conjunction with the Combined Statement of Cash Flows contained in the
Combined Financial Statements and notes thereto included elsewhere in this
Prospectus.
(6) For periods ended on or before December 31, 1996, comparable stores were
defined as those stores opened prior to January 1 of the preceding fiscal
year. Effective January 1, 1997, in response to increased expansion and
remodeling activity, the Company modified the way comparable store net sales
are calculated to more accurately reflect the Company's ongoing expansion
and remodeling program. Commencing January 1, 1997, the Company excluded
from comparable store net sales calculations each store that was expanded,
remodeled or relocated during the applicable period. Each such store is
returned to the comparable store base on January 1 of the first year
following the one-year anniversary of the expansion, remodeling or
relocation.
(7) Calculated using net sales of all stores open at both the beginning and the
end of the period.
(8) Calculated using gross square footage of all stores open at both the
beginning and the end of the period. Gross square footage includes the
storage, receiving and office space that generally occupies approximately
30% of total store space.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A number of the matters and subject areas discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus are not limited to historical or
current facts and deal with potential future circumstances and developments, and
are accordingly "forward-looking statements." Prospective investors are
cautioned that such forward-looking statements, which may be identified by words
such as "anticipate," "believe," "expect," "estimate," "intend," "plan" and
similar expressions, are only predictions and that actual events or results may
differ materially.
OVERVIEW
Kirkland's opened its first store in 1966 and has generated operating
income in each year of its operations. The Company has expanded its business
steadily over the years, focusing originally on middle markets in the Southeast,
and more recently opening stores in markets of varying size and geography. The
Company accelerated its expansion beginning in 1990, more than doubling its
store base from 50 stores at the end of 1990 to 104 stores at the end of 1995.
During this same period, which preceded the Recapitalization (as defined below),
the Company's net sales and operating income before owners' compensation grew at
compounded annual rates of 20.3% and 24.3%, respectively. In 1995, the Company's
operating income before owners' compensation as a percentage of net sales was
14.9%.
On June 12, 1996, the Company completed a leveraged recapitalization (the
"Recapitalization") which included the following principal components: (i) the
creation of two classes of redeemable convertible preferred stock - Class A
Preferred Stock and Class B Preferred Stock; (ii) the creation of a class of
mandatorily redeemable preferred stock - Class C Preferred Stock; (iii) the
distribution of all of the Class B Preferred Stock and Class C Preferred Stock
to the existing shareholders of the Company; (iv) the sale of newly issued
shares of common stock and all of the Class A Preferred Stock for cash of $30.8
million to a group of new investors led by Advent International Corporation
("Advent"); (v) the issuance of $20.0 million of senior subordinated notes due
June 2003; (vi) the issuance of $52 million of variable rate senior debt under
the Company's senior credit facility, with quarterly principal and interest
payments through June 2002; (vii) the repurchase and cancellation of 68.4% of
the aggregate common stock of the existing shareholders of the Company for cash
of $83.1 million; and (viii) the repayment of existing indebtedness of the
Company totaling $19.2 million. Total transaction - related fees for the
Recapitalization amounted to approximately $6.3 million. Of this amount,
financing costs of approximately $5.9 million associated with the senior
subordinated notes and the senior debt were deferred and are being amortized
over the life of this debt. The Company will apply a portion of the net proceeds
of the Offering to repay the senior subordinated notes and a portion of the
senior debt. See "Use of Proceeds." Moreover, the Company expects to enter into
a new credit facility upon completion of the Offering to refinance the existing
senior credit facility and, in such event, the Company will write off the
remaining unamortized portion of the senior debt financing costs ($4.0 million
at March 31, 1998) in the quarter in which the refinancing occurs.
In connection with the Recapitalization, the Company entered into
employment agreements with three key management employees and a consulting
agreement with another individual, all of whom were existing shareholders of the
Company. On January 7, 1998, the Company redeemed and retired the stock of one
of these management employees in connection with his November 1997 resignation.
As a result of his resignation, the Company incurred a severance charge of
$756,000 in 1997, representing the total salary continuation payments which the
Company is required to make to this former management employee through June
2000. See "Certain Transactions - January 1998 Redemption."
Prior to June 12, 1996, the Company elected to be taxed as a Subchapter S
corporation for federal income tax purposes. As a result, the Company recorded
no taxes and shareholders paid tax on their respective shares of taxable income,
even if such income was not distributed. The Company's typical practice was to
pay, on an annual basis, a substantial portion of the Company's income to
shareholders as owners' compensation.
Until the Pre-Offering Transactions, which will take place immediately
prior to completion of the Offering, Kirkland's, Inc. and the Kirkland Companies
will continue to receive certain tax benefits ("surtax exemptions") due to
graduating tax rates applicable to each separate corporate entity. The benefits
24
<PAGE> 26
derived from such surtax exemptions amounted to approximately 10% of income
before income taxes in 1996 and 1997. These benefits will no longer be available
to the Company after the Kirkland Companies become wholly-owned subsidiaries of
the Company pursuant to the Pre-Offering Transactions.
As a result of the Recapitalization, the Company has incurred an expense
related to the accretion of common stock warrants based on the increase in their
fair market value through 1997. As discussed in "Description of Capital
Stock - Warrants," these warrants will be exercised in connection with the
Offering. Following the exercise of the warrants, no further accretion expense
will be incurred.
The Recapitalization also included the issuance of the Class A Preferred
Stock and Class B Preferred Stock. The Class A Preferred Stock and Class B
Preferred Stock each carry an 8% annual dividend, which reduces net income
allocable to common stock. The accrual of such dividends and the related
accretion of the preferred stock to its redemption value will terminate in
connection with the conversion or exchange of such preferred stock into or for
Common Stock pursuant to the Pre-Offering Transactions.
Since the Recapitalization, the Company has continued to expand, opening 17
new stores in 1996 and 20 new stores in 1997. The Company also has made
considerable investments in management and infrastructure to support an
increased rate of expansion in the future. These investments have included
management personnel additions within the areas of finance, real estate and
merchandising. Further, in 1997, a new regional management structure was
implemented to augment the Company's existing district management structure. The
Company also made a strategic decision to increase the number of salaried
assistant managers in its stores in order to strengthen store-level operations
as well as to identify and train future store manager candidates. In addition,
in March 1998 the Company commenced an expansion of its headquarters facility to
a total of approximately 40,000 square feet, at an estimated cost of $2.2
million to be funded from cash flow from operations.
In 1997, the Company had net sales of $153.6 million and its operating
income (before severance charge) as a percentage of net sales was 11.4%, one of
the highest among comparable specialty retailers.
25
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, combined
statement of income data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (including store occupancy
costs)................................... 61.4 62.9 63.2 71.1 69.0
----- ----- ----- ----- -----
Gross profit............................. 38.6 37.1 36.8 28.9 31.0
Operating expenses......................... 21.6 21.8 22.8 28.2 30.0
Severance charge(1)........................ -- -- 0.5 -- --
Recapitalization expenses.................. -- 0.7 -- -- --
Owners' compensation(2).................... 12.4 -- -- -- --
Depreciation and amortization.............. 2.1 2.6 2.7 3.8 3.8
----- ----- ----- ----- -----
Operating income (loss).................. 2.5 12.0 10.8 (3.1) (2.8)
Interest expense:
Senior, subordinated and other notes
payable............................... 1.3 4.0 5.2 7.5 6.3
Class C Preferred Stock(3)............... -- 0.8 1.2 1.7 1.3
Accretion of common stock warrants....... -- 0.1 0.3 0.4 --
Interest income............................ (0.1) -- (0.1) -- --
Other income, net.......................... (0.2) (0.1) (0.1) (0.2) (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes........ 1.5 7.2 4.3 (12.5) (10.2)
Income tax provision (benefit)............. -- 2.1 1.8 (3.5) (3.1)
----- ----- ----- ----- -----
Net income (loss)........................ 1.5 5.1 2.5 (9.0) (7.1)
Accretion of redeemable preferred stock and
accrual of dividends (Class A and B
Preferred Stock)......................... -- 1.8 2.4 3.6 3.2
----- ----- ----- ----- -----
Net income (loss) allocable to common
stock.................................... 1.5 3.3 0.1 (12.6) (10.3)
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The 1997 severance charge represents the total salary continuation payments
which the Company is required to make to a former management employee who
resigned in 1997.
(2) Owners' compensation represents distributions to the Company's shareholders
during the periods when Kirkland's, Inc. and the Kirkland Companies were
Subchapter S corporations, prior to the Recapitalization. Such distributions
ceased upon the Recapitalization.
(3) The mandatorily redeemable Class C Preferred Stock is reflected as debt, and
the amounts paid by the Company with respect to such preferred stock are
classified as interest expense, in the Company's Combined Financial
Statements. See Note 6 of "Notes to Combined Financial Statements."
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net sales increased by 16.9% to $30.6 million for the three months ended
March 31, 1998 from $26.2 million for the three months ended March 31, 1997.
This increase resulted primarily from the opening of three new Kirkland's stores
and an increase in comparable store net sales of 3.6%, offset in part by the
closing of two stores in 1997 and one store in the first quarter of 1998. The
increase in comparable store net sales was due primarily to a higher average
transaction size. The increase in average transaction size resulted primarily
from the Company's strategy of increasing its average product prices and
deemphasizing lower-priced products. Comparable store net sales were adversely
impacted by the shift in the timing of the Easter holiday to April in 1998 from
March in 1997. As a result of this shift, there were fewer holiday shopping days
in March 1998 than in March 1997.
Gross profit was $9.5 million, or 31.0% of net sales, in the first three
months of 1998 as compared to $7.6 million, or 28.9% of net sales, in the first
three months of 1997. The increase in gross profit as a percentage of net sales
resulted from an improvement in product gross margin, offset somewhat by an
increase in store occupancy costs as a percentage of net sales.
26
<PAGE> 28
Operating expenses were $9.2 million, or 30.0% of net sales, in the first
three months of 1998 as compared to $7.4 million, or 28.2% of net sales, in the
first three months of 1997. This increase as a percentage of net sales was
primarily attributable to an increase in store salary expense, due principally
to the Company's strategic decision in late 1996 to increase the number of
salaried assistant store managers. This decision, which was implemented over the
course of the year in 1997, led to a higher number of salaried assistant store
managers in the first three months of 1998 as compared to the prior year period.
In addition, the increase as a percentage of net sales resulted from an increase
in corporate salary expense, primarily due to the implementation of a new store
operations regional management structure during 1997 in anticipation of future
store growth. To a lesser extent, the percentage increase also resulted from an
increase in the amount of local warehouse space leased by the Company.
Depreciation and amortization expense was $1.2 million, or 3.8% of net
sales, in the first three months of 1998 as compared to $1.0 million, or 3.8% of
net sales, in the first three months of 1997. The increase in the dollar amount
of this expense resulted primarily from an increase in depreciable assets due to
the Company's new store openings during 1997.
Interest expense on senior, subordinated and other notes payable decreased
slightly to $1.9 million in the first three months of 1998 from $2.0 million in
the first three months of 1997. Average debt balances were lower in the first
three months of 1998 as compared to the prior year period due to amortization
payments made during 1997. Interest expense associated with mandatorily
redeemable Class C Preferred Stock issued in connection with the
Recapitalization (reflected as debt on the Company's Combined Financial
Statements) decreased to $385,000 in the first three months of 1998 from
$450,000 in the first three months of 1997, reflecting the redemption in January
1998 of the Class C Preferred Stock of a former management employee.
Income tax provision was a benefit of $920,000 in the first three months of
1998 as compared to a benefit of $923,000 in the first three months of 1997. The
income tax provision expressed as a percentage of income before income taxes for
the first three months of 1998 and 1997 was 29.9% and 28.1%, respectively.
Net loss allocable to common stock decreased slightly to $3.2 million in
the first three months of 1998 from $3.3 million in the first three months of
1997, resulting principally from the above factors.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased by 20.0% to $153.6 million for the year ended December
31, 1997 from $127.9 million for the year ended December 31, 1996. This increase
resulted primarily from the opening of 20 new Kirkland's stores, including the
Company's first outlet store, and an increase in comparable store net sales of
5.2%, offset in part by the closing of one store in 1996 and two stores in 1997.
The Company's net sales also benefited from the operation of the Company's first
two temporary stores during the fourth quarter. The increase in comparable store
net sales was due primarily to a higher average transaction size as compared to
the prior year.
Gross profit was $56.6 million, or 36.8% of net sales, in 1997 as compared
to $47.5 million, or 37.1% of net sales, in 1996. The decline in gross profit as
a percentage of net sales resulted primarily from an increase in store occupancy
costs as a percentage of net sales in 1997.
Operating expenses were $35.0 million, or 22.8% of net sales, in 1997 as
compared to $27.9 million, or 21.8% of net sales, in 1996. This increase as a
percentage of net sales was primarily attributable to an increase in store
salary expense. In particular, the Company made strategic decisions in late 1996
to increase the salary levels of store managers and to increase, over the course
of the year in 1997, the overall number of salaried assistant store managers. To
a lesser extent, the increase as a percentage of net sales also resulted from an
increase in corporate salary expense in anticipation of future store growth.
The Company incurred no recapitalization expenses in 1997, as compared to
$854,000 of such expenses, or 0.7% of net sales, in 1996 in connection with the
Recapitalization. A severance charge of $756,000, or 0.5% of net sales, was
recorded in 1997 representing the remaining obligations of the Company under an
employment agreement with a former management employee who resigned during the
year.
Depreciation and amortization expense was $4.1 million, or 2.7% of net
sales, in 1997 as compared to $3.4 million, or 2.6% of net sales, in 1996. This
increase as a percentage of net sales resulted from a full year of amortization
of debt issuance costs associated with the Recapitalization.
27
<PAGE> 29
Interest expense on senior, subordinated and other notes payable increased
to $8.0 million in 1997 from $5.1 million in 1996, primarily due to a full year
of interest on the additional debt incurred in connection with the
Recapitalization completed in June 1996. Interest expense associated with
mandatorily redeemable Class C Preferred Stock increased to $1.8 million in 1997
from $1.0 million in 1996, due to a full year on this obligation incurred in
connection with the Recapitalization. Further, expense relating to the accretion
of common stock warrants increased to $389,000 in 1997 from $190,000 in 1996.
The Company had $20.1 million of debt outstanding immediately prior to the
Recapitalization and $94 million of debt outstanding upon completion of the
Recapitalization.
Income tax provision increased to $2.8 million for 1997 from $2.7 million
in 1996. The income tax provision expressed as a percentage of income before
income taxes in 1997 and 1996 was 41.8% and 29.1%, respectively. The 1997
effective tax rate was higher than the 1996 effective tax rate due to a charge
of 10.4% related to a valuation allowance recorded in 1997 regarding the
realization of net operating loss carry-forwards that originated in 1997 on a
separate return basis. In addition, the 1996 effective tax rate was reduced by a
one-time benefit of $379,000 in connection with the termination of Subchapter S
corporation status, which took place in connection with the Recapitalization.
Net income allocable to common stock decreased to $167,000, or 0.1% of net
sales, in 1997 from $4.3 million, or 3.3% of net sales, in 1996. This decrease
resulted from the above factors as well as the increase in accretion of
redeemable convertible Class A and Class B Preferred Stock and dividends accrued
to $3.8 million, or 2.4% of net sales, in 1997 from $2.3 million, or 1.8% of net
sales, in 1996, due to the preferred stock being outstanding for a full year in
1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased by 14.2% to $127.9 million for the year ended December
31, 1996 from $112.0 million for the year ended December 31, 1995. This increase
resulted primarily from the opening of 17 new Kirkland's stores and an increase
in comparable store net sales of 1.4%, offset in part by the closing of one
Kirkland's store during 1996. The increase in comparable store net sales was due
primarily to a higher average transaction size, reflecting higher average unit
prices as compared to the prior year.
Gross profit was $47.5 million, or 37.1% of net sales, in 1996 as compared
to $43.2 million, or 38.6% of net sales, in 1995. The decline in gross profit as
a percentage of net sales resulted primarily from an increase in store occupancy
costs as a percentage of net sales and, to a lesser extent, from a decrease in
the Company's product gross margin. In 1995, product gross margin was
particularly high due to strong sell-through and the attendant lower mark-down
rates.
Operating expenses were $27.9 million, or 21.8% of net sales, in 1996 as
compared to $24.2 million, or 21.6% of net sales, in 1995. This increase as a
percentage of net sales was primarily due to the minimum wage increase and an
increase in the amount of local store warehouse space leased by the Company.
The Company incurred recapitalization expenses of $854,000, or 0.7% of net
sales, in 1996 in connection with the Recapitalization. There were no
recapitalization expenses in 1995. The Company incurred no owners' compensation
expenses in 1996, as compared to $13.9 million of such expenses, or 12.4% of net
sales, in 1995.
Depreciation and amortization expense was $3.4 million, or 2.6% of net
sales, in 1996 as compared to $2.4 million, or 2.1% of net sales, in 1995. This
increase as a percentage of net sales resulted primarily from the amortization
of debt issuance costs associated with the Recapitalization, which expense was
not incurred in 1995. In addition, depreciation expense also increased as a
percentage of net sales due to additional depreciable assets from new stores.
Interest expense on senior, subordinated and other notes payable increased
to $5.1 million in 1996 from $1.4 million in 1995, primarily due to interest on
the debt incurred in connection with the Recapitalization. Interest expense
associated with mandatorily redeemable Class C Preferred Stock was $1.0 million
in 1996. No Class C Preferred Stock was outstanding during 1995. Additionally,
the accretion of common stock warrants totaled $190,000 in 1996. No such
accretion was recorded in 1995 as no warrants were outstanding in 1995.
Income tax provision in 1996 was $2.7 million, or 29.1% of income before
income taxes. Prior to the Recapitalization of June 1996, the Company elected to
be taxed as a Subchapter S corporation for federal
28
<PAGE> 30
income tax purposes. As a result, in 1995 the Company recorded no taxes and
instead shareholders paid tax on their respective shares of taxable income, even
if such income was not distributed. The Company's typical practice was to pay,
on an annual basis, a substantial portion of the Company's income to
shareholders as owners' compensation. This practice ceased with the
Recapitalization, in connection with which the Company's S corporation status
was terminated.
Net income allocable to common stock increased to $4.3 million, or 3.3% of
net sales, in 1996 from $1.7 million, or 1.5% of net sales, in 1995. This
increase resulted from the above factors, offset in part by the accretion of
redeemable convertible Class A and Class B Preferred Stock and dividends accrued
of $2.3 million. No preferred stock and no warrants were outstanding in 1995.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience substantial seasonal fluctuations in its net sales and operating
income. The Company believes this is the general pattern typical of its segment
of the retail industry and, as a result, expects that this pattern will continue
in the future. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the timing of
new store openings. Consequently, comparisons between quarters are not
necessarily meaningful and the results for any quarter are not necessarily
indicative of future results.
The following table sets forth certain unaudited financial and operating
data for the Company in each quarter during 1996 and 1997. The unaudited
quarterly information includes all normal recurring adjustments which management
considers necessary for a fair presentation of the information shown.
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 DEC. 31
--------- -------- --------- -------- ----------
(IN THOUSANDS, EXCEPT STORE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $21,742 $24,358 $27,635 $54,211 $127,946
Gross profit........................... 6,709 8,386 9,382 23,031 47,508
Operating income(1).................... 3 645 2,085 12,623 15,356
Stores open at period end.............. 104 111 113 120 120
Comparable store net sales increase
(decrease)(3)........................ 4.0% 4.0% (1.1)% 0.3% 1.4%
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 DEC. 31
--------- -------- --------- -------- ----------
(IN THOUSANDS, EXCEPT STORE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $26,178 $30,316 $33,120 $63,970 $153,584
Gross profit........................... 7,559 9,980 11,381 27,666 56,586
Operating income (loss)(2)............. (836) 1,228 1,760 14,532 16,684
Stores open at period end.............. 120 127 135 138 138
Comparable store net sales
increase(3).......................... 4.8% 11.3% 6.7% 1.2% 5.2%
</TABLE>
- ---------------
(1) Operating income for the third quarter of 1996 reflects $854,000 of
recapitalization expenses incurred in connection with the Recapitalization.
(2) Operating income for the fourth quarter of 1997 reflects a severance charge
of $756,000 representing the total salary continuation payments which the
Company is required to make to a former management employee who resigned in
1997.
(3) For periods ended on or before December 31, 1996, comparable stores were
defined as those stores opened prior to January 1 of the preceding fiscal
year. Effective January 1, 1997, in response to increased expansion and
remodeling activity, the Company modified the way comparable store net sales
are calculated to more accurately reflect the Company's ongoing expansion
and remodeling program. Commencing January 1, 1997, the Company excluded
from comparable store net sales calculations each store that was expanded,
remodeled or relocated during the applicable period. Each such store is
returned to the comparable store base on January 1 of the first year
following the one-year anniversary of the expansion, remodeling or
relocation.
29
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's capital requirements relate to new store openings and
seasonal working capital. The Company's working capital requirements are for
inventory purchases, which typically reach their peak in the fourth quarter of
the year. Historically, the Company has funded its store expansion program and
met its working capital requirements from internally generated funds and
borrowings under its credit facilities.
During 1995, 1996 and 1997, net cash provided by operating activities was
$1.3 million, $11.1 million and $8.7 million, whereas $7.9 million was used in
operating activities in the first quarter of 1998. During 1995, 1996, 1997 and
the first quarter of 1998, net cash used in investing activities was $4.1
million, $4.2 million, $5.5 million and $903,000, respectively, consisting
primarily of capital expenditures related to new stores and expansions or
remodels of existing stores. In 1995, financing activities provided net cash of
$3.3 million, due primarily to proceeds from the issuance of long-term debt. In
1996 and 1997, $1.0 million and $3.5 million, respectively, was used in
financing activities. In the first quarter of 1998, net cash of $73,000 was
provided by financing activities. In 1996, the principal sources of cash from
financing activities were proceeds from the issuance of long-term debt and the
Class A Preferred Stock and Common Stock in connection with the
Recapitalization, whereas the principal uses of cash used in financing
activities in 1996 were the repurchase of a portion of shareholders' Common
Stock and repayment of long-term debt in connection with the Recapitalization.
In 1997, the cash used in financing activities was for repayment of long-term
debt. In the first quarter of 1998, the principal sources of cash in financing
activities were proceeds from the issuance of long-term debt, offset by the
payment of $6.9 million for the redemption of stock. See "Certain
Transactions -- January 1998 Redemption."
The Company expects to open approximately 25 new stores during 1998, three
of which were opened during the first quarter of 1998. Capital expenditures,
including leasehold improvements and furniture and fixtures, for the 20 new
stores opened during 1997 averaged approximately $185,000 (net of landlord
allowances), and initial gross inventory requirements (which were partially
financed by trade credit) averaged approximately $230,000 per store. Opening
inventory requirements at new stores vary significantly depending upon the time
of year when the store is opened, expected sales volume and store size. The
Company's cash needs for opening new stores in 1998 are expected to total $8.4
million, $4.6 million of which is budgeted for capital expenditures and $3.8
million of which is budgeted for initial inventory. During the first quarter of
1998, the Company incurred $600,000 in capital expenditures for new stores and
$550,000 in initial inventory purchases relating to stores opened during the
quarter.
The Company intends to expand six stores in 1998 and to remodel an
additional six stores in 1998. Capital expenditures for the Company's 1998
expansions and remodels are expected to total $2.5 million, of which $300,000
was incurred in the first quarter.
The Company's total planned capital expenditures for 1998 are $11.1
million. In addition to providing for new stores, expanded stores and remodeled
stores, these planned capital expenditures include $2.2 million for the
Company's planned corporate headquarters expansion and $1.5 million for the
upgrade of the Company's POS computer system.
The Company's principal sources of capital are internally generated funds
and borrowings under its credit facilities. In accordance with the agreement
governing the Company's senior credit facility, the Company has a $20 million
revolving line of credit. The line of credit has a maturity date of June 30,
2001 and bears interest at the Company's option either at (i) 3.25% plus LIBOR
or (ii) the higher of the prime rate plus 2.25% or the federal funds rate plus
2.75%. The line of credit requires a thirty-day consecutive zero balance between
December 1 and March 1 of each year. In addition, the line of credit requires
the maintenance of certain specified financial ratios, restricts levels of
capital expenditures and restricts the incurrence of debt and payments in
respect of capital stock and junior indebtedness. As of March 31, 1998, the
Company had no outstanding borrowings under the line of credit and availability
to borrow up to $20 million.
The Company is in negotiations to obtain a $40 million senior term loan and
a $30 million five-year revolving credit facility which the Company plans to
enter into upon completion of the Offering, to replace its existing senior
credit facility. The new revolving credit facility is expected to replace the
Company's current
30
<PAGE> 32
line of credit facility. Borrowings under the new revolving credit facility are
expected to be subject to certain customary conditions and contain customary
events of default. There can be no assurance that the new revolving credit
facility will be successfully negotiated.
The Company believes that it can adequately fund its planned capital
expenditures and working capital requirements through the end of 1999 from net
cash provided by operations and availability under revolving credit facilities.
INFLATION
The Company does not believe that its operating results have been
materially affected by inflation during the preceding three years. There can be
no assurance, however, that the Company's operating results will not be
adversely affected by inflation in the future.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued FAS 130,
Reporting Comprehensive Income ("SFAS No. 130"). This statement establishes
standards for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. Currently, the Company does
not have any items that are required to be recognized as components of
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued FAS 131,
Disclosure about Segments of an Enterprise and Related Information ("SFAS No.
131"). This statement revises the current requirements for reporting business
segments by redefining such segments as the way management disaggregates the
business for purposes of making operating decisions and allocating internal
resources. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997, and although management believes that SFAS No. 131 will not impact the
Company's presentation, the Company will adopt SFAS No. 131 in fiscal 1998.
YEAR 2000 ISSUE
An issue exists for all companies that rely on computers as the year 2000
approaches. The "Year 2000" issue is the result of past practice in the computer
industry of using two digits rather than four to identify the applicable year.
This practice will result in incorrect results when computers perform arithmetic
operations, comparisons or data field sorting involving years later than 1999.
The Company anticipates that it will be able to test its entire system for Year
2000 compliance using its internal programming staff and outside computer
consultants and intends to make the necessary modifications to prevent
disruption to its operations. The Company does not expect costs in connection
with any such modifications to be material. Independent of the Year 2000 issue,
in 1998 the Company intends to install a new POS system which will be Year 2000
compliant at a cost of approximately $1.5 million.
As a fundamental business consideration, the Company depends heavily on its
vendors to meet the purchasing requirements dictated by the Company's business
needs. To that end, the Company is in the process of exploring with each of its
key vendors the impact the Year 2000 issue will have on their ability to source
products for the Company and process purchase orders with delivery requirements
and terms involving years later than 1999. As an ongoing measure, the Company
will continue to address this risk with each new vendor to ensure similar
safeguards.
Finally, the Company recognizes the potential impact the Year 2000 issue
may have on its customers, creditors and other service providers. The Company
has reviewed its exposure to business interruption or substantial loss in these
areas and believes no risk of material adverse consequences presently exists.
31
<PAGE> 33
BUSINESS
THE COMPANY
Kirkland's is a leading specialty retailer of decorative home accessories
and gifts. The Company's stores offer a broad selection of distinctive
merchandise, including framed art, candles, lamps, picture frames, rugs, garden
accessories and artificial plants, as well as an extensive assortment of holiday
merchandise. The Company's stores are designed to provide style-conscious
customers, the majority of whom are women age 25 and older, with a distinctive
shopping experience characterized by a diverse, ever-changing merchandise
selection at surprisingly attractive prices. Management believes that the
Company's exclusive focus on decorative home accessories and gifts has led to
its emergence as a leader in its retail category and a destination store for
many mall shoppers. Kirkland's has generated operating income in each year since
opening its first store in 1966, and currently maintains one of the highest
operating margins among comparable specialty retailers.
The Company's 141 stores in 25 states average approximately 4,400 square
feet per store and are located primarily in enclosed malls. Although originally
focused in the Southeast, the Company has expanded beyond that region.
Currently, 58 of the Company's stores are located outside the Southeast,
including 11 of the 20 new stores opened during 1997. In addition to operating
in many middle markets, Kirkland's also has stores in major metropolitan markets
such as Atlanta, Houston, Chicago, and Dallas, as well as in smaller markets
such as Paducah, Kentucky, Florence, Alabama and Lancaster, Pennsylvania. The
Company has been able to operate stores successfully across a broad range of
demographic and geographic markets.
Kirkland's has developed and refined a merchandising strategy that
differentiates it from other retailers of products for the home. The Company's
merchandising strategy is to (i) offer distinctive, high quality home
accessories and gifts at affordable prices, (ii) maintain a breadth of product
categories, (iii) provide a carefully edited selection of the best-selling items
within each category, rather than merchandising complete product collections,
and (iv) present merchandise in a visually appealing manner to create an
inviting atmosphere which inspires decorating ideas. The Company believes that
this strategy creates a shopping experience which appeals to the style-conscious
as well as the price-conscious shopper.
INDUSTRY OVERVIEW
Kirkland's competes in the large market for decorative home accessories and
gifts, which encompasses such varied product groups as candles, decorative
pillows and rugs, framed art, pottery and holiday merchandise. According to
published industry data, the U.S. retail market for home furnishings,
housewares, bedding, bath and tabletop merchandise was estimated to have
exceeded $66 billion in 1996. Furthermore, purchases of gifts, including gifts
of decorative home accessories, were estimated to have represented approximately
$36 billion (a portion of which is included in the broader retail category
discussed above). The market for decorative home accessories and gifts is highly
fragmented, with competition coming from a variety of retailers including
department stores, discount stores, other specialty stores and catalog
retailers.
Management believes that the decorative home accessories and gift markets
are benefitting from certain favorable demographic trends. First, the
"cocooning" trend continues to have a significant impact on the market. As
consumers retreat to their homes to spend time at home with family and friends,
they buy products to enhance their home environment. Second, the U.S. Bureau of
the Census reports that the percentage of the U.S. population represented by
people between the ages of 35 and 64 is currently 38% and is expected to
increase to approximately 40% by 2005. As this percentage increases, the target
customer base for retailers of home accessories and gifts will likewise
increase. Furthermore, people typically realize their peak earnings potential
within this age bracket, which in turn will enable them to spend greater amounts
on purchases for the home.
These demographic patterns, along with the prevailing environment of low
interest rates, have produced a discernible shift in the composition of general
merchandise, apparel and furniture ("GAF") sales away from apparel to home
furnishings. From 1990 to 1996, apparel purchases as a percentage of GAF
declined by approximately 11%, while home furnishings as a percentage of GAF
increased by approximately 10%.
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<PAGE> 34
The Company believes that these favorable demographic trends and the shift
in consumer spending patterns toward home furnishings provide a substantial
opportunity for a well-positioned specialty retailer like Kirkland's.
BUSINESS STRATEGY
The Company's goal is to be the leading specialty retailer of decorative
home accessories and gifts in each of its markets. The following elements of the
Company's business strategy, which have evolved over 32 years of successful
operations, differentiate Kirkland's from its competitors and position the
Company for continued growth:
Distinctive, Item-Focused Merchandising. While a Kirkland's store
contains items covering a broad range of complementary product categories,
the store emphasizes only the best-selling items within each category. The
Company does not seek to dictate a design theme to its customers, nor does
it necessarily seek to dominate any particular product category. The
Company instead takes a disciplined approach to identifying fashionable
merchandise reflecting the latest trends, selecting and test-marketing
products, and monitoring and reacting to individual item sales. No single
merchandise category accounted for more than 15% of net sales in 1997.
Changing Merchandise Mix. The merchandise mix in a Kirkland's store
changes frequently throughout the year, in response to both market and
sales trends and changes in seasons. The Company's information systems
permit close tracking of individual item sales, enabling management to
react quickly to both fast-selling and slow-moving items. In addition, the
Company strategically increases selling space devoted to gifts and holiday
merchandise during peak selling seasons such as Christmas and Easter. The
Company believes that its ever-changing mix of merchandise creates an
exciting environment for customers, encouraging frequent return visits to
its stores.
Visually Appealing Store Environment. Kirkland's distinguishes itself
through its stores' "interior design" look, achieved by its emphasis on
visual merchandising. Using multiple types of fixtures, the Company groups
complementary merchandise creatively throughout the store, rather than
displaying products strictly by category or product type. This visual
presentation helps customers to picture the merchandise in their own homes
and thus inspires decorating ideas. As a result, this strategy provides the
opportunity for add-on sales and also encourages customers to browse for
longer periods of time.
Competitive Pricing. Kirkland's merchandise ranges in price from
approximately $5 to approximately $250, with most items selling for under
$30. Kirkland's shoppers regularly experience the satisfaction of paying
noticeably less for items similar or identical to those sold by other
retailers or through catalogs. Consequently, the Company does not routinely
engage in promotions or sales and typically holds only two regular sales
events each year. Management believes that the Company's competitive
pricing is an important element in making Kirkland's a destination store
for many mall shoppers.
Flexible Real Estate Strategy. The Company's stores are predominantly
located in enclosed malls in middle, metropolitan and smaller markets. The
Company believes that its stores' broad appeal makes Kirkland's a desirable
tenant for community, regional and super-regional malls targeting both
middle and upper-income customers as well as for selected non-mall venues.
The flexibility of the Kirkland's concept enables the Company to select the
most promising real estate opportunities that meet requisite economic and
demographic criteria within the Company's target markets.
GROWTH STRATEGY
The Company's growth strategy includes opening new stores, expanding and
remodeling existing stores and introducing new retail formats.
Open New Stores. The Company intends to continue opening new stores both
in existing and new markets, emphasizing mall locations in both middle markets
and metropolitan markets. The broad appeal of the Kirkland's concept has enabled
it to operate successfully in diverse geographic and demographic markets,
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<PAGE> 35
thereby increasing the number of potential sites available to the Company. The
Company believes that there are currently more than 500 additional malls in the
United States that could provide attractive locations for the Kirkland's
concept. Of the 20 new stores opened in 1997, 11 were opened outside of the
Southeast and one was located in a state in which the Company previously had no
stores. The Company intends to open approximately 25 stores in 1998, of which
two are expected to be in states in which the Company does not already operate,
and approximately 30 stores in 1999. During the first quarter of 1998, the
Company opened three new stores and signed leases for an additional 13 stores,
including additional locations in Florida, Indiana, Iowa, Louisiana, North
Carolina, Ohio, Pennsylvania, Texas and Virginia as well as locations in two new
markets, New York and Wisconsin.
Expand and Remodel Existing Stores. The Company has an ongoing expansion
and remodeling program which will continue to be an important part of the
Company's strategy. The expansion initiative targets stores with proven high
sales volumes that management believes could operate more effectively and
produce higher sales with more square footage and mall frontage. Depending on
the circumstances, an expansion may take place in a store's existing location or
may accompany a relocation within the same mall. Expanded stores have been among
the Company's best performing stores. Since 1993, the Company has expanded 22
stores from an average size of approximately 3,500 square feet to a larger size
of approximately 5,100 square feet, remodeling them in the process. The average
cost of expanding and remodeling each of these stores was approximately
$210,000. In addition, the Company's 64 new stores opened since 1994 have
averaged approximately 4,600 square feet. The Company intends to expand a total
of six stores in 1998 and seven stores in 1999.
The Company's remodeling initiative improves fixtures and displays, and
strengthens the visual impact of the store, without expanding its square
footage. Since 1993, the Company has remodeled four existing stores without
concurrent increases in store size. The average cost of remodeling each of these
stores was approximately $150,000. The Company intends to remodel (without
expanding) a total of six stores in 1998 and seven stores in 1999.
The following table provides a history of the Company's store openings and
closings, as well as its expansion and remodeling program for the past five
years and the first quarter of 1998.
<TABLE>
<CAPTION>
MARCH 31,
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Stores open at beginning of period...... 67 80 91 104 120 138
New stores opened(1).................... 13 11 13 17 20 3
Stores closed........................... 0 0 0 1 2 1
Stores open at end of period............ 80 91 104 120 138 140
Stores expanded and remodeled........... 2 3 5 3 6 3
Stores remodeled........................ 0 0 2 0 2 4
Average gross square footage per
store(2).............................. 3,753 3,821 3,942 4,091 4,186 4,382
</TABLE>
- ---------------
(1) Excludes two temporary stores opened in 1997 during the holiday season only.
(2) Calculated using gross square footage of all stores open at both the
beginning and the end of the period. Gross square footage includes the
storage, receiving and office space that generally occupies approximately
30% of total store space.
Introduce New Retail Formats. The Company has developed several new retail
formats which it believes have significant potential. These alternative formats
leverage Kirkland's expertise in home accessory and gift merchandising and
create new channels through which to reach and expand Kirkland's target customer
base.
- Temporary Stores. During the 1997 Christmas season, the Company
operated two stores in malls under short-term lease arrangements. This
strategy enabled the Company to capture incremental sales and profits
during the peak holiday selling season, while avoiding the expense of
constructing and fixturing a permanent store. Due to the success of this
initial test, the Company intends to increase its use of temporary stores
during the 1998 holiday season. In addition to providing an incremental
profit
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<PAGE> 36
opportunity, these stores will enable the Company to test new markets where
it is considering opening permanent stores.
- Outlet Stores. Management believes that the strong price/quality
relationship in a Kirkland's store makes Kirkland's an attractive tenant
for certain outlet malls. In November 1997, the Company opened its first
outlet store in the Grapevine Mills outlet center in Dallas, Texas. The
store, which contains a mix of core Kirkland's merchandise as well as
certain merchandise purchased exclusively for the outlet mall customer,
capitalizes on the Company's ability to recognize and capture special
purchasing opportunities, such as vendor overstocks or closeouts. Based on
the initial success of its first outlet store, the Company anticipates
opening one new outlet store in 1998 and is targeting four new sites for
additional outlet stores in 1999.
- Strip Center Stores. Management continues to evaluate the
attractiveness of opening Kirkland's stores in non-mall, community strip
and selected power centers. The Company currently operates two stores in
such strip centers, one in Memphis, Tennessee and one in Kansas City,
Missouri, and will open a third store in a power center in Louisville,
Kentucky in 1998.
- Upscale "the Kirkland Collection" Stores. Management has developed
a more upscale version of the traditional Kirkland's store specifically to
address the needs of certain more exclusive, high-end malls. The first of
these stores is scheduled to open in Houston, Texas in May 1998, offering
an upscale mix of certain core Kirkland's merchandise supplemented by
selected higher end merchandise that will not be found in traditional
Kirkland's stores.
MERCHANDISING
Merchandising Strategy. The Company's merchandising strategy is to (i)
offer distinctive, high quality home accessories and gifts at affordable prices,
(ii) maintain a breadth of product categories, (iii) provide a carefully edited
selection of the best-selling items within each category, rather than
merchandising complete product collections, and (iv) present merchandise in a
visually appealing manner to create an inviting atmosphere which inspires
decorating ideas. The Company believes that this strategy creates a shopping
experience which appeals to the style-conscious as well as the price-conscious
shopper. Kirkland's does not attempt to dictate fashion to its customers.
Rather, the Company identifies and capitalizes on existing or developing trends
when selecting merchandise for sale.
The Company continuously introduces new products to its merchandise
assortment in order to (i) maintain customer interest through the freshness of
its product selections, (ii) enhance Kirkland's reputation as a leader in
identifying high quality, fashionable products and (iii) allow merchandise which
has peaked in sales to be discontinued and replaced by new items. In addition,
the Company strategically increases selling space devoted to gifts and holiday
merchandise during peak selling seasons such as Christmas and Easter. Management
estimates that approximately 10% of the Company's merchandise assortment is
designed exclusively for Kirkland's. The Company packages some of its
merchandise using its exclusive Cedar Creek private label brand. Management
estimates that approximately 20% of the Company's merchandise assortment is sold
under the Cedar Creek private brand name.
The Company's stores generally carry 1,500 to 3,000 different items of
inventory, or "SKUs," depending on store size. The Company offers an affordable
assortment of the best-selling items within a category as well as new items
which management believes could generate significant consumer interest, rather
than offering complete product collections. As a result, the Company is able to
reduce the accumulation of slow-moving inventory and resulting markdowns.
Regional differences in home decor are addressed by tailoring inventories to
local tastes or market opportunities.
Product Categories. The Company's major merchandise categories include
framed art, candles, lamps, picture frames, rugs, garden accessories and
artificial plants, as well as an extensive assortment of holiday merchandise. No
single merchandise category accounted for more than 15% of net sales in 1997.
Consistent with the Company's item-focused strategy, a vital part of the product
mix is a wide variety of decorative home accessories and other assorted
merchandise that does not necessarily fit into a designated category. Decorative
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<PAGE> 37
accessories consist of such varied products as pillows, sconces and porcelain
items. Other merchandise includes flags, dolls and angels. Christmas holiday
merchandise accounted for approximately 12% of net sales in both 1996 and 1997.
Pricing. Kirkland's merchandise ranges in price from approximately $5 to
approximately $250, with most items selling for under $30. The average sale at
the Company's stores in 1997 was $17.22, up from $16.74 in 1996 and $16.27 in
1995. The Company's merchandising strategy does not depend on price discounting.
Kirkland's stores typically have only two regular annual sale events, one in
January and one in July.
Visual Merchandising. Kirkland's distinguishes itself through its stores'
"interior design" look, achieved by its emphasis on visual merchandising. The
Company employs a Director of Visual Merchandising and seven specialists who
support the stores' merchandising efforts. The Visual Merchandising team
provides store managers with recommended display directives such as photographs
and drawings, weekly placement guides and display manuals. In addition, each
store manager has some flexibility to creatively highlight those products that
are expected to have the greatest appeal to local shoppers.
THE KIRKLAND'S STORE
Format. The prototype Kirkland's store is between 4,200 and 5,200 square
feet, of which approximately 70% typically represents selling space. Merchandise
is generally displayed according to display guidelines and directives given to
each store from the Visual Merchandising team with input from purchasing and
operations personnel. This procedure ensures uniform display standards and
efficient allocation of products throughout the Company's stores. Using multiple
types of fixtures, the Company groups complementary merchandise creatively
throughout the store, rather than displaying products strictly by category or
product type. This visual presentation helps customers to picture the
merchandise in their own homes and thus inspires decorating ideas. As a result,
this strategy provides the opportunity for add-on sales and also encourages
customers to browse for longer periods of time. The check-out counter is
generally located towards the center of the store, and virtually all stores
offer complimentary gift wrapping at the rear of the store, a customer service
feature which is not typical in mall-based shops.
Shopping Experience. Kirkland's stores are designed to provide customers
with a distinctive shopping experience characterized by a diverse, ever-changing
merchandise selection at surprisingly attractive prices. Consistent with its
item-focused merchandising strategy, the Company continually evaluates new
merchandise and assesses the sales trends of items already in the stores. This
active management of the merchandise mix leads to frequent introduction of new
items, which in turn encourages shoppers to visit the stores frequently.
Kirkland's shoppers regularly experience the satisfaction of paying noticeably
less for items similar or identical to those sold by other retailers or through
catalogs. Management believes that Kirkland's exclusive focus on decorative home
accessories and gifts has led to its emergence as a leader in its retail
category and a destination store for many mall shoppers.
Store Operations. Kirkland's stores are open seven days a week during mall
hours. The Company's store operations are managed by two Vice Presidents of
Store Operations, five regional managers and 25 district managers who generally
have responsibility for six to 10 stores within a geographic district.
Individual stores are managed by a store manager and one or two assistant store
managers. The store manager is responsible for the day-to-day operation of the
store, including inventory receipt and merchandise display, personnel functions,
store security and sales. A typical store has one or two full-time sales
associates and six to twelve part-time sales associates, depending on the
season. Additional part-time sales associates are typically hired to assist with
increased traffic and sales volume in the fourth quarter. Kirkland's compensates
its district and store managers with a base salary plus a performance bonus
based on store sales, expense control and loss prevention. Sales associates are
compensated on an hourly basis.
The Company believes that its continued success is dependent in part on its
ability to attract, retain and motivate quality employees. In particular, the
success of the Company's expansion program will be dependent on its ability to
promote and/or recruit qualified district and store managers and maintain
quality sales associates. To date, the majority of the Company's district
managers were previously Kirkland's store managers. Store managers, many of whom
are selected from among the Company's sales associates, currently
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<PAGE> 38
complete a formal training program before taking responsibility for a store.
Store managers are responsible for the hiring and training of new sales
associates, assisted where appropriate by two full-time recruiters. The Company
is continuing to develop enhanced training programs for its store managers,
assistant managers and sales associates. The Company constantly looks for
motivated and talented people to promote from within Kirkland's, in addition to
recruiting from outside the Company.
Site Selection. Kirkland's seeks to locate its stores in malls which are
destinations for large numbers of shoppers and which reinforce the Company's
quality image. To assess potential new mall locations, management reviews
financial and demographic criteria and analyzes the quality of tenants and
competitive factors, square footage availability, frontage space and location
and other relevant criteria to determine the overall acceptability of a mall and
the optimal locations within it. The Company prefers to locate its stores in
regional or super-regional malls with a history of high sales per square foot
and multiple national department stores as anchors, and seeks approximate store
frontage of 35 to 40 feet on average. The Company believes that it is a
desirable tenant to mall developers because of its long and successful operating
history, sales productivity, ability to attract customers and its strong
position in the decorative home accessory and gift categories.
PURCHASING, ALLOCATION AND DISTRIBUTION
Purchasing. Management believes that its disciplined approach to
purchasing, its relationships with its suppliers and its strong buying power
contribute to its successful purchasing strategy. The Company buys inventory on
a centralized basis to take advantage of volume purchase discounts and improve
its ability to control inventory product mix. The Company's 10-person
centralized buying group is responsible for all purchasing decisions and price
negotiations with vendors. Kirkland's purchases merchandise on a product by
product basis, rather than based upon category classifications.
The Company manages its total purchases based upon annual budgets which are
set at the beginning of the year and updated throughout the year. The Company
purchases its products from approximately 140 vendors. In 1997, approximately
55% of the Company's total purchases were from importers of merchandise
manufactured primarily in the Far East, Mexico and India, with the balance
purchased from domestic manufacturers and wholesalers. For its purchases of
merchandise manufactured abroad, the Company believes that buying from importers
instead of directly from foreign manufacturers enables it to maximize
flexibility and minimize risks. Kirkland's believes that its executive
management and buyers are more effective by focusing on managing the retail
business and allowing importers to handle the procurement and shipment of
foreign-manufactured merchandise for its stores. The purchase of approximately
45% of its products from domestic manufacturers and wholesalers enables the
Company to reduce the lead time between ordering products and displaying them in
the Company's stores.
Allocation and Distribution. The Company continually strives to improve
its merchandising, distribution, planning and allocation methods to manage its
inventory more efficiently. The Company closely watches inventory levels on a
per store basis to ensure that sufficient merchandise quantities are on hand at
each store location. Each Kirkland's store is internally classified for
merchandising purposes based on certain criteria including store sales, size,
location and historical performance. Although all Kirkland's stores carry
similar merchandise, the variety and depth of products in a given store may vary
depending on the store's rank and classification. Inventory purchases and
allocation are also tailored based on regional or demographic differences
between stores. Information from the Company's POS computer system is regularly
reviewed and analyzed to assist in making merchandise allocation and
distribution decisions.
Kirkland's operates a hybrid distribution system employing both
drop-shipping procedures and certain elements of centralized distribution. The
Company views its hybrid distribution system as a significant component of its
expansion strategy and its ability to maintain a low cost operating structure.
Most of the Company's inventory is drop-shipped directly to the stores by the
Company's suppliers, typically on a daily basis, to avoid costly investments in
central warehouse infrastructure and distribution management. This method allows
for the quick and efficient delivery of merchandise to the Company's stores.
Merchandise shipped directly to the stores is inspected and ticketed at the
store (other than approximately 30% of such
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<PAGE> 39
merchandise which is pre-ticketed by the vendor), displayed on the store floor
by store personnel and later entered into the main computer system at the
Company's headquarters. To accommodate this practice, each store leases local
warehouse facilities on a short-term basis to store surplus inventory and
holiday items.
The Company also operates a leased 110,000-square-foot distribution center
in Jackson, Tennessee. This facility is used to receive, process and store
inventory for new stores before they are opened as well as to warehouse and
distribute a limited amount of holiday, private brand and bulk merchandise in
advance of the holiday selling season and certain private brand and bulk
merchandise throughout the year. The storage and handling of certain holiday
merchandise at the Jackson distribution center allows management to better
allocate inventory shipments during the Christmas season. The Company has
achieved operating efficiencies with the central distribution of Christmas
merchandise and is in the process of expanding this practice for future years.
Management is currently evaluating using additional centralized
distribution for certain high volume merchandise items. The Company plans to
lease an additional distribution center in the second quarter of 1998 in order
to allow the existing distribution center to be used exclusively for the staging
of new store openings and to warehouse inventory for the Company's temporary
stores. The Company believes that adequate additional distribution center space
will be available in the future on acceptable terms as may be needed in order to
accommodate the Company's expansion plans.
MANAGEMENT INFORMATION SYSTEMS
The Company historically has placed emphasis on its management information
and inventory control systems. The Company believes that its systems are an
important factor in enabling it to achieve its goals of effective merchandising
and store execution.
The Company's management information systems include automated POS
merchandising and financial applications. Merchandise is bar-coded, enabling the
Company to manage and control inventory. Sales are updated daily in the
merchandise reporting systems by polling sales information from each store's POS
terminals. The Company's POS system consists of registers providing price
look-up and scanning of bar-coded labels on an item basis. Through automated
dial-up electronic communication to each store, sales item information is
uploaded to the main system nightly. Information obtained from such daily
polling is used to implement merchandising decisions and to identify the
required merchandise reorders for each store. Inventory is counted in the stores
through a year-end complete physical count utilizing hand-held scanning
equipment.
The Company's management information and control systems enable the
Company's corporate headquarters to regularly identify sales trends, replenish
depleted store inventories, reprice merchandise, monitor merchandise mix and
determine inventory shrinkage at individual stores and throughout the Company's
store network. Management believes that these systems provide a number of
benefits, including improved store inventory management, better in-stock
availability, higher operating efficiency and fewer markdowns.
During 1998, the Company intends to install a new POS system which will
include a new, more advanced cash register software system. This system, which
will be Year 2000 compliant and will be compatible with the Company's existing
hardware systems, will allow for future expansion to accommodate the Company's
growth plans. See "Risk Factors - Impact of Year 2000 Issue."
ADVERTISING AND PROMOTION
Historically, the Company has not engaged in extensive advertising because
it believes that it has benefited from its strategic locations in high-traffic
shopping malls and valuable "word-of-mouth" advertising by its customers. Many
shopping mall leases require some advertising, although an industry shift to
"media funds" has largely been implemented, whereby a retailer contributes at
agreed levels to the shopping mall's advertising fund based on the square
footage of the store. The Company places local newspaper advertisements on
occasion to promote specific items in its stores.
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Kirkland's stores have two planned annual sale events, one in January and
one in July. These special events enable the Company both to sell merchandise
that the Company has purchased at particularly advantageous prices and to clear
previously marked-down inventory. In order to boost traffic in typical periods
of weakness for retailers, the Company occasionally holds special promotional
sales for a particular merchandise category, such as framed art.
TRADEMARKS
The Company has registered its "Kirkland's" logo with the United States
Patent and Trademark Office on the Principal Register. In addition, the Company
holds several trademark registrations in connection with its Cedar Creek private
label brand as well as a registration for the mark "Now That's Real Style!" The
Company is in the process of applying for a trademark registration of "the
Kirkland Collection." The Company is not aware of any claims of infringement or
other challenges to the Company's right to use its marks in the United States.
COMPETITION
The retail market for gifts and decorative home accessories is highly
competitive. Accordingly, the Company competes with a variety of specialty
stores, department stores, discount stores and catalog retailers that carry
merchandise in one or more categories also carried by the Company. The Company
believes that its stores compete primarily on the basis of merchandise quality
and selection, price, visual appeal of the merchandise and the store and the
convenience of location. Although the Company faces competition from a broad
range of retailers, the Company believes that its direct competitors are few, if
any. Specialty retailers tend to have higher prices and a more narrow assortment
of products than Kirkland's. Department stores typically have higher prices than
Kirkland's for similar merchandise. Wholesale clubs may have lower prices than
Kirkland's, but the product assortment is generally more limited. The Company
believes that it competes effectively with other retailers due to its experience
in identifying a broad collection of distinctive merchandise, pricing it to be
appealing to the target Kirkland's customer, and presenting it in a visually
appealing manner.
In addition to competing for customers, the Company competes with other
retailers for suitable store locations and qualified management personnel. Many
of the Company's competitors are larger and have substantially greater
financial, marketing and other resources than the Company does. See "Risk
Factors - Competition."
PROPERTIES
The Company currently leases all of its store locations and expects that
its policy of leasing rather than owning will continue as the Company grows. The
Company's leases typically provide for 10-year terms, many with the ability for
the Company to terminate the lease in the middle of the term if sales at the
leased premises do not reach a certain annual level. The leases typically
provide for payment of percentage rent (i.e., a percentage of sales in excess of
a specified level) and the rate of increase in ancillary charges is generally
capped.
As current leases expire, the Company believes that it will be able either
to obtain lease renewals if desired for present store locations or to obtain
leases for equivalent or better locations in the same general area. To date, the
Company has not experienced unusual difficulty in either renewing leases for
existing locations or securing leases for suitable locations for new stores. A
majority of the Company's store leases contain provisions that would permit the
landlord to terminate the lease upon a change in control of the Company. The
Offering and the Pre-Offering Transactions may give rise to a change in control
under certain of the Company's leases. Based primarily on the Company's belief
that it maintains good relations with its landlords, that most of its leases are
at market rents and that it has historically been able to secure leases for
suitable locations, management believes that these provisions will not have a
material adverse effect on the business or financial condition of the Company,
although no assurance can be made in this regard.
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The Company's corporate headquarters, located in Jackson, Tennessee, is
owned by the Company and currently consists of approximately 18,000 square feet
of office space. The Company has commenced an expansion of its headquarters
facility to a total of approximately 40,000 square feet, at an estimated cost of
$2.2 million to be incurred in 1998, funded from cash flow from operations.
EMPLOYEES
The Company employed approximately 500 full-time and approximately 1,300
part-time employees at March 31, 1998. Of these, approximately 75 were corporate
and warehouse center personnel and 1,725 were store employees. The number of
part-time employees fluctuates with seasonal needs. None of the Company's
employees is covered by a collective bargaining agreement. The Company believes
that its relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. The Company believes that any resulting liability
from existing legal proceedings, individually or in the aggregate, will not have
a material adverse effect on its operations or financial condition.
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<PAGE> 42
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table and biographies set forth information concerning the
individuals who serve as directors, executive officers and key employees of the
Company:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
---- --- -------- -------------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Carl Kirkland...................... 57 Chief Executive Officer and
Chairman of the Board of
Directors
Robert E. Alderson................. 51 President, Chief Operating
Officer and Director
Reynolds C. Faulkner............... 34 Senior Vice President, Chief
Financial Officer and Director
Steven J. Collins.................. 29 Director of Finance and --
Treasurer
David M. Mussafer(a)(b)............ 35 Director
R. Wilson Orr, III(a).............. 35 Director
John P. Oswald (b)................. 38 Director
Alexander S. McGrath(a)............ 36 Director
KEY EMPLOYEES:
James W. Harris.................... 51 Vice President of Operations --
and Personnel
Chris T. LaFont.................... 37 Vice President of Merchandise --
Janna B. Alford.................... 36 Vice President of Operations --
</TABLE>
- ---------------
(a) Member of Compensation Committee
(b) Member of Audit Committee
DIRECTORS AND EXECUTIVE OFFICERS
Carl Kirkland has been the Chief Executive Officer since he founded the
Company in 1966, and he served as President from 1966 through November 1997. Mr.
Kirkland has been Chairman of the Board since June 1996. He has over 30 years of
experience in the retail industry. Mr. Kirkland also serves on the board of
directors of Hibbett Sporting Goods, Inc.
Robert E. Alderson has been President and Chief Operating Officer of the
Company since November 1997 and prior to that served as Senior Vice President of
the Company since joining in 1986. He also served as Chief Administrative
Officer from 1986 to 1997. Prior to joining the Company, he was a senior partner
at the law firm of Menzies, Rainey, Kizer & Alderson.
Reynolds C. Faulkner has been a Director of the Company since September
1996 and joined as Senior Vice President and Chief Financial Officer in February
1998. Prior to joining the Company, from July 1989 to January 1998, Mr. Faulkner
was an investment banker in the corporate finance department of The Robinson-
Humphrey Company, LLC, most recently serving as a Managing Director and head of
the retail practice group. In this capacity, Mr. Faulkner was involved in
numerous public and private financings and mergers and acquisitions of companies
in the retail industry.
Steven J. Collins joined the Company and has been the Director of Finance
since January 1997. From January 1997 to February 1998, he also served as the
Company's Chief Financial Officer. From 1995 to 1997 he was an associate with
Advent, a private equity investment firm. See "Principal Shareholders." Prior to
that, he worked in the mergers and acquisitions department of Merrill Lynch &
Co. and was an accountant with Coopers & Lybrand.
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<PAGE> 43
Alexander S. McGrath has been a director of the Company since June 1996.
Mr. McGrath is currently a general partner of Capital Resource Partners II,
L.P., a mezzanine and private equity investment firm which is the general
partner of Capital Resource Lenders II, L.P., a warrantholder of and
subordinated lender to the Company. He joined Capital Resource Lenders in 1988
as an associate, and has been a general partner of Capital Resource Partners II,
L.P. since 1993. Prior to that, he was an associate at Investments Orange Nassau
Inc., a private equity investment firm. See "Principal Shareholders."
David M. Mussafer has been a Director of the Company since June 1996. Mr.
Mussafer is currently a Managing Director of Advent, a private equity investment
firm which beneficially owns Common Stock of the Company through its interests
in certain members of Kirkland Holdings L.L.C., one of the Company's principal
shareholders. Mr. Mussafer joined Advent in 1991 and has been a principal of the
firm since 1993. See "Principal Shareholders."
R. Wilson Orr, III has been a Director of the Company since June 1996.
Since 1993, Mr. Orr has been a principal of SSM Corporation, a private equity
investment firm and an affiliate of SSM/Kirkland Equity Partners, L.P. which is
a member of Kirkland Holdings L.L.C., one of the Company's principal
shareholders. He joined SSM Corporation in 1988 as a Vice President and partner.
From 1984 to 1988, he worked in corporate lending at Chemical Bank. See
"Principal Shareholders."
John P. Oswald has been a Director of the Company since June 1996. Since
1994, Mr. Oswald has been a partner of the Capital Trust Group, a private equity
investment firm and an affiliate of CT/Kirkland Equity Partners, L.P., which is
a member of Kirkland Holdings L.L.C., one of the Company's principal
shareholders. Mr. Oswald is a beneficial owner of Capital Trust Investments,
Ltd., a warrantholder of and subordinated lender to the Company. He is also
President and Chief Executive Officer of Bridge East Capital, a private equity
investment partnership, an affiliate of the Capital Trust Group. Prior to that
he was a partner with the law firm of Lord, Day & Lord from 1986 to 1994 and an
associate with Arthur Andersen LLP from 1984 to 1986. See "Principal
Shareholders."
KEY EMPLOYEES
Chris T. LaFont has been Vice President of Merchandise since September
1997. Mr. LaFont is responsible for all merchandise buying decisions for the
Company. From 1988 to September 1997, he served as Vice President of Visual
Merchandising. Mr. LaFont started his career with Kirkland's in 1981 as a
management trainee.
James W. Harris has been Vice President of Operations and Personnel since
1987. Mr. Harris is responsible for store personnel recruitment and training as
well as general store operations. Prior to joining the Company, Mr. Harris was
with Goldsmith's, a division of Federated Department Stores, from 1972 to 1987,
where he held various positions in store operations.
Janna B. Alford has been Vice President of Operations since February 1997.
From April 1995 to February 1997, Ms. Alford held the positions of Director of
Loss Prevention and Director of Store Operations for the Company. Prior to that
she was with County Seat, a retailer of youth-oriented apparel, where she held
positions in loss prevention and operations from 1989 to 1995.
CLASSIFIED BOARD OF DIRECTORS
Upon completion of the Offering, the Board of Directors of the Company will
be divided into three classes of directors each containing, as nearly as
possible, an equal number of directors. Directors within each class are elected
to serve three-year terms and approximately one-third of the directors sit for
election at each annual meeting of the Company's shareholders. The year of
expiration of the term of each of the Company's directors is set forth in the
table above under the caption "Directors, Executive Officers and Key Employees."
A classified board of directors may have the effect of deterring or delaying any
attempt by any group to obtain control of the Company by a proxy contest since
such third party would be required to have its nominees elected at two separate
annual meetings of the Board of Directors in order to elect a majority of the
members of the Board of Directors. Directors who are elected to fill a vacancy
(including vacancies created by an
42
<PAGE> 44
increase in the number of directors) must be confirmed by the shareholders at
the next annual meeting of shareholders whether or not such director's term
expires at such annual meeting. See "Risk Factors - Charter and Bylaw
Provisions; Anti-Takeover Effect of Tennessee Laws."
DIRECTOR COMPENSATION
To date, directors who are affiliated with the Company or any of the
Company's shareholders have not received separate compensation for their
services in that capacity. The Company intends in the future to compensate its
directors who are not also employees of the Company. The amount of such
compensation has not been determined but will be consistent with amounts paid by
comparable public companies.
COMMITTEES OF THE BOARD
Following completion of this Offering, the Board of Directors will have an
Audit Committee, composed of Messrs. Mussafer and Oswald, and a Compensation
Committee, composed of Messrs. McGrath, Mussafer and Orr. The principal
functions of the Audit Committee will include making recommendations to the
Board regarding the selection of independent public accountants to audit
annually the books and records of the Company, reviewing the proposed scope of
each audit and reviewing the recommendations of the independent public
accountants as a result of their audit of the Company. The Audit Committee will
also periodically review the activities of the Company's accounting staff and
the adequacy of the Company's internal controls. The Compensation Committee will
be responsible for establishing the salaries of the executive officers of the
Company, incentives and other forms of compensation and for administering the
Company's employee benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors will be
formed upon completion of the Offering. Messrs. McGrath, Mussafer and Orr, who
were not at any time officers or employees of the Company, will be the only
members of the Compensation Committee. No executive officer of the Company
serves as a member of the Board of Directors or Compensation Committee of
another entity which has one or more executive officers who serve as a member of
the Company's Board of Directors or Compensation Committee.
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<PAGE> 45
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information with
respect to the Company's Chief Executive Officer and the other executive
officers of the Company whose salary and bonus exceeded $100,000 for the year
ended December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) (1)($)
- --------------------------- ---- ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Carl Kirkland........... 1997 275,000 250,000 712,500(3) 2,381 3,472
Chief Executive
Officer(2)
Robert E. Alderson...... 1997 275,000 250,000 149,500(3) 2,381 2,747
President, Chief
Operating Officer and
Chief Administrative
Officer(4)
Bruce Moore............. 1997 275,000 -- 259,000(3) 2,381 2,548
Senior Vice
President,General
Merchandise Manager and
Chief Operating
Officer(5)
Steven J. Collins....... 1997 75,000 35,000 -- 230 --
Chief Financial Officer
and Director of
Finance(6)
</TABLE>
- ---------------
(1) Includes $1,552, $1,552 and $1,552 contributed under the Company's 401(k)
Plan for the benefit of Messrs. Kirkland, Alderson and Moore, respectively.
Also includes $1,920, $1,195 and $976 of premiums paid for term life
insurance for Messrs. Kirkland, Alderson and Moore, respectively.
(2) Mr. Kirkland also served as the Company's President until November 1997.
(3) Represents amounts classified as interest associated with the Class C
Preferred Stock held by the executives, which will be redeemed upon the
completion of the Offering, at which time such payments will terminate.
(4) Mr. Alderson became the Company's President and Chief Operating Officer in
November 1997.
(5) Mr. Moore resigned as an executive officer of the Company in November 1997
and his employment with the Company terminated on January 7, 1998. In
connection with such termination, all of his options to purchase Common
Stock were canceled. See "Certain Transactions - January 1998 Redemption."
(6) Mr. Collins served as the Company's Chief Financial Officer until February
1998.
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<PAGE> 46
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING 1997
The following table sets forth certain information regarding options for
the purchase of Common Stock that were awarded to the Company's Named Executive
Officers during the year ended December 31, 1997:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OR OPTION TERM ($)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN 1997 ($/SH) DATE 5% 10%
---- ----------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Carl Kirkland........... -- -- -- -- -- --
Robert E. Alderson...... -- -- -- -- -- --
Bruce Moore............. -- -- -- -- -- --
Steven J. Collins(1).... 230 7.4% $95.00 6/23/07 $154.74 $246.41
</TABLE>
- ---------------
(1) Granted under the Company's 1996 Executive Incentive and Non-Qualified Stock
Option Plan. The option vested as to one-half of the underlying shares on
August 1, 1997 and will vest as to the balance on August 1, 1998.
STOCK OPTIONS EXERCISED BY CERTAIN EXECUTIVE OFFICERS DURING 1997 AND YEAR-END
OPTION VALUES.
The following table sets forth certain information regarding options for
the purchase of Common Stock that were exercised and/or held by the Named
Executive Officers during the year ended December 31, 1997.
AGGREGATED OPTION EXERCISES IN YEAR ENDED
DECEMBER 31, 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
SHARES ---------------------- --------------------
ACQUIRED ON VALUE # EXERCISABLE/ $ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Carl Kirkland(2)...................... -- -- 0/2,381 $ /$
Robert E. Alderson(2)................. -- -- 0/2,381 $ /$
Bruce Moore(3)........................ -- -- 0/2,381 $ /$
Steven J. Collins..................... -- -- 115/115 $ /$
</TABLE>
- ---------------
(1) Value based on the $ per share assumed initial public offering price
less the per share exercise price.
(2) The options held by Messrs. Kirkland and Alderson will become fully vested
upon completion of the Offering.
(3) Mr. Moore's options were canceled in connection with the redemption of his
preferred and common stock on January 7, 1998. See "Certain
Transactions - January 1998 Redemption."
EMPLOYEE BENEFIT PLANS
1996 Executive Incentive and Non-Qualified Stock Option Plan
The Company maintains the Kirkland's, Inc. 1996 Executive Incentive and
Non-Qualified Stock Option Plan (as amended, the "Stock Option Plan"). The
Company believes that the Stock Option Plan will promote the long-term growth
and profitability of the Company by providing key employees with incentives to
improve shareholder value and to contribute to the growth and financial success
of the Company. Moreover, the Company believes that the Stock Option Plan will
help the Company to attract, retain and reward quality employees.
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<PAGE> 47
The Stock Option Plan is administered by the Board of Directors or the
Compensation Committee. The plan administrator has exclusive authority to: (i)
grant Awards (as defined below) under the Stock Option Plan, including
determining individuals to whom Awards are granted, the amount of such Awards,
any applicable vesting terms and any other terms of an Award; and (ii) make all
interpretations and determinations affecting the Stock Option Plan.
Participation in the Stock Option Plan is limited to employees of the
Company or any of its subsidiaries (the "Participants"). Awards under the Stock
Option Plan may be in the form of incentive stock options ("ISOs") that meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or "non-qualified" stock options ("NQSOs") (collectively,
"Awards"). ISOs may only be granted to individuals who are employees of the
Company at the date of grant. Awards under the Stock Option Plan are not
transferable by the Participants, except upon death.
The Stock Option Plan provides for the grant of stock options to purchase
up to an aggregate of 12,304 shares of Common Stock. In the event of any stock
split, reverse stock split, stock dividend, recapitalization, reclassification
or other similar event, appropriate proportional adjustments may be made to the
number of shares reserved for issuance under the Stock Option Plan and the
number, kind and price of shares covered by outstanding Awards. Stock options
may not be exercised more than 10 years after the date of grant (five years
after the date of grant with respect to an ISO granted to any person who owns
stock of the Company possessing 10% or more of the total voting power of all the
Company's stock at the time of the grant).
The Board has the discretion to award stock options to Participants as
either ISOs or as NQSOs. The exercise price of an ISO must be not less than the
fair market value of the Common Stock on the date the option is granted.
Although the Stock Option Plan permits the exercise price of an NQSO to be less
than the fair market value of the Common Stock on the date the option is
granted, the exercise price of all NQSOs granted under the Stock Option Plan to
date have been equal to the fair market value of the Common Stock on the date of
grant.
As of the date of this Prospectus, options to purchase 10,154 shares of
Common Stock are outstanding, including options for 2,381 shares held by each of
Carl Kirkland and Robert E. Alderson and an option for 2,283 shares held by
Reynolds C. Faulkner. Options granted with respect to the remaining 3,109 shares
of Common Stock (the "Employee Options") are held by approximately 225 employees
other than executive officers (other than an option for 230 shares which was
granted to Mr. Collins). The Employee Options generally expire upon termination
of employment and become exercisable on July 1, 2000 (except for the option
granted to Mr. Collins, which became exercisable with respect to 115 shares in
August 1997 and will become exercisable with respect to the remainder of the
shares in August 1998). Generally, if the holder of an Employee Option
terminates employment because of death or disability, any Award exercisable at
the date of such termination may be exercised for a period of one year from the
date of termination or until the expiration of the stated term of the Award,
whichever period is shorter. An additional 2,150 shares of Common Stock are
available for issuance in connection with future grants under the Stock Option
Plan.
1998 Incentive Plan
Prior to the completion of the Offering, the Company intends to adopt the
Kirkland's, Inc. 1998 Incentive Plan (the "Incentive Plan"). The Incentive Plan
will provide for the award of up to 8,000 shares of Common Stock to the
Company's employees, directors, consultants and other individuals who perform
services for the Company.
The Compensation Committee of the Board of Directors will administer the
Incentive Plan. Under the terms of the Incentive Plan, the Compensation
Committee will be required to be composed of two or more directors. The
Compensation Committee will have the authority to interpret the Incentive Plan
and to determine and designate the persons to whom options or awards are made
and the terms, conditions and restrictions applicable to each option or award
(including, but not limited to, the exercise price, any vesting schedule or
provisions for the acceleration thereof and any forfeiture provisions).
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<PAGE> 48
The Incentive Plan contains provisions for granting various stock-based
awards, including ISOs, NQSOs, stock appreciation rights ("SARs") and restricted
stock (all as further described below). The term of the Incentive Plan is ten
years, subject to earlier termination or amendment.
The Compensation Committee will have the power to select award recipients
and their allotments and to determine the price, terms and vesting schedule for
awards granted. While there are no predetermined performance formulas or
measures or other specific criteria used to determine recipients of awards under
the Incentive Plan, awards will be based generally upon consideration of the
grantee's position and responsibilities, the nature of services provided, the
value of the services to the Company, the present and potential contribution of
the grantee to the success of the Company, the anticipated number of years of
service remaining and other factors which the Board or the Compensation
Committee may deem relevant.
Stock Options. The Incentive Plan provides for the grant of ISOs to
employees of the Company. The Incentive Plan also provides for the grant of
NQSOs to employees of the Company, directors of the Company, and consultants and
other individuals who perform services for the Company but are not employed by
the Company. The exercise price of any ISO granted under the Incentive Plan may
not be less than 100% of the fair market value of the Company's Common Stock on
the date of grant. Options granted under the Incentive Plan may be exercised for
cash or in exchange for shares of Common Stock owned by the option holder having
a fair market value on the date of exercise equal to the option exercise price.
The aggregate fair market value, determined on the date of grant, of the shares
with respect to which ISOs are exercisable for the first time by an employee
during any calendar year may not exceed $100,000.
Under the Incentive Plan, each option will be exercisable at such time and
to such extent as specified in the pertinent option agreement between the
Company and the option recipient. However, no award shall be exercisable with
respect to any shares of Common Stock later than ten years after the date of
such award. Unless otherwise specified by the Compensation Committee with
respect to a particular option, all options will be non-transferable, except
upon death. The shares subject to expired options or terminated options which
remain unexercised will become available for future grants.
Stock Appreciation Rights. The Incentive Plan also provides for the grant
of SARs, either alone or in tandem with ISOs or NQSOs. A SAR entitles its holder
to a cash payment of the excess of the fair market value of Common Stock of the
Company on the date of exercise, over the fair market value of the Common Stock
on the date of grant.
If an option or SAR recipient ceases to be employed by, or to render
services to, the Company for any reason other than retirement, death, disability
or termination for cause, unless otherwise specified by the Compensation
Committee with respect to a particular option, any option or SAR exercisable on
the date of such termination generally may be exercised for a period of one
month from the date of such termination or until the expiration of the stated
term of the option or SAR, whichever period is shorter. In the event of
termination of employment or service by reason of retirement, death or
disability, unless otherwise specified by the Compensation Committee with
respect to a particular option or SAR, any option exercisable at the date of
such termination generally may be exercised for a period of one year (in the
case of death) or six months (in the case of disability or retirement) from the
date of termination or until the expiration of the stated term of the option or
SAR, whichever period is shorter. If a participant's employment or service is
terminated for cause, unless otherwise specified by the Compensation Committee
with respect to a particular option or SAR, any option or SAR not exercised
prior to the date of such termination will be automatically and immediately
forfeited.
In anticipation of a change of control of the Company, the Compensation
Committee, in its discretion, may: (i) cause all outstanding options and SARs to
become immediately exercisable, (ii) provide for the cancellation of options and
SARs and a cash payment to the holders of such canceled awards or (iii) provide
for the cancellation of options and the substitution of options to purchase
shares in a successor corporation.
Restricted Stock. "Restricted Stock" are shares of the Company's Common
Stock granted to an employee for no cash consideration, which will be forfeited
to the Company if, during a restriction period specified by the Compensation
Committee at the time of the grant of the Restricted Stock, (i) the grantee
47
<PAGE> 49
ceases to be an employee of the Company, or (ii) certain individual or corporate
performance goals are not met. In the event of death or disability: (i)
restrictions based on employment will lapse with respect to a percentage of
Restricted Stock held by the grantee equal to the percentage of the restriction
period that had elapsed as of the date of death or commencement of disability,
and (ii) restrictions based on performance will lapse to the extent determined
by the Compensation Committee. In the event of a change of control of the
Company, the Compensation Committee may, in its discretion, cause all
restrictions on shares of Restricted Stock to lapse.
Shares of Common Stock underlying any award that is forfeited under the
Incentive Plan will become available for future grants.
Employee Stock Purchase Plan
Prior to the completion of the Offering, the Company intends to adopt an
Employee Stock Purchase Plan (the "Purchase Plan"), which will allow
substantially all full-time employees of the Company, subject to certain
limitations, to purchase shares of the Company's Common Stock at a discount from
the prevailing market price at the time of purchase. Such shares will either be
issued by the Company from its authorized and unissued Common Stock or purchased
by the Company on the open market. Any employee owning five percent or more of
the voting power or value of the Company will not be eligible to participate in
the Purchase Plan. A maximum of 2,700 shares of the Company's Common Stock will
be available for purchase under the Purchase Plan.
An eligible employee will be able to specify, before the commencement of
each quarter, an amount to be withheld from his or her paycheck and credited to
an account established for him or her (the "Participation Account"). Amounts in
the Participation Account will be applied to the purchase of shares of the
Company's Common Stock on the last day of each quarter. The price of such shares
will be equal to % of the average of the high and low sales prices per share
of the Company's Common Stock on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not listed or
traded on any such exchange, on the Nasdaq National Market. Only whole shares of
Common Stock will be purchased under the Purchase Plan. Amounts withheld from an
employee's paycheck and not applied to the purchase of whole shares of Common
Stock will, at the election of the employee, either remain credited to the
employee's Participation Account or be returned to the employee. Upon
termination of an employee's employment, all amounts credited to such employee's
Participation Account will be returned to him or her.
The Purchase Plan will be administered by the Compensation Committee of the
Board of Directors. The Board of Directors may amend or terminate the Purchase
Plan. The Purchase Plan is intended to comply with the requirements of Section
423 of the Code.
401(k) Plan
The Company maintains the Kirkland's, Inc. Retirement Plan ("401(k) Plan")
for the benefit of its eligible employees. The 401(k) Plan is intended to be
qualified under Code section 401(a) and consists of a 401(k) component, a 401(m)
matching component and a profit-sharing component. Employees eligible to
participate in the 401(k) Plan are those employees who have completed at least
one year of service and attained age of 21.
Under the 401(k) component, participants may elect to defer up to $10,000
per year (as adjusted by the Internal Revenue Service) to the 401(k) Plan,
subject to other limits of the Code. Under the 401(m) matching component, the
Company, in its discretion, may match each participant's elective deferrals, up
to 5% of compensation. Currently, the Company matches 25% of each participant's
elective deferrals. Under the profit-sharing component, the Company may make
additional contributions in amounts to be determined by the Company in its sole
discretion. Such Company profit-sharing contributions will be allocated among
eligible participants in proportion to each such participant's compensation.
Matching contributions and profit-sharing contributions vest ratably over
six years, or earlier upon attainment of the appropriate retirement age, upon
retirement for disability, upon death, or upon termination
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<PAGE> 50
of the 401(k) Plan. All assets of the 401(k) Plan are currently invested,
subject to participant-directed elections, in annuity contracts underwritten by
Aetna Life Insurance and Annuity Company.
Payment of 401(k) Plan benefits are made in cash in the form of a single
lump sum, periodic installments or an annuity. Distribution of a participant's
vested interest generally occurs on the earlier of (i) termination of employment
(including by reason of retirement, death or disability) or (ii) the April 1
following the calendar year in which the participant attains age 70 1/2.
Supplemental Executive Retirement Plan
Following the completion of the Offering, the Company intends to adopt a
non-qualified deferred compensation plan known as a supplemental executive
retirement plan ("SERP"). Only a select group of highly compensated management
employees chosen by the Board of Directors will be eligible to participate in
the SERP. Pursuant to the SERP, participants will be entitled to elect, in
advance, to reduce salary or bonus income and have that reduction credited to an
account under the SERP. To the extent all or a portion of the participant's
deferral relates to amounts that could have been contributed to the SERP, but
for the application of certain legal restrictions, the Company will also credit
a matching contribution amount to the SERP equal to what would have been
contributed to the SERP, in the absence of those restrictions.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, the Company entered into
employment agreements with Carl Kirkland, Robert Alderson and Bruce Moore. Under
the terms of these employment agreements, Mr. Kirkland was employed as Chairman
and Chief Executive Officer, Mr. Alderson was employed as Chief Administrative
Officer and Mr. Moore was employed as Chief Operating Officer and General
Merchandise Manager. The term of these employment agreements expires on June 12,
2000. The employment agreements provide for an annual salary of $987,500 for Mr.
Kirkland, $424,500 for Mr. Alderson and $534,000 for Mr. Moore, of which amounts
$712,500, $149,500 and $259,000, respectively, represent interest paid in
connection with the mandatorily redeemable Class C Preferred Stock. These
agreements provide for each executive to receive an annual bonus beginning with
the fiscal year ended December 31, 1996. The bonus includes a performance based
component of up to $175,000 based on the Company's achievement of the projected
EBITDA targets established by the Board, as well as a discretionary component of
up to $75,000. The Board may consider performance measures such as team
leadership, new store openings and customer satisfaction in determining the
discretionary bonus component. Mr. Moore's employment with the Company, and his
employment agreement, terminated on January 7, 1998. See "Certain
Transactions - January 1998 Redemption."
The employment agreements with Messrs. Kirkland and Alderson automatically
terminate upon the occurrence of certain events such as a sale of the Company, a
change of control or a public offering of Common Stock generating gross proceeds
of at least $30 million (a "Qualified Public Offering"). The employment
agreements provide that upon the occurrence of any of the aforementioned events,
the Company and the executives will enter into new employment agreements which
will provide for a $275,000 annual salary, retain the equivalent bonus and
non-competition provisions of the existing employment agreements, and coincide
with the remaining term of the existing employment agreements. As a result of
the Offering, the existing employment agreements will automatically terminate,
and the Company will enter into new employment agreements with each of Mr.
Kirkland and Mr. Alderson consistent with the foregoing terms.
In February 1998, the Company entered into an employment agreement with
Reynolds C. Faulkner. Under the terms of that agreement, Mr. Faulkner serves as
the Company's Senior Vice President and Chief Financial Officer at an annual
salary of $225,000, and will be eligible to receive an annual bonus of up to
$100,000 at the discretion of the Board. The term of Mr. Faulkner's agreement
extends until February 2, 2001, or until earlier termination of employment;
provided, however, that Mr. Faulkner will be entitled to a severance payment
equal to 12 months' salary and benefits, and a pro-rated annual bonus if his
employment is terminated prior to February 2, 2001 by the Company without cause
or by Mr. Faulkner under specified circumstances.
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<PAGE> 51
Each of Messrs. Kirkland and Alderson received an option for 2,381 shares
of Common Stock at a per share exercise price of $0.045 in connection with the
Recapitalization. The terms of the options granted to Messrs. Kirkland and
Alderson provide that those options will vest immediately prior to completion of
the Offering. On February 2, 1998, Mr. Faulkner received an option for 2,283
shares of Common Stock of the Company under the Stock Option Plan at a per share
exercise price of $285.65.
Each of the three employment agreements described above also contains
non-competition provisions prohibiting the executive from competing against the
Company during the term of the employment agreement and for three years
thereafter without the prior written consent of the Company. The executives are
also entitled to certain additional benefits (beyond those generally available
to employees of the Company) including an automobile allowance and additional
life insurance.
In February 1997, the Company entered into an employment agreement with
Steven J. Collins pursuant to which Mr. Collins was appointed the Company's
Chief Financial Officer and Director of Finance. The employment agreement
provides for an annual salary of $75,000 with an annual year-end
performance-based bonus of up to $35,000. The employment agreement is terminable
by either party at any time and contains non-competition and confidentiality
provisions. In June 1997, Mr. Collins received a stock option to purchase 230
shares of Common Stock, at a per share exercise price of $95.00, which vested as
to one-half of the underlying shares on August 1, 1997 and will vest as to the
balance on August 1, 1998. In February 1998, Mr. Collins' employment agreement
was amended to reflect that Mr. Collins would cease to be the Company's Chief
Financial Officer and would continue to serve as the Company's Director of
Finance.
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<PAGE> 52
CERTAIN TRANSACTIONS
RECAPITALIZATION
On June 12, 1996, the Company completed the recapitalization pursuant to
which Advent became the largest beneficial owner of the equity of the Company.
The Company completed the Recapitalization to permit the founding and management
shareholders, consisting of Carl Kirkland, Robert E. Kirkland, Robert E.
Alderson and Bruce Moore (collectively, the "Principal Shareholders") to realize
a portion of the value of their interest in the Company. In connection with the
Recapitalization (i) Advent (through affiliated entities) together with other
investors (collectively, "the 1996 Investors") purchased 68,400 shares of common
stock and 68,400 shares of Class A Preferred Stock from Kirkland's, Inc. and
each of the Kirkland Companies for a purchase price of $30.8 million, (ii) a
portion of the common stock of Kirkland's, Inc. and each of the Kirkland
Companies held by the Principal Shareholders was redeemed at a total redemption
price of $80.2 million and all such common stock held by shareholders other than
the Principal Shareholders, consisting principally of employees of the Company
and family members of the Principal Shareholders (collectively, the "Minority
Shareholders"), was redeemed at a total redemption price of $2.9 million, (iii)
the Company paid bonuses to certain of the Minority Shareholders in the total
amount of $432,000, (iv) certain shares of common stock of Kirkland's, Inc. and
each of the Kirkland Companies held by the Principal Shareholders were
reclassified into 31,600 shares of Class B Preferred Stock and 20,000 shares of
Class C Preferred Stock of Kirkland's, Inc. and each of the Kirkland Companies,
(v) the Company borrowed $55.3 million of senior debt under a credit facility
from a group of banks, (vi) the Company borrowed $20 million of subordinated
debt from a group of institutional lenders and issued warrants to such lenders
to purchase 16,722 shares of common stock of Kirkland's, Inc. and each of the
Kirkland Companies, (vii) the Company repaid $19.2 million of its existing
indebtedness and (viii) the Company paid certain related expenses, including
investment banking and financial advisory fees, in the total amount of $6.3
million. The $6.3 million of expenses paid in connection with the
Recapitalization included investment banking /advisory fees of $1.0 million paid
to Advent, $2.9 million paid to Lehman Brothers Inc. and $1.0 million paid to
The Robinson-Humphrey Company, LLC. Lehman Brothers Inc. and The
Robinson-Humphrey Company, LLC are Underwriters in the Offering.
Concurrent with the consummation of the Recapitalization, the Company
issued an aggregate of $20 million of subordinated notes to a group of
institutional lenders. As of March 31, 1998, approximately $8.0 million, $6.4
million, $3.8 million and $1.8 million were outstanding to Capital Resource
Lenders II, L.P., Allied Capital Corporation, Marlborough Capital Investment
Fund, L.P. and Capital Trust Investments Ltd., respectively. In 1996 and 1997
and the first quarter of 1998, the Company paid an aggregate of $1.4 million,
$2.5 million and $576,000, respectively, in interest to these lenders in
proportion to the principal amount of the notes held by each lender. In
connection with the issuance of the notes, the Company also issued warrants to
purchase an aggregate of 16,722 shares of common stock of Kirkland's, Inc. and
each of the Kirkland Companies to the lenders. Of the total warrants issued,
warrants to purchase 4,817 shares of such common stock only become exercisable
if the Company fails to meet specific valuation targets as of the date of the
Offering. As the applicable valuation targets will be met upon completion of the
Offering, these contingent warrants will be canceled upon completion of the
Offering. The remainder of the warrants (for 11,905 shares) will be exercised at
a per share price of $0.01 upon completion of the Offering by Capital Resource
Lenders II, L.P., Allied Capital Corporation, Marlborough Capital Investment
Fund, L.P. and Capital Trust Investments Ltd. for 4,762 shares, 3,810 shares,
2,262 shares and 1,071 shares of common stock of Kirkland's, Inc. and each of
the Kirkland Companies, respectively.
In connection with the Recapitalization, the Company and its current
shareholders and warrantholders entered into a Shareholders Agreement. The
agreement, which expires by its terms upon completion of the Offering, provided
for the nomination and election of each of the Company's current directors.
Certain of the directors of the Company are affiliated with some of the
subordinated lenders to and warrantholders of the Company and with other
entities that participated in the Recapitalization: Mr. Mussafer is a Managing
Director of Advent; Mr. Oswald is affiliated with CT/Kirkland Equity Partners,
L.P. (a member of Kirkland Holdings L.L.C., one of the Company's principal
shareholders) and Capital Trust Investments, Ltd. (a subordinated lender and
warrantholder); Mr. McGrath is a general partner of Capital Resource Partners
II,
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L.P., the general partner of Capital Resource Lenders II, L.P. (a subordinated
lender and warrantholder); and Mr. Orr is affiliated with SSM/Kirkland Equity
Partners, L.P. (a member of Kirkland Holdings L.L.C.)
PRE-OFFERING TRANSACTIONS
Kirkland Companies. Historically, the Company has operated all of the
Kirkland's stores through separate corporations (the "Kirkland Companies"), and
Kirkland's, Inc. has served as a management company for the Kirkland Companies.
As of March 31, 1998, there were 140 such corporations in existence in addition
to Kirkland's, Inc. The shareholders of the Kirkland Companies are the same as
the shareholders of Kirkland's, Inc. The percentage ownership of Kirkland's,
Inc. and in each of the Kirkland Companies is the same.
Preferred Stock. Prior to the Offering, Kirkland's, Inc. and substantially
all of the Kirkland Companies had three classes of preferred stock outstanding.
The Class A Preferred Stock and Class B Preferred Stock entitled the holders to
cash dividends equal to 8% of the stated value of such preferred stock annually.
No dividends have been paid on the Class A Preferred Stock or Class B Preferred
Stock to the holders of such preferred stock. The Company accrued and paid
amounts classified as interest to the holders of Class C Preferred Stock at an
annual rate equal to 9% of the stated value of such preferred stock. Upon
completion of the Offering, the Class A Preferred Stock and Class B Preferred
Stock will become convertible at the election of the holders and redeemable at
the election of the Company, and the Class C Preferred Stock will become
mandatorily redeemable.
Purchase, Contribution and Exchange Agreement. Pursuant to the terms of a
Purchase, Contribution and Exchange Agreement dated April 28, 1998, by and among
Kirkland's, Inc. and each of the Company's shareholders and warrantholders,
immediately prior to completion of the Offering and as a part of the Pre-
Offering Transactions, all of the outstanding shares of Class A Preferred Stock
and Class B Preferred Stock of Kirkland's, Inc. and the Kirkland Companies will
be recapitalized into or exchanged for an aggregate of 42,679 shares of Common
Stock, and all of the outstanding shares of common stock of the Kirkland
Companies will be contributed to Kirkland's, Inc., resulting in the Kirkland
Companies becoming wholly-owned subsidiaries of the Company. Subsequently, the
warrantholders of Kirkland's, Inc. and the Kirkland Companies will exercise
their warrants to purchase 11,905 shares of common stock of Kirkland's, Inc. and
each of the Kirkland Companies, and the Kirkland Companies common stock issued
upon such exercise will be contributed to Kirkland's, Inc. Also pursuant to the
agreement, although not part of the Pre-Offering Transactions, Kirkland's, Inc.
will purchase or redeem from current shareholders all of the outstanding shares
of Class C Preferred Stock of Kirkland's, Inc. and each of the Kirkland
Companies that has Class C Preferred Stock outstanding for an aggregate of $18.0
million (including approximately $900,000 of amounts classified as interest
associated with the Class C Preferred Stock), to be paid from the net proceeds
of the Offering. See "Use of Proceeds."
JANUARY 1998 REDEMPTION
By agreement dated December 26, 1997, the Company redeemed all of the
preferred and common stock of the Company held by Bruce Moore, the Company's
former Senior Vice President, Chief Operating Officer and General Merchandise
Manager. Pursuant to the agreement, on January 7, 1998 the Company paid Mr.
Moore approximately $6.9 million in redemption of all shares of Class B
Preferred Stock, Class C Preferred Stock and common stock of Kirkland's, Inc.
and each of the Kirkland Companies held by Mr. Moore, together with a one-time
compensation payment of $259,000. In addition, under the terms of the agreement,
Mr. Moore's stock options were canceled. Pursuant to the agreement, the Company
will make salary continuation payments to Mr. Moore in the annual amount of
$275,000 and provide Mr. Moore with certain additional benefits through June 12,
2000 as provided for in his employment agreement with the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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CONSULTING AGREEMENT
In connection with the Recapitalization, the Company entered into a
consulting agreement with Robert E. Kirkland, a shareholder of the Company and a
cousin of the Company's Chief Executive Officer. Under the provisions of the
consulting agreement, Mr. Kirkland provides consulting services and advice
regarding purchasing and marketing of merchandise, leasing, store selection,
operations, internal management and other matters mutually agreed upon as
directed by the Board of the Company. The agreement provides for an annual
consulting fee of $679,000 and a term expiring in June 2003. The consulting
agreement automatically terminates upon the occurrence of certain events,
including a sale of the Company, a change of control or a Qualified Public
Offering. The Offering will constitute a Qualified Public Offering, and,
accordingly, Mr. Kirkland's consulting agreement will automatically terminate
upon its completion.
INVENTORY PURCHASES FROM SIGNIFICANT SHAREHOLDER
The Company purchases inventory from CBK, Inc., a wholesaler owned by
Robert E. Kirkland, a shareholder of the Company. See "Principal Shareholders."
These purchases aggregated approximately $3.3 million, $2.3 million, $1.4
million and $244,000 during the years ended December 31, 1995, 1996 and 1997 and
the first quarter of 1998, respectively.
INVENTORY PURCHASES FROM AN AFFILIATE OF A SIGNIFICANT SHAREHOLDER
The Company purchases inventory from Homemaker Industries, Inc., a
manufacturer in which Advent is a significant shareholder. These purchases
aggregated approximately $610,109, $297,774, $216,847 and $142,000 during the
years ended December 31, 1995, 1996 and 1997 and the first quarter of 1998,
respectively. David M. Mussafer and John P. Oswald are directors of the
Kirkland's, Inc. and are also members of the Board of Directors of Homemaker
Industries, Inc. Mr. Mussafer and Mr. Oswald are also affiliated with members of
Kirkland Holdings L.L.C., one of the Company's principal shareholders. See
"Principal Shareholders."
CHARTER OF AIRPLANES
For the years ended December 31, 1995, 1996 and 1997 and the first quarter
of 1998, the Company spent $44,076, $29,136, $75,898 and $14,789, respectively,
for the rental of aircraft for business travel from Kirkland Aviation, Inc., an
entity owned by Carl Kirkland. In addition, for the years ended December 31,
1995, 1996 and 1997 and the first quarter of 1998, the Company spent $15,292,
$18,311, $13,404 and $2,539, respectively, for the rental of aircraft for
business travel from Alderson Aviation, Inc., an entity owned by Robert E.
Alderson.
RELATIONSHIP WITH THE ROBINSON-HUMPHREY COMPANY, LLC
Reynolds C. Faulkner, a director of the Company since September 1996 and
the Company's Senior Vice President and Chief Financial Officer since February
1998, was a Managing Director at The Robinson-Humphrey Company, LLC prior to
joining the Company as an executive officer. The Robinson-Humphrey Company, LLC
is one of the Underwriters in the Offering and has from time to time provided
investment banking services to the Company, including services rendered in
connection with the Recapitalization, and may continue to provide such services
in the future. In addition, R-H Capital Partners, L.P., an affiliate of The
Robinson-Humphrey Company, LLC, is a member of Kirkland Holdings L.L.C., one of
the Company's principal shareholders.
The Company considers the terms of its transactions with CBK, Inc.,
Homemaker Industries, Inc., Kirkland Aviation, Inc., Alderson Aviation, Inc. and
The Robinson-Humphrey Company, LLC to be at arms length and reasonably
equivalent to terms it could obtain through negotiations with an unaffiliated
third party under similar economic conditions. In the future, the Company will
not enter into any transactions with officers, directors or other affiliates
unless the terms are as favorable to the Company as those generally available
from unaffiliated third parties and the transactions are approved by a majority
of the Company's disinterested directors.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at March 31, 1998, assuming that the
Pre-Offering Transactions had occurred as of such date, by (i) each director and
Named Executive Officer, (ii) each person known to the Company to beneficially
own more than 5% of the Common Stock, and (iii) all directors and executive
officers as a group, both before and after giving effect to the sale of Common
Stock in the Offering. As of such date, and based on the foregoing assumption,
there were 146,683 shares of Common Stock outstanding before giving effect to
the sale of Common Stock in the Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------
PERCENT OF CLASS
--------------------
NUMBER BEFORE AFTER
NAME OF SHARES OFFERING OFFERING
- ---- --------- -------- --------
<S> <C> <C> <C>
Carl Kirkland(1)............................................ 8,042 5.4
c/o Kirkland's, Inc.
805 N. Parkway
Jackson, TN 38305
Robert E. Alderson(2)....................................... 19,842 13.3
c/o Kirkland's, Inc.
805 N. Parkway
Jackson, TN 38305
Reynolds C. Faulkner(3)..................................... 2,283 1.5
Steven J. Collins(3)........................................ 230 *
David M. Mussafer(4)........................................ 64,321 43.9
c/o Advent International Corporation
101 Federal Street
Boston, MA 02110
R. Wilson Orr, III(5)....................................... 15,615 10.6
c/o SSM Venture Partners, L.P.
845 Crossover Lane, Suite 140
Memphis, TN 38117
John P. Oswald(6)........................................... 14,083 9.6
c/o CT Capital International, Inc.
575 Fifth Avenue, 40th Floor
New York, NY 10017
Alexander S. McGrath(7)..................................... 4,762 3.2
Bruce Moore................................................. -- --
Kirkland Holdings L.L.C.(8)................................. 100,095 65.0
101 Federal Street
Boston, MA 02110
Robert E. Kirkland.......................................... 11,561 7.9
c/o Kirkland's, Inc.
805 N. Parkway
Jackson, TN 38305
All executive officers and directors as a group
(8 persons)(9)............................................ 129,178 83.9
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Includes 2,381 shares of Common Stock issuable upon exercise of stock
options granted by the Company. Also includes 2,000 shares held by Mr.
Kirkland as Trustee for the benefit of the children of Robert E. Alderson.
If the
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<PAGE> 56
Underwriters' over-allotment option is exercised in full, of the shares
owned by Mr. Kirkland will be sold, as a result of which he will beneficially
own shares of Common Stock, or % of the Common Stock then outstanding,
following the Offering.
(2) Includes 2,381 shares of Common Stock issuable upon exercise of stock
options granted by the Company. Also includes 7,900 shares held by Mr.
Alderson as Trustee for the benefit of the children of Carl Kirkland. If
the Underwriters' over-allotment option is exercised in full, of
the shares owned by Mr. Alderson will be sold, as a result of which he will
beneficially own shares of Common Stock, or % of the Common
Stock then outstanding, following the Offering.
(3) All of the shares of Common Stock beneficially owned by Messrs. Reynolds
and Collins are issuable upon exercise of stock options granted by the
Company.
(4) Mr. Mussafer may be deemed to beneficially own 64,321 shares of Common
Stock which Advent beneficially owns as the general partner of Advent
Direct Investment Program Limited Partnership, Global Private Equity II
Limited Partnership and Advent Partners Limited Partnership, which are
members of Kirkland Holdings L.L.C. Mr. Mussafer, a director of the
Company, is a Managing Director of Advent. If the Underwriters'
over-allotment option is exercised in full, of the shares
beneficially owned by Advent will be sold, as a result of which Mr.
Mussafer may be deemed to beneficially own shares of Common Stock,
or % of the Common Stock then outstanding, following the Offering.
(5) Mr. Orr may be deemed to beneficially own 15,615 shares of Common Stock
which SSM/Kirkland Equity Partners, L.P. beneficially owns as a member of
Kirkland Holdings L.L.C. Mr. Orr, a director of the Company, is a partner
of SSM Corporation which is an affiliate of SSM/Kirkland Equity Partners,
L.P. If the Underwriters' over-allotment option is exercised in full,
of the shares owned by SSM/Kirkland Equity Partners, L.P. will be
sold, as a result of which Mr. Orr may be deemed to beneficially own
shares of Common Stock, or % of the Common Stock then
outstanding, after the offering.
(6) Mr. Oswald may be deemed to beneficially own the 1,071 shares of Common
Stock beneficially owned by Capital Trust Investments, Ltd. and 13,012
shares of Common Stock which CT/Kirkland Equity Partners, L.P. beneficially
owns as a member of Kirkland Holdings L.L.C. Mr. Oswald, a director of the
Company, is a partner of CT Capital International which is an affiliate of
Capital Trust Investments, Ltd. and CT/Kirkland Equity Partners, L.P. If
the Underwriters' over-allotment option is exercised in full, of
the shares owned by CT/Kirkland Equity Partners, L.P. will be sold, as a
result of which Mr. Oswald may be deemed to beneficially own
shares of Common Stock, or % of the Common Stock then
outstanding, following the Offering.
(7) Mr. McGrath may be deemed to beneficially own the 4,762 shares of Common
Stock beneficially owned by Capital Resource Lenders II, L.P. Mr. McGrath,
a director of the Company, is a general partner of Capital Resource
Partners II, L.P., the general partner of Capital Resource Lenders II, L.P.
(8) The members of Kirkland Holdings L.L.C. and their beneficial ownership of
the shares of Common Stock held by Kirkland Holdings L.L.C. (expressed as a
percentage) are Advent Direct Investment Program Limited Partnership
(17.58%), Global Private Equity II Limited Partnership (45.06%), Advent
Partners Limited Partnership (1.62%), SSM/Kirkland Equity Partners, L.P.
(15.60%), CT/Kirkland Equity Partners, L.P. (13.00%), TCW/Kirkland Equity
Partners, L.P. (1.62%), Marlborough/Kirkland Equity Partners, L.P. (0.65%)
and R-H Capital Partners, L.P. (4.87%), an affiliate of The
Robinson-Humphrey Company, LLC, one of the Underwriters. In its capacity as
the manager of the following venture capital funds: Advent Direct
Investment Program Limited Partnership, Global Private Equity II Limited
Partnership and Advent Partners Limited Partnership, Advent exercises sole
voting and investment power with respect to the 64,321 shares held by these
funds and, accordingly, Advent may be deemed to beneficially own such
shares. In addition, Advent, as general partner of Advent Partners Limited
Partnership, which is a limited partner of SSM/Kirkland Equity Partners,
L.P., CT/Kirkland Equity Partners, L.P., TCW/Kirkland Equity Partners, L.P.
and Marlborough/Kirkland Equity Partners, L.P., has an economic interest in
the Common Stock held by such entities. If the Underwriters' over-allotment
option is exercised in full, of the shares beneficially owned by
Kirkland Holdings L.L.C. will be sold, as a result of which it will
beneficially own shares of Common Stock, or % of the Common Stock
then outstanding, following the Offering.
(9) Includes 7,275 shares of Common Stock issuable upon exercise of stock
options granted by the Company. If the Underwriters' over-allotment option
is exercised in full, of the shares subject thereto beneficially
owned by the directors and executive officers of the Company will be sold,
as a result of which they will beneficially own shares of Common
Stock, or % of the Common Stock then outstanding, following the
Offering.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the Offering, the Company will be authorized to issue up
to 50,000,000 shares of Common Stock, no par value, and 10,000,000 shares of
Preferred Stock, no par value. Upon completion of the Offering, there will be no
Preferred Stock outstanding, as all of the outstanding Preferred Stock will be
converted into shares of Common Stock or will be redeemed with a portion of the
net proceeds of the Offering. See "Use of Proceeds" and "Certain
Transactions - Pre-Offering Transactions."
Upon the completion of the Offering, there will be shares of Common
Stock issued and outstanding and 10,154 shares of Common Stock reserved for
issuance under the Company's employee benefits plans, including shares
issuable upon the exercise of options which will be outstanding upon the
completion of the Offering. As of the date of this Prospectus, the Company has
92,100 shares of Common Stock, 68,400 shares of Class A Preferred Stock, 23,700
shares of Class B Preferred Stock and 17,122 shares of Class C Preferred Stock
issued and outstanding. Pursuant to the Pre-Offering Transactions which will
take place immediately prior to completion of the Offering, all of the
outstanding shares of Class A Preferred Stock and Class B Preferred Stock will
be converted into or exchanged for shares of Common Stock. All of the
outstanding shares of the Class C Preferred Stock will be purchased or redeemed
with a portion of the net proceeds of the Offering. See "Use of Proceeds" and
"Certain Transactions - Pre-Offering Transactions."
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. All holders of Common
Stock are entitled to share equally in dividends declared on the Common Stock.
See "Dividend Policy." Stock dividends may be paid on Common Stock, whether or
not there are shares of Preferred Stock outstanding. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
after payment has been made to the holders of shares of Preferred Stock, if any,
for the full amount to which they are entitled, the holders of the shares of
Common Stock are entitled to share equally in the assets available for
distribution.
The Company will be selling Common Stock pursuant to the Offering. All
currently outstanding shares of Common Stock are, and upon issuance as set forth
herein, the shares of Common Stock being sold by the Company will be, duly
authorized, validly issued, fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future. See "Risk Factors - Charter and Bylaws Provisions;
Anti-Takeover Effect of Tennessee Laws."
Prior to the Offering, the Common Stock was divided into two series
consisting of Voting Common Stock and Non-Voting Common Stock, and the holders
of Voting Common Stock were entitled, as a group, to elect a total of four
nominees to the Board of Directors. Pursuant to an amendment to the Charter,
upon the completion of the Offering, the provisions dividing the Common Stock
into two series will be eliminated, and the holders of Common Stock will be
entitled to elect the entire Board of Directors.
PREFERRED STOCK
Pursuant to an amendment to the Charter to be filed prior to the completion
of the Offering, the Board of Directors will be authorized, without further
action by the shareholders, to issue up to 10,000,000 shares of Preferred Stock
in one or more series or classes and to establish the designations, preferences,
qualifications, privileges, limitations, restrictions, options, conversion
rights and other special or relative rights of any series of Preferred Stock so
issued. The issuance of shares of Preferred Stock could adversely affect the
voting power and other rights of holders of Common Stock. Because the terms of
the Preferred Stock may be fixed by the Board of Directors of the Company
without shareholder action, the Preferred Stock could be issued quickly with
terms designed to defeat a proposed takeover of the Company, or to make the
removal of management of
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<PAGE> 58
the Company more difficult. The authority to issue Preferred Stock or rights to
purchase Preferred Stock could be used to discourage a change in control of the
Company. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company, and the Board of Directors has no
current plans to designate and issue any shares of Preferred Stock.
WARRANTS
In connection with the issuance of subordinated notes for $20 million to
certain institutional lenders in the Recapitalization, the Company issued
warrants for 16,722 shares of Common Stock to these subordinated lenders.
Purchase warrants for 11,905 shares of Common Stock are currently exercisable
and will be automatically exercised in connection with the Offering. Contingent
warrants for the remaining 4,817 shares of Common Stock will be canceled in
connection with the Offering as a result of the Company meeting certain
valuation targets. The exercise price for the purchase warrants and the
contingent warrants is $0.01 per share, subject to certain anti-dilution
adjustment provisions. See "Certain Transactions - Recapitalization."
LIMITATION OF DIRECTORS' LIABILITY
The Amended and Restated Charter provides that no director of the Company
will be personally liable to the Company or any of its shareholders for monetary
damages for breach of any fiduciary duty except for liability arising from (i)
any breach of a director's duty of loyalty to the Company or its shareholders,
(ii) any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) any unlawful distributions.
The Company believes that this provision will assist it in securing and
maintaining the services of qualified directors who are not employees of the
Company.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement dated June 12, 1996 (the
"Registration Rights Agreement"), at any time after the Offering, Kirkland's
Holding L.L.C. and Messrs. Carl Kirkland, Robert E. Kirkland and Robert E.
Alderson ("Non-Mezzanine Holders") and the beneficial owners of 11,905 shares of
Common Stock ("Mezzanine Holders") are entitled to require the Company to
register their shares of Common Stock for resale under the Securities Act,
provided, in each case, that the anticipated gross proceeds of the related
offering exceed $5 million. The Registration Rights Agreement provides for up to
one demand by the Mezzanine Holders and up to two demands by Non-Mezzanine
Holders. The Company may, at the good faith discretion of its Board, delay up to
four months a demand registration request if it is preparing, or within 30 days
of such request prepares, to register a public offering. The Non-Mezzanine
Holders and Mezzanine Holders are also entitled to unlimited piggyback
registrations (except with respect to certain registrations in connection with
stock options or benefit plans). Their registration rights with respect to the
Offering have been waived. In addition, the Non-Mezzanine Holders and Mezzanine
Holders may require the Company to register their shares an unlimited number of
times on a Form S-2 or S-3, once the Company has qualified for use of such
forms, but the Company will not be obligated to effect these registrations
during the 90 days prior to or for 180 days following the effective date of a
registration statement relating to a public offering. To the extent permitted by
applicable federal and state laws and regulations, the Company is required to
bear the expenses of all such registrations (except underwriting discounts and
commissions attributable to shares sold). The Registration Rights Agreement
includes customary indemnification and contribution provisions among the Company
and the Mezzanine Holders, and the Non-Mezzanine Holders.
ANTI-TAKEOVER EFFECT OF CHARTER AND BYLAW PROVISIONS AND TENNESSEE LAWS
The Company's Amended and Restated Charter (the "Charter") and Restated
Bylaws (the "Bylaws") as well as Tennessee law contain various other provisions
intended to (i) promote stability of Kirkland's shareholder base and (ii) render
more difficult certain unsolicited or hostile attempts to take over Kirkland's
which could disrupt Kirkland's, divert the attention of Kirkland's directors,
officers and employees and adversely affect the independence and integrity of
Kirkland's business. A summary of these provisions of the Charter, Bylaws and
Tennessee law is set forth below.
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Classified Board; Removal of Directors. Pursuant to the Charter, the
number of directors of Kirkland's will be between three and fifteen directors as
determined by a majority vote of the Company's Board of Directors. The directors
will be divided into three classes, each class to consist as nearly as possible
of one-third of the directors. Directors elected by shareholders at an annual
meeting of shareholders will be elected by a plurality of all votes cast at such
annual meeting. Initially, the terms of office of the three classes of directors
will expire, respectively, at the annual meeting of shareholders in 1999, 2000
and 2001. After the expiration of the terms of the initial classified Board of
Directors, the terms of the successors of each of the three classes of directors
will expire three years from the year of their respective election.
The Charter provides that except as otherwise provided for or fixed by or
pursuant to an amendment to the Charter setting forth the rights of the holders
of any class or series of preferred stock, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors of Kirkland's resulting from death, resignation, disqualification,
removal or other cause will be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board, or by a sole remaining director. Any director elected in accordance with
the preceding sentence will hold office for the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the Board of Directors of
Kirkland's will shorten the term of any incumbent director. Subject to the
rights of holders of any preferred stock, any director may be removed from
office only for cause by the affirmative vote of the holders of at least 80% of
the voting power of all the outstanding capital stock of Kirkland's entitled to
vote generally in the election of directors (the "Voting Power"), voting
together as a single class.
These provisions of the Charter would preclude a third party from removing
incumbent directors and simultaneously gaining control of the Board of Directors
of Kirkland's by filling the vacancies created by removal with its own nominees.
Under the classified board provisions described above, it would take at least
two elections of directors for any individual or group to gain control of the
Board of Directors of Kirkland's. Accordingly, these provisions could discourage
a third party from initiating a proxy contest, making a tender offer or
otherwise attempting to gain control of the Company.
Special Shareholders' Meetings and Right to Act by Written Consent. The
Charter and the Bylaws provide that a special meeting of shareholders may be
called only by the Chairman of the Board or the President of the Company or upon
a resolution adopted by a majority of the entire Board of Directors of
Kirkland's. Shareholders are not generally permitted to call, or to require that
the Board of Directors call, a special meeting of shareholders pursuant to the
terms of the Charter. Moreover, the business permitted to be conducted at any
special meeting of shareholders is limited to the business brought before the
meeting pursuant to the notice of the meeting given by Kirkland's. Tennessee law
provides that shareholders may act by written consent if all shareholders
entitled to vote are parties to the written consent. The affirmative vote of the
number of shares necessary to authorize shareholder action, evidenced by such
written consent, constitutes the act of the shareholders.
Procedures for Shareholder Nominations and Proposals. The Bylaws establish
an advance notice procedure for shareholders to nominate candidates for election
as directors and to propose any new business at any annual meeting ("Shareholder
Notice Procedure"). Only persons nominated in accordance with the Shareholder
Notice Procedure are eligible to serve as directors, and only business brought
before the annual meeting in accordance with the Shareholder Notice Procedure
may be conducted at the annual meeting. Under the Shareholder Notice Procedure,
notice of shareholder nominations and proposals for new business at the annual
meeting must be delivered to the Secretary of Kirkland's 120 days before the
month and day that the Company's proxy statement to its shareholders was mailed
to shareholders the previous year. For nominations and proposals for any special
meetings, the Bylaws require notice not more than 90 days nor less than 60 days
before the special meeting. The Bylaws provide that notice to the Secretary of
Kirkland's with respect to any shareholder nomination or proposal must include
certain information regarding the nominee, the proposal and the shareholder
nominating a director or proposing business. According to the Bylaws, the
Chairman of the Board has the power to determine whether a shareholder
nomination or proposal was brought in accordance with the Shareholder Notice
Procedure.
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<PAGE> 60
By requiring advance notice of nominations by shareholders, the Shareholder
Notice Procedure will afford the Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by the Board of Directors, to inform shareholders about such
qualifications. By requiring advance notice of other proposed business, the
Shareholder Notice Procedure will provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Board of Directors, will provide the Board of Directors with
an opportunity to inform shareholders, prior to such meetings, of the Board of
Directors' position regarding action to be taken with respect to such business,
so that shareholders can better decide whether to attend such a meeting or to
grant a proxy regarding the disposition of any such business.
Although the Bylaws do not give the Board of Directors any power to approve
or disapprove shareholder nominations for the election of directors or proposals
for action, the Chairman of the Board has the power to determine compliance with
the Shareholder Notice Procedure. The Bylaws also may have the effect of
precluding a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to Kirkland's and its shareholders.
Amendment of Kirkland's Charter and Bylaws. The Charter provides that,
unless previously approved by the Board of Directors, the affirmative vote of at
least 80% of the Voting Power, voting together as a single class, would be
required to (i) amend or repeal the provisions of the Charter with respect to
the election of directors and the right to call a special shareholders' meeting,
(ii) adopt any provision inconsistent with such provisions and (iii) amend or
repeal the provisions of the Charter with respect to amendments to the Charter
or the Bylaws. In addition, the Bylaws provide that the amendment or repeal by
shareholders of any Bylaws made by the Board of Directors would require the
affirmative vote of at least 80% of the Voting Power.
Tennessee Corporate Takeover Acts. Tennessee has enacted several corporate
takeover acts for the purpose of protecting its substantial interest in domestic
corporations conducting a significant amount of business within the state.
Business Combination Act. Tennessee's Business Combination Act
provides that a party (such party is called an "interested shareholder") owning
10% or more of the stock in a "resident domestic corporation" (which Kirkland's
is) cannot engage in a business combination with the resident domestic
corporation unless the combination (i) takes place at least five years after the
interested shareholder first acquired 10% or more of the resident domestic
corporation, and (ii) either (A) is approved by at least two-thirds of the
non-interested voting shares of the resident domestic corporation or (B)
satisfies certain fairness conditions specified in the Business Combination Act.
These provisions apply unless one of two events occurs. A business
combination with an entity can proceed without delay when approved by the target
corporation's board of directors before that entity becomes an interested
shareholder, or the resident domestic corporation may enact a charter amendment
or bylaw to remove itself entirely from the Business Combination Act. This
charter amendment or bylaw must be approved by a majority of the shareholders
who have held shares for more than one year prior to the vote. It may not take
effect for at least two years after the vote. The Company has not adopted a
charter or bylaw amendment removing the Company from coverage under the Business
Combination Act.
The Business Combination Act further provides an exemption from liability
for officers and directors of resident domestic corporations who do not approve
proposed business combinations or charter amendments and bylaws removing their
corporations from the Business Combination Act's coverage as long as the
officers and directors act in "good faith belief" that the proposed business
combination would adversely affect their corporation's employees, customers,
suppliers or the communities in which their corporation operates and such
factors are permitted to be considered by the board of directors under the
applicable charter.
Investor Protection Act. Tennessee's Investor Protection Act
("Investor Protection Act") applies to tender offers directed at corporations
(called "offeree companies") that have "substantial assets" in Tennessee and
that are either incorporated in or have a principal office in Tennessee. The
Company satisfies
59
<PAGE> 61
both of these requirements. The Investor Protection Act requires an offeror
making a tender offer for an offeree company to file with the Commissioner of
Commerce and Insurance (the "Commissioner") a registration statement. When the
offeror intends to gain control of the offeree company, the registration
statement must indicate any plans the offeror has for the offeree. The
Commissioner may require additional information material concerning the takeover
offer and may call for hearings. The Investor Protection Act does not apply to
an offer that the offeree company's board of directors recommends to
shareholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, the Investor Protection Act requires the offeror and the
offeree company to deliver to the Commissioner all solicitation materials used
in connection with the tender offer. The Investor Protection Act prohibits
"fraudulent, deceptive, or manipulative acts or practices" by either side, and
gives the Commissioner standing to apply for equitable relief to the Chancery
Court of Davidson County, Tennessee, or to any other chancery court having
jurisdiction whenever it appears to the Commissioner that the offeror, the
offeree company or any of its respective affiliates has engaged in or is about
to engage in a violation of the Investor Protection Act. Upon proper showing,
the chancery court may grant injunctive relief. The Investor Protection Act
further provides civil and criminal penalties for violations.
Greenmail Act. The Tennessee Greenmail Act ("Greenmail Act") applies
to any corporation chartered under the laws of Tennessee which has a class of
voting stock registered or traded on a national securities exchange or
registered with the Securities and Exchange Commission pursuant to Section 12(g)
of the Exchange Act. The Greenmail Act provides that it is unlawful for any
corporation or subsidiary to purchase, either directly or indirectly, any of its
shares at a price above the market value, as defined in the Greenmail Act, from
any person who holds more than 3% of the class of the securities purchased if
such person has held such shares for less than two years, unless either the
purchase is first approved by the affirmative vote of a majority of the
outstanding shares of each class of voting stock or the corporation makes an
offer of at least equal value per share to all holders of shares of such class.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares
of Common Stock outstanding. Of these shares, the shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration, except for shares purchased by "affiliates" or "underwriters" of
the Company (as those terms are defined under the Securities Act), which will
become eligible for sale in the public market subject to compliance with Rule
144 under the Securities Act. The remaining 146,683 outstanding shares of Common
Stock are restricted securities (the "Restricted Shares") and may not be sold
unless they are registered under the Securities Act or are sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144 under
the Securities Act. All of the Restricted Shares will be subject to the 180-day
"lock-up" agreements described below. Upon expiration of such lock-up
agreements, 105,293 of the Restricted Shares will become eligible for sale,
subject to compliance with the volume limitations and manner of sale
requirements of Rule 144. The remaining 41,390 Restricted Shares will become
eligible for sale commencing one year after the date of this Prospectus. Holders
of all of these Restricted Shares have the right to require the Company to
register the shares for sale under the Securities Act in certain circumstances
and have the right to include those shares in a Company-initiated registration.
In general, Rule 144 allows a person who has beneficially owned Restricted
Shares for at least one year, including persons who may be deemed affiliates of
the Company, to sell, within any three-month period, up to the number of
Restricted Shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock and (ii) the average weekly trading volume
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. A person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale and who has
beneficially owned his or
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<PAGE> 62
her Restricted Shares for at least two years would be entitled to sell such
Restricted Shares without regard to the volume limitations described above and
certain other conditions of Rule 144.
Under Rule 701, any employee, officer or director or consultant to the
Company who purchased shares pursuant to a written compensatory plan or
contract, including the 1996 Executive Incentive and Non-Qualified Stock Option
Plan, who is not an affiliate of the Company, is entitled to sell such shares
without having to comply with the public information, holding period, volume
limitation or notice provisions of Rule 144 commencing 90 days after the date of
effectiveness (the "Effective Date") of the Registration Statement of which this
Prospectus is a part (the "Registration Statement"). In addition, under Rule
701, any affiliate who purchased shares pursuant to a written compensatory plan
or contract is entitled to sell such shares without having to comply with the
Rule 144 holding period restrictions commencing 90 days after the Effective
Date, subject to the "lock-up" agreements described above.
The shares underlying certain options which will be exercisable upon
completion of the Offering will also, upon exercise of the options, become
eligible for sale subject to the applicable "lock-up" agreements, as described
above, and compliance with Rule 144. An additional shares underlying
options which will become exercisable periodically beginning in August 1998 will
become eligible for sale subject to compliance with Rule 144. In addition, the
Company may issue up to an 12,850 additional shares of Common Stock pursuant to
the 1996 Executive Incentive and Non-Qualified Stock Option Plan, the 1998
Incentive Plan and the Purchase Plan. See "Management - Employee Benefit Plans."
The Company intends to file one or more registration statements under the
Securities Act to register Common Stock to be issued pursuant to these plans,
which would allow the shares issued thereunder to be freely tradeable without
restriction or further registration, except for shares purchased by "affiliates"
or "underwriters" of the Company.
Prior to this Offering, there has been no public market for the securities
of the Company. No predictions can be made of the effect, if any, that the sale
or availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of a substantial number of
such shares by existing shareholders or by shareholders purchasing in the
Offering could have an adverse effect on the market price of the Common Stock.
61
<PAGE> 63
UNDERWRITING
Under the terms of and subject to the conditions contained in an
underwriting agreement (the "Underwriting Agreement"), among the Company and
each of the underwriters named below (the "Underwriters"), for whom Lehman
Brothers Inc., The Robinson-Humphrey Company, LLC, BancAmerica Robertson
Stephens and Morgan Keegan & Company, Inc. are acting as representatives (the
"Representatives"), each of the several Underwriters has agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of such
Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
------------ -------------
<S> <C>
Lehman Brothers Inc. .................................
The Robinson-Humphrey Company, LLC....................
BancAmerica Robertson Stephens........................
Morgan Keegan & Company, Inc. ........................
-----------
Total.......................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions and that, if
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all the shares of Common Stock agreed to be
purchased by the Underwriters pursuant to the Underwriting Agreement must be so
purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer shares of Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain selected dealers (who may include the Underwriters) at such public
offering price less a selling concession not to exceed $ per share. The
selected dealers may reallow a concession not to exceed $ per share.
After the initial offering of the Common Stock, the offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company and its directors, executive officers and existing shareholders
have agreed not to, directly or indirectly, (i) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is designed
to, or could reasonably be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock, or sell or grant options,
rights or warrants with respect to any shares of Common Stock or securities
convertible into or exchangeable for Common Stock (except that such restrictions
will not apply to the shares offered pursuant to this Offering, shares offered
directly by the Company pursuant to the Company's existing employee benefit
plans or as consideration for future acquisitions, and shares offered in private
transactions provided that the transferee agrees to the restrictions discussed
herein) or (ii) enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic benefits or risks
of ownership of such shares of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case for a period of
180 days from the date of this Prospectus without the prior written consent of
Lehman Brothers Inc.
Carl Kirkland, Robert E. Alderson and Kirkland Holdings L.L.C. (the "Option
Shareholders") have granted to the Underwriters an option to purchase up to an
additional shares of Common Stock at the initial public offering
price to the public, less the underwriting discounts and commissions shown on
the cover page of this Prospectus, solely to cover over-allotments, if any. See
"Principal Shareholders" and "Certain Transactions." The option may be exercised
at any time up to 30 days after the date of this Prospectus. To the extent that
the Underwriters exercise such option, each of the Underwriters will be
committed (subject to certain conditions) to purchase a number of additional
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
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<PAGE> 64
The Company, each of its operating subsidiaries and the Option Shareholders
have agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments which the
Underwriters may be required to make in respect thereof.
Until the distribution of the shares of Common Stock offered hereby is
completed, rules of the Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing the Common Stock in the open
market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares of Common Stock as part of the Offering.
In general, purchases of a security for the purposes of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the applicable offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price, in addition to prevailing market conditions, will
be the market values of publicly traded companies that the Underwriters believe
to be somewhat comparable to the Company, the demand for the Common Stock and
for similar securities of companies comparable to the Company and other factors
deemed relevant. There can, however, be no assurance that an active trading
market will develop for the Common Stock or that the prices at which the Common
Stock will sell in the public market after the Offering will not be lower than
the price at which it will be sold in the Offering.
At the request of the Company, the Underwriters have reserved up to 5% of
the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and other persons associated with the
Company. The number of shares of Common Stock available for sale to the general
public in the Offering will be reduced to the extent such persons purchase such
reserved Common Stock. Any reserved shares of Common Stock not so purchased will
be offered by the Underwriters to the general public on the same basis as the
Common Stock offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority without the prior specific
written approval of such customers.
R-H Capital Partners, L.P., an affiliate of The Robinson-Humphrey Company,
LLC, one of the Underwriters in the Offering, is a member of Kirkland Holdings
L.L.C., one of the Company's principal shareholders. In addition, as of April
15, 1998, Lehman Commercial Paper Inc. ("Lehman"), an affiliate of Lehman
Brothers Inc., one of the Underwriters in the Offering, was the lender under one
of the tranches of the
63
<PAGE> 65
Company's senior credit facility for approximately $22.1 million of the $38.4
million then outstanding under that tranche. Upon completion of the Offering,
the Company expects to use approximately $12.2 million of the net proceeds to
repay a portion of this tranche, approximately $7.5 million of which will be
used to repay Lehman's proportionate share. As a result of Lehman, an affiliate
of Lehman Brothers Inc., receiving greater than 10% of the net proceeds of the
Offering, the National Association of Securities Dealers, Inc. ("NASD")
requires, among other things, under Rule 2720 of the NASD's Conduct Rules, that
the initial public offering price be no higher than that recommended by a
"qualified independent underwriter," who must participate in the preparation of
the registration statement and the prospectus and who must exercise the usual
standards of "due diligence" with respect thereto. The Robinson-Humphrey
Company, LLC is acting as a qualified independent underwriter in this Offering,
and the initial public offering price of the shares is not higher than the price
recommended by The Robinson-Humphrey Company, LLC, which price was determined
based on the factors discussed above. In accordance with such Rule 2720, the
Underwriters will not make sales of shares of Common Stock offered hereby to
customers' discretionary accounts without the prior specific written approval of
such customers. Certain of the Underwriters have also, from time to time,
provided investment banking services to the Company for which they have received
customary fees. See "Certain Transactions - The Recapitalization."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper Hamilton LLP and the Underwriters are being
represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The combined financial statements as of December 31, 1997 and 1996 and for
each of the years then ended included in this Prospectus and in the Registration
Statement have been so included in reliance upon the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The combined financial statements for the year ended December 31, 1995
included in this Prospectus and in the Registration Statement have been included
in reliance upon the report of KPMG Peat Marwick LLP, independent public
accountants, given on the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is not currently subject to the informational requirements of
the Securities Exchange Act. As a result of the Offering, the Company will be
required to file reports and other information with the Securities and Exchange
Commission (the "Commission") pursuant to the informational requirements of the
Securities Exchange Act.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the securities offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document, if applicable,
filed as an exhibit to the Registration Statement. The Company will issue annual
and quarterly reports. Annual reports will include audited financial statements
prepared in accordance with accounting principles generally accepted in the
United States and a report of the Company's independent auditors with respect to
the examination of such financial statements. In addition, the Company will
issue to its security holders such other unaudited quarterly or other interim
reports as it deems appropriate.
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<PAGE> 66
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
65
<PAGE> 67
KIRKLAND'S, INC. AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Independent Auditors' Report................................ F-3
Combined Balance Sheet as of December 31, 1996 and 1997 and
March 31, 1998............................................ F-4
Combined Statement of Income for the years ended December
31, 1995, 1996 and 1997 and the three months ended March
31, 1997 and 1998......................................... F-5
Combined Statement of Changes in Shareholders' Equity
(Deficit) for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1998............ F-6
Combined Statement of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998............................. F-7
Notes to Combined Financial Statements...................... F-8
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Kirkland's, Inc. and Affiliates
The transaction described in Note 13 in the combined financial statements
has not been consummated. When it has been consummated, we will be in a position
to furnish the following report:
"In our opinion, the accompanying combined balance sheet and the related
combined statements of income, of changes in shareholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Kirkland's, Inc. and Affiliates at December 31, 1996 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits 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
Memphis, Tennessee
February 13, 1998, except for Note 8
which is as of April 27, 1998 and Note 13
which is as of , 1998
F-2
<PAGE> 69
When the transaction referred to in Note 13 of the Notes to Combined
Financial Statements has been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Kirkland's, Inc. and Affiliates:
We have audited the accompanying combined statements of income, changes in
shareholders' equity (deficit) and cash flows of Kirkland's, Inc. and Affiliates
(formerly Kirkland's Retail Organization) for the year ended December 31, 1995.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Kirkland's, Inc. and Affiliates for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
Memphis, Tennessee
March 26, 1996, except as to
Note 13, which is as of
, 1998
F-3
<PAGE> 70
KIRKLAND'S, INC. AND AFFILIATES
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
INDEBTEDNESS
AND EQUITY
DECEMBER 31, (NOTE 1)
---------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
--------- --------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 11,228 $ 10,881 $ 2,177
Inventories....................................... 16,985 20,036 22,546
Prepaid expenses and other current assets......... 822 1,005 1,009
Income taxes refundable........................... -- -- 1,059
Deferred income taxes............................. 552 596 692
--------- --------- ---------
Total current assets....................... 29,587 32,518 27,483
Property and equipment, net......................... 10,613 12,895 12,894
Noncurrent deferred income taxes.................... 165 201 201
Debt issue costs, net............................... 5,271 4,270 4,018
--------- --------- ---------
Total assets............................... $ 45,636 $ 49,884 $ 44,596
========= ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt.............. $ 3,583 $ 4,421 $ 4,588
Accounts payable.................................. 1,315 1,696 2,878
Income taxes payable.............................. 1,565 1,774 --
Accrued liabilities............................... 5,951 8,835 6,224
--------- --------- ---------
Total current liabilities.................. 12,414 16,726 13,690
--------- --------- ---------
Long-term debt:
Senior credit facility............................ 48,281 44,051 50,887 38,687
Subordinated debt................................. 19,721 19,764 19,775 --
Mandatorily redeemable preferred stock (Class
C).............................................. 20,000 20,000 17,122 --
Other notes payable............................... 549 361 310 310
--------- --------- --------- --------
88,551 84,176 88,094 38,997
--------- --------- --------- --------
Common stock warrants............................... 490 879 879 --
--------- --------- --------- --------
Total liabilities.......................... 101,455 101,781 102,663 51,726
--------- --------- --------- --------
Commitments and contingencies (Notes 7 and 11)......
Redeemable convertible preferred stock, no par
value:
Class A........................................... 31,899 34,468 35,223 --
Class B........................................... 14,937 16,123 12,361 --
--------- --------- --------- --------
46,836 50,591 47,584 --
--------- --------- --------- --------
Shareholders' deficit:
Common stock, at stated value; 100,000, 100,000 and
92,100 shares issued and outstanding at December
31, 1996, 1997 and March 31, 1998, respectively... 235 210 203 203
Paid-in capital..................................... 6,157 2,293 1,295 100,041
Accumulated deficit................................. (109,047) (104,991) (107,149) (107,374)
--------- --------- --------- --------
Total shareholders' deficit................ (102,655) (102,488) (105,651) (7,130)
--------- --------- --------- --------
Total liabilities, redeemable preferred
stock and shareholders' deficit.......... $ 45,636 $ 49,884 $ 44,596 $ 44,596
========= ========= ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 71
KIRKLAND'S, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31
------------------------------------- --------------------------
1995 1996 1997 1997 1998
-------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................ $112,035 $ 127,946 $ 153,584 $ 26,178 $ 30,615
Cost of sales (including
store occupancy
costs)................. 68,835 80,438 96,998 18,619 21,110
-------- ---------- ----------- ----------- -----------
Gross profit... 43,200 47,508 56,586 7,559 9,505
Operating expenses....... 24,192 27,915 35,004 7,392 9,178
Severance charge......... -- -- 756 -- --
Recapitalization
expenses............... -- 854 -- -- --
Owners' compensation..... 13,926 -- -- -- --
Depreciation and
amortization........... 2,362 3,383 4,142 1,003 1,156
-------- ---------- ----------- ----------- -----------
Operating
income
(loss)....... 2,720 15,356 16,684 (836) (829)
Interest expense:
Senior, subordinated
and other notes
payable............. 1,415 5,114 7,990 1,961 1,930
Class C Preferred
Stock............... -- 990 1,800 450 385
Accretion of common
stock warrants...... -- 190 389 97 --
Interest income.......... (162) (47) (80) -- (2)
Other income, net........ (221) (147) (154) (57) (64)
-------- ---------- ----------- ----------- -----------
Income (loss)
before income
taxes........ 1,688 9,256 6,739 (3,287) (3,078)
Income tax provision
(benefit).............. -- 2,693 2,817 (923) (920)
-------- ---------- ----------- ----------- -----------
Net income
(loss)....... 1,688 6,563 3,922 (2,364) (2,158)
Accretion of redeemable
preferred stock and
accrual of dividends
(Class A and B
Preferred Stock)....... -- 2,313 3,755 939 998
-------- ---------- ----------- ----------- -----------
Net income (loss)
allocable to common
stock.................. $ 1,688 $ 4,250 $ 167 $ (3,303) $ (3,156)
======== ========== =========== =========== ===========
Income (loss) per common
share:
Basic.................. $ 16,880 $ 76.18 $ 1.67 $ (33.03) $ (34.04)
======== ========== =========== =========== ===========
Diluted................ $ 16,880 $ 67.47 $ 1.35 $ (33.03) $ (34.04)
======== ========== =========== =========== ===========
Weighted average number
of common shares
outstanding:
Basic.................. 100 55,789 100,000 100,000 92,714
======== ========== =========== =========== ===========
Diluted................ 100 62,987 123,590 100,000 92,714
======== ========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 72
KIRKLAND'S, INC. AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. 100 $ 639 $ 2,637 $ 6,449 $ 9,725
Sale of common stock in affiliated
corporations............................ 13 13
Owners' contributions..................... 453 453
Net income................................ 1,688 1,688
------- ----- ------- --------- ---------
Balance at December 31, 1995.... 100 652 3,090 8,137 11,879
Sale of common stock in affiliated
corporations............................ 17 17
Discontinuance of Subchapter S corporation
election................................ 8,013 (8,013) --
Distribution to shareholders.............. (1,534) (1,534)
Distribution of redeemable preferred stock
to common shareholders:
Class C................................. (20,000) (20,000)
Class B................................. (14,206) (14,206)
Issuance of additional shares to existing
common shareholders..................... 31,568 --
Sale of common stock to investors......... 68,400 31 31
Repurchase and cancellation of
common stock............................ (68) (465) (1,099) (81,528) (83,092)
Accretion of redeemable preferred stock
and dividends accrued................... (2,313) (2,313)
Net income................................ 6,563 6,563
------- ----- ------- --------- ---------
Balance at December 31, 1996.... 100,000 235 6,157 (109,047) (102,655)
Retirement of common stock in affiliated
corporations............................ (25) (109) 134 --
Accretion of redeemable preferred stock
and dividends accrued................... (3,755) (3,755)
Net income................................ 3,922 3,922
------- ----- ------- --------- ---------
Balance at December 31, 1997.... 100,000 210 2,293 (104,991) (102,488)
Redemption of stock from former
shareholder (unaudited)................. (7,900) (7) (7)
Accretion of redeemable preferred stock
and dividends accrued (unaudited)....... (998) (998)
Net loss (unaudited)...................... (2,158) (2,158)
------- ----- ------- --------- ---------
Balance at March 31, 1998
(unaudited)................... 92,100 $ 203 $ 1,295 $(107,149) $(105,651)
======= ===== ======= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 73
KIRKLAND'S, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 1,688 $ 6,563 $ 3,922 $ (2,364) $(2,158)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation of property and
equipment....................... 2,362 2,790 3,141 753 904
Amortization of debt issue
costs........................... -- 593 1,001 250 252
Accretion of common stock
warrants........................ -- 190 389 97 --
Loss on disposal of property and
equipment....................... 3 52 56 -- --
Deferred tax benefit.............. -- (717) (80) 218 (96)
Changes in assets and liabilities:
Inventories..................... (4,816) 319 (3,051) (4,206) (2,510)
Prepaid expenses and other
assets....................... (124) (143) (183) -- (4)
Accounts payable................ 1,728 (2,196) 381 1,658 1,182
Income taxes payable............ -- 1,565 209 (2,408) (2,833)
Accrued liabilities............. 428 2,049 2,884 (1,562) (2,611)
------- -------- ------- -------- -------
Net cash provided by (used
in) operating activities... 1,269 11,065 8,669 (7,564) (7,874)
------- -------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment......................... 10 52 12 -- --
Capital expenditures................. (4,140) (4,257) (5,491) (735) (903)
------- -------- ------- -------- -------
Net cash used in investing
activities................. (4,130) (4,205) (5,479) (735) (903)
------- -------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
notes payable to banks............ 224 (448) -- -- --
Proceeds from issuance of long-term
debt.............................. 5,804 79,124 -- -- 7,000
Debt issue costs..................... -- (5,864) -- -- --
Principal payments on long-term
debt.............................. (3,216) (19,533) (3,537) (617) (37)
Redemption of stock from former
shareholder....................... -- -- -- -- (6,890)
Proceeds from issuance of redeemable
convertible preferred stock (Class
A), net........................... -- 30,317 -- -- --
Proceeds from issuance of common
stock............................. 13 48 -- -- --
Repurchase of common stock........... -- (83,092) -- -- --
Owners' contributions
(distributions)................... 453 (1,534) -- -- --
------- -------- ------- -------- -------
Net cash provided by (used
in) financing activities... 3,278 (982) (3,537) (617) 73
------- -------- ------- -------- -------
Cash and cash equivalents
Net increase (decrease)...... 417 5,878 (347) (8,916) (8,704)
Beginning of year............ 4,933 5,350 11,228 11,228 10,881
------- -------- ------- -------- -------
End of year.................. $ 5,350 $ 11,228 $10,881 $ 2,312 $ 2,177
======= ======== ======= ======== =======
Supplemental Disclosures:
Interest paid........................ $ 1,195 $ 5,045 $ 9,041 $ 2,565 $ 2,193
======= ======== ======= ======== =======
Income taxes paid.................... $ -- $ 1,298 $ 2,687 $ 1,267 $ 2,010
======= ======== ======= ======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 74
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Kirkland's Inc. and Affiliates (the "Company") is comprised of a service
organization and affiliated retail specialty stores (138 at December 31, 1997).
The Company is a leading specialty retailer of decorative home accessories and
gifts with stores in 25 states. Kirkland's, Inc. operates the retail specialty
stores through separate corporations under common ownership.
Basis of Presentation
The combined financial statements include the accounts of Kirkland's, Inc.
and its affiliated corporations. The statements are presented on a combined
basis due to common ownership, common management and the integrated nature of
business activities/operations. Significant intercompany accounts and
transactions are eliminated.
Reclassifications
Certain prior years' amounts have been reclassified to conform to the 1997
presentation.
Cash Equivalents
Cash equivalents consist of investments with maturities of 90 days or less
at the date of purchase.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined using the average cost method which approximates current cost.
Property and Equipment
Property and equipment are stated at cost. Tenant allowances provided by
the lessors for reimbursement and construction costs incurred in connection with
store openings are recorded as reductions to the basis of the respective tenant
improvements. Depreciation is computed on a straight-line basis over the
estimated useful lives of the respective assets. Furniture, fixtures and
equipment are depreciated over 5-7 years. Buildings are depreciated over 40
years. Leasehold improvements are amortized over the shorter of the useful life
of the asset or the lease term. Maintenance and repairs are expensed as incurred
and improvements are capitalized.
Debt Issue Costs
Debt issue costs are amortized by the straight-line method over the life of
the debt and are shown net of accumulated amortization of $593,000 and
$1,594,000 at December 31, 1996 and 1997, respectively. Use of the straight-line
method of amortization approximates the results of the application of the
interest method.
Preopening Expenses
Preopening expenses, which consist primarily of payroll and occupancy
costs, are expensed as incurred.
Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $628,000,
$771,000 and $802,000 in 1995, 1996 and 1997, respectively.
F-8
<PAGE> 75
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
Prior to June 12, 1996, the Company elected to be taxed as a Subchapter S
corporation for federal income tax purposes. As a result, no income taxes were
recorded until that date. Instead, the shareholders paid tax on their respective
shares of taxable income, even if such income was not distributed. Effective
June 12, 1996, the Company discontinued its election to be treated as an S
corporation. As a result of this change, the Company capitalized its retained
earnings as of that date ($8,013,000) into Paid-in capital.
The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The initial adoption of the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("SFAS 109"), resulted in a deferred tax benefit of $379,000.
Authorized Capital
The Kirkland's, Inc. authorized capital at December 31, 1997 consisted of
500,000 shares of common stock, 68,400 shares of Class A Preferred Stock and
31,600 shares of Class B Preferred Stock. The number of shares of Class A and
Class B Preferred Stock discussed elsewhere in these financial statements
represents the aggregate combined shares of Kirkland's, Inc. and each of its
affiliated corporations. See Note 8 for a description of the terms of each
issue.
Stock Options and Warrants
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. No compensation expense is recognized for stock options issued to
employees when the option's exercise price is greater than or equal to the fair
value of the Company's common stock on the grant date. Otherwise, compensation
expense is recorded, over the vesting period, in an amount equal to the
difference between the fair value of the common stock on the grant date and the
exercise price. The Company has provided pro forma disclosures of net income as
if the fair value based method of accounting for the plan, as prescribed by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, had been applied (see Note 9). Pro forma disclosures include the
effects of employees' stock options granted during the years ended December 31,
1996 and 1997.
The fair value of detachable put warrants issued in connection with the
issuance of debt is initially recorded as a discount to the related debt and
amortized to interest expense, using the effective interest method, over the
term of the related debt. The warrants are adjusted to their current fair value
(as defined in the applicable debt agreement) for each subsequent period through
the accretion of common stock warrants account in the combined statements of
income.
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 certain assets and liabilities
and disclosure of contingencies at the date of the financial statements and the
related reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
At December 31, 1996 and 1997, the Company did not have any outstanding
financial derivative instruments. Financial instruments include cash, accounts
payable, a revolving credit agreement and long-term debt. The carrying amounts
of these financial instruments, except long-term debt, approximate fair value
F-9
<PAGE> 76
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
because of their short maturities. Long-term debt approximates fair value based
on the short periods of interest rate repricing for variable rate long-term debt
and estimates based on the current borrowing rates available to the Company for
bank loans with similar terms and average maturities for fixed rate long-term
debt.
Interim Data
The interim financial data is unaudited; however, in the opinion of the
Company this interim data includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results of the
interim periods.
Pro Forma Information (unaudited)
The pro forma information at March 31, 1998 adjusts the historical March
31, 1998 balances of long-term debt and the equity accounts to give effect to
the recapitalization and exchange of the Class A and B Preferred Stock into or
for common stock, the exercise of common stock warrants by warrantholders and
the purchase or redemption of Class C Preferred Stock and other debt upon the
closing of an anticipated initial public offering of common stock (the
"Offering").
Noncash Supplemental Disclosure
The following noncash transactions have been excluded from the Statement of
Cash Flows (in thousands): (unaudited)
<TABLE>
<CAPTION>
1996
-------
<S> <C> <C>
Accretion of redeemable Class A and B Preferred Stock and
- - dividends accrued........................................... $ 2,313
- - Distribution of redeemable Class B and C Preferred Stock.... 34,206
Issuance of common stock warrants in connection with senior
- - subordinated debt........................................... 300
1997
-------
Accretion of redeemable Class A and B Preferred Stock and
- - dividends accrued........................................... $ 3,755
</TABLE>
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 130 -- In June
1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Currently, the Company does not
have any items that are required to be recognized as components of comprehensive
income.
SFAS No. 131 -- In June 1997, the FASB issued SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. SFAS No. 131 revises
the current requirements for reporting business segments by redefining such
segments as the way management disaggregates the business for purposes of making
operating decisions and allocating internal resources. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997, and although management
believes that SFAS No. 131 will not impact the Company's presentation, the
Company will adopt SFAS No. 131 in fiscal 1998.
F-10
<PAGE> 77
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Earnings Per Share
Earnings per share is calculated in accordance with the provisions of SFAS
No. 128 Earnings Per Share. SFAS No. 128 requires the Company to report both
basic earnings per share and diluted earnings per share. Basic earnings per
share is computed by dividing net income allocable to common stock by the
weighted average number of shares outstanding during the period.
Diluted earnings per share are computed using the weighted average number
of shares determined for the basic computations plus the number of shares of
common stock that would be issued assuming all potentially issuable shares
having a dilutive effect on earnings per share were outstanding for the period.
<TABLE>
<CAPTION>
WEIGHTED
(IN THOUSANDS) AVERAGE PER SHARE
INCOME SHARES AMOUNT
---------------- ---------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1997
Basic income........................................ $ 167 100,000 $ 1.67
Effect of dilutive securities:
Warrants......................................... 16,452
Options.......................................... 7,138
------ ---------- -------
Dilutive income..................................... $ 167 123,590 $ 1.35
------ ---------- -------
DECEMBER 31, 1996
Basic income........................................ $4,250 55,789 $ 76.18
Effect of dilutive securities:
Warrants......................................... 7,198
------ ---------- -------
Dilutive income..................................... $4,250 62,987 $ 67.47
------ ---------- -------
DECEMBER 31, 1995
Basic income........................................ $1,688 100 $16,880
------ ---------- -------
Dilutive income..................................... $1,688 100 $16,880
------ ---------- -------
</TABLE>
At December 31, 1996 and 1997, 7,797,000 shares of Class A Preferred Stock
and 3,602,400 shares of Class B Preferred Stock were outstanding. The holders of
both classes of stock may convert their shares into common stock upon the
occurrence of an initial public offering at the rate of the liquidation value
divided by the initial public offering price (see Note 8). These shares were not
included in the calculation of earnings per share for 1996 and 1997 due to the
antidilutive effect they would have on earnings per share if converted.
Stock options to acquire 7,143 shares of common stock of the Company at
$0.045 per share were granted during 1996. The options had no dilutive impact on
earnings per share during the year ended December 31, 1996.
Contingent common stock warrants reserved for the holders of the
subordinated notes (see Note 6) entitling them to purchase 3.5% of the fully
diluted equity of the Company were included in the calculation of diluted
earnings per share for the years ended December 31, 1996 and 1997 due to certain
valuation thresholds not being met as of the applicable date.
Stock options to acquire 3,769 shares of common stock of the Company at
$95.00 per share were granted during 1997. The options were not included in the
calculation of earnings per share for the year ended December 31, 1997 because
the options' exercise price was greater than the average fair market value of
the common stock.
F-11
<PAGE> 78
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- LEVERAGED RECAPITALIZATION
On June 12, 1996, the Company completed a leveraged recapitalization (the
"Recapitalization") which included the following principal components:
- The creation of two new classes of redeemable convertible preferred stock
("Class A Preferred Stock" and "Class B Preferred Stock") (See Note 8).
- The creation of a new class of mandatorily redeemable preferred stock
("Class C Preferred Stock") (See Note 6).
- The distribution of 100% of the Class B Preferred Stock and Class C
Preferred Stock to the existing shareholders of the Company.
- The sale of newly issued shares of common stock and 100% of the Class A
Preferred Stock for cash of $30,780,000 to the new investors
("Investors").
- The issuance of $20 million of senior subordinated note due June 2003
("Senior Subordinated Note") (See Note 6).
- The issuance of $52 million of variable rate Senior Debt, under the
Company's bank credit facility, with quarterly principal and interest
payments through June 2002 (the "Senior Debt") (See Note 6).
- The repurchase and cancellation of 68.4% of the aggregate common stock of
the existing shareholders for cash of $83,092,000.
- The repayment of existing indebtedness of the Company totaling
$19,193,000.
Total transaction-related fees for the Recapitalization amounted to
approximately $6,296,000. Of this amount, financing costs of $5,864,000
associated with the Senior Subordinated Notes and the Senior Debt were deferred
and are being amortized over the life of this debt.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment comprised the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Land..................................................... $ 300 $ 300
Buildings................................................ 965 965
Equipment................................................ 18,151 21,556
Leasehold improvements................................... 5,795 6,482
------- -------
25,211 29,303
Less accumulated depreciation............................ 14,598 16,408
------- -------
$10,613 $12,895
======= =======
</TABLE>
F-12
<PAGE> 79
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- ACCRUED LIABILITIES
Accrued liabilities comprised the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Accrued compensation....................................... $ 925 $1,661
Sales taxes payable........................................ 1,857 2,234
Percentage rent accrual.................................... 472 552
Gift certificates and store credits........................ 720 997
Accrued interest payable................................... 1,689 2,358
Other...................................................... 288 1,033
------ ------
$5,951 $8,835
====== ======
</TABLE>
NOTE 5 -- INCOME TAXES
As discussed in Note 1, prior to June 12, 1996, the Company had elected to
be treated as a Subchapter S corporation for federal income tax purposes.
Accordingly, the financial statements do not reflect a provision for federal
income taxes prior to June 12, 1996.
The provision for income taxes for 1996 and 1997 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Current
Federal.................................................. $2,634 $2,324
State.................................................... 776 573
------ ------
3,410 2,897
------ ------
Deferred
Federal.................................................. (277) (64)
State.................................................... (61) (16)
Adoption of SFAS 109 due to discontinuance of S
corporation election.................................. (379) --
------ ------
(717) (80)
------ ------
$2,693 $2,817
====== ======
</TABLE>
F-13
<PAGE> 80
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 respectively, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Current deferred tax assets
Inventory valuation methods............................. $192 $ 211
Accruals................................................ 360 385
---- ------
552 596
Noncurrent deferred tax assets
Property and equipment.................................. 165 201
Net operating loss carryforwards........................ -- 741
---- ------
717 1,538
Deferred valuation allowance.............................. -- (741)
---- ------
$717 $ 797
==== ======
</TABLE>
The deferred valuation allowance at December 31, 1997 is based on
management's conclusion that sufficient positive evidence, as defined in SFAS
109, regarding realization of certain tax carryforward items does not exist due
to potential separate return limitations on the use of such items.
A reconciliation of the provision for income taxes to the amount computed
by applying the federal statutory tax rate of 35% to income before income taxes
for 1996 and 1997, respectively, is as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Statutory Federal income tax rate.......................... 35.0% 35.0%
State income taxes, net of Federal income tax effect....... 5.4 5.2
Benefit from termination of S corporation election......... (4.0) --
Benefit from surtax exemptions............................. (10.0) (10.3)
Recording of valuation allowance........................... -- 10.4
Other...................................................... 2.7 1.5
----- -----
29.1% 41.8%
===== =====
</TABLE>
F-14
<PAGE> 81
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INDEBTEDNESS
Long-term debt
Long-term debt consists of the following ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Senior Credit Facility:
Senior Debt (Tranche A), principal and interest payable
quarterly at varying amounts through June 2001,
interest at a negotiated rate, as defined in the debt
agreement (average rate of 9.3% in 1997)............... $19,750 $16,750
Senior Debt (Tranche B), principal and interest payable
quarterly at varying amounts through June 2002,
interest at a negotiated rate, as defined in the debt
agreement (average rate of 9.5% in 1997)............... 31,922 31,531
------- -------
51,672 48,281
Senior Subordinated Notes, interest payable quarterly,
principal due in June 2003, interest at 12.25% in 1996 and
1997, 12.50% thereafter, net of unamortized debt discount
of $236,000 ($279,000 in 1996)............................ 19,721 19,764
Various notes payable, with interest rates varying from
prime to prime plus 1%, principal and interest payable
quarterly or annually, maturing through 2003 (average rate
of 9.4% in 1997).......................................... 741 552
------- -------
72,134 68,597
Less current portion........................................ 3,583 4,421
------- -------
Total long-term............................................. $68,551 $64,176
======= =======
</TABLE>
The principal maturities of long-term debt outstanding at December 31, 1997
in years subsequent to 1998 are as follows: $5,672,000 in 1999; $6,480,000 in
2000; $22,347,000 in 2001; $9,913,000 in 2002 and $19,764,000 thereafter.
On June 12, 1996, the Company entered into a senior credit facility (the
"Senior Debt Agreement") with a syndicate bank group providing for up to $52
million of senior term debt. Borrowings under the Senior Debt Agreement (Tranche
A) bear interest at a negotiated rate, a floating rate (the higher of the
federal funds rate plus .5% or the prime rate) plus 2.25% or a Eurodollar Rate,
as defined in the Senior Debt Agreement, plus 3.25%. Borrowings under the Senior
Debt Agreement (Tranche B) bear interest at a negotiated rate, a floating rate
(the higher of the federal funds rate plus .5% or the prime rate) plus 2.75%, or
a Eurodollar Rate, as defined, plus 3.75%.
In accordance with the Senior Debt Agreement, the Company has a $20 million
revolving credit agreement ("Line of Credit") with the same syndicate bank
group. The Line of Credit has a maturity date of June 30, 2001 and bears
interest at a negotiated rate, a floating rate (the higher of the federal funds
rate plus .5% or the prime rate) plus 2.25%, or a Eurodollar Rate, as defined in
the Senior Debt Agreement, plus 3.25%. The Line of Credit requires a 30-day
consecutive zero balance between December 1 and March 1 of each year. There were
no borrowings outstanding under the Line of Credit at December 31, 1996 and
1997. The Company is required to pay a commitment fee to the bank at a rate per
annum equal to .5% on the unused portion of the Line of Credit.
On June 12, 1996, the Company also entered into a Senior Subordinated Note
and Warrant Purchase Agreement (the "Subordinated Note Agreement"). The holders
of the subordinated notes also received warrants to purchase, for $0.01 per
share, 11,905 shares of common stock of the Company. Additional warrants
("Incentive Warrants") are reserved for the holders of the notes, entitling them
to purchase, for $0.01 per share, an additional 4,817 shares of common stock in
the event certain valuation targets are not met.
F-15
<PAGE> 82
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The Incentive Warrants will be based on the net valuation of the Company at a
sale of the Company's common stock or an initial public offering, as defined in
the Subordinated Note Agreement. Under the original provisions of this
agreement, these warrants could be sold back (i.e., put) to the Company at the
holders' option on the maturity date of the debt for fair market value, as
defined in the Subordinated Note Agreement. The holders agreed to terminate the
put as of January 1, 1998. An initial value of $300,000 was allocated to the
warrants and recorded as debt discount. The debt discount is being amortized
over the life of the notes.
Prior to June 12, 1996, the Company had operating lines of credit of
approximately $15.6 million with various banks. The lines had varying maturities
and bore interest at rates ranging from 8.25% to 9.5%.
Under the most restrictive covenants of these agreements, the Company is
required to maintain stated levels of earnings and net worth. These agreements
are secured by substantially all of the Company's assets.
Mandatorily redeemable preferred stock
In connection with the Recapitalization, the Company distributed all of the
1,740,000 authorized shares of no par value Class C Preferred Stock. The Class C
Preferred Stock has a liquidation preference to the Class A Preferred Stock and
the Class B Preferred Stock and had a liquidation value of $20 million at
December 31, 1996 and 1997. The Class C Preferred Stock has no conversion
privileges, is non-voting and can be redeemed in whole or in part at the option
of the Company at any time, and shall be mandatorily redeemable in whole at the
earliest to occur of July 2003 or change in control or refinancing. In
connection with the Class C Preferred Stock, the Company pays an annual amount
equal to 9% of the outstanding balance to the holders which has been reflected
in interest expense in the accompanying combined statement of income.
NOTE 7 -- LONG-TERM LEASES
The Company leases retail store facilities under noncancelable operating
leases with terms ranging from five to ten years and expiring at various dates
through 2009. Most of these agreements include renewal options and provide for
minimum rentals and contingent rentals based on sales performance in excess of
specified minimums. Rent expense under operating leases was $7,615,000,
$9,296,000 and $11,363,000 in 1995, 1996 and 1997, respectively, and contingent
rental expense was $459,000, $468,000 and $539,000 in 1995, 1996 and 1997,
respectively.
Future minimum lease payments under all operating leases with initial terms
of one year or more are as follows: $12,045,000 in 1998; $11,452,000 in 1999;
$10,871,000 in 2000; $10,470,000 in 2001; $10,121,000 in 2002; and $32,559,000
thereafter.
NOTE 8 -- CAPITAL STRUCTURE
On April 27, 1998, the charters of the Company and each affiliated
corporation were amended to establish the capital structure described below.
Common Stock
The Kirkland's, Inc. authorized capital includes 500,000 shares of voting
common stock. The holders of the common stock have one vote per share and are
entitled to elect a total of four directors to the Board of Directors of the
Company. A director elected by the holders of the stock cannot be removed except
for cause unless the removal receives approval by a majority vote. The holders
of the stock are not entitled to cumulative voting in the election of directors.
F-16
<PAGE> 83
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Redeemable Convertible Preferred Stock
The Class A Preferred Stock and the Class B Preferred Stock have voting
privileges on par with common shareholders and have liquidation values of
$30,749,000 and $14,206,000, respectively, plus accrued dividends. The dividends
accrue at 8% compounded annually through July 1999 and 10% compounded annually
thereafter. The Class A Preferred Stock and Class B Preferred Stock can be
redeemed in whole or in part at the option of the Company once all Class C
Preferred Stock has been redeemed. The Class A Preferred Stock and Class B
Preferred Stock are mandatorily redeemable at the earliest to occur of July 2004
or a liquidity event as defined, including a qualified public offering. Class A
Preferred Stock and Class B Preferred Stock must be redeemed in equal
proportions. Additionally, the holders of Class A Preferred Stock and Class B
Preferred Stock may convert their shares into common stock upon the occurrence
of an initial public offering of the Company's common stock at a rate of the
liquidation value divided by the initial public offering price.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Stock Options
On June 12, 1996, the Company adopted the "1996 Executive Incentive and
Non-Qualified Stock Option Plan" (the "1996 Plan") which provides employees and
officers with opportunities to purchase an aggregate of 12,304 shares of the
Company's common stock. The 1996 Plan requires that incentive stock options be
issued at exercise prices which are at least 100% of the fair market value of
the stock at the date of the grant.
On June 12, 1996, the Company granted incentive stock options to purchase
7,143 shares of common stock of the Company. The options were granted under the
Plan to three of the Company's key management employees who are also substantial
stockholders. The options vest over eight years and provide for accelerated
vesting immediately prior to the closing of a sale of the Company or an initial
public offering of the Company's common stock. The exercise price is $0.045 per
share. Subsequent to December 31, 1997, the options granted to one of the key
management employees were canceled in connection with his resignation from the
Company and the redemption of his stock (see Note 12).
On June 27, 1997, the Company granted non-qualified stock options to
various employees under the 1996 Plan to purchase 3,769 shares of the common
stock of the Company. The exercise price for the options is $95.00 per share.
This exercise price is not less than the fair value of the Company's common
stock as determined by the Company's Board of Directors. The options generally
become exercisable on July 1, 2000 provided that the optionee is an employee of
the Company on that date.
Transactions under the Company's stock option plans in each of the two
years in the period ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995 -- --
Granted........................................ 7,143 $ 0.045
Exercised...................................... -- --
Canceled....................................... -- --
------ -------
Outstanding at December 31, 1996................. 7,143 0.045
Granted........................................ 3,769 95.00
Exercised...................................... -- --
Canceled....................................... (660) 95.00
------ -------
Outstanding at December 31, 1997................. 10,252 $ 28.84
====== =======
</TABLE>
F-17
<PAGE> 84
KIRKLAND'S INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The weighted average fair value of options granted during the year ended
December 31, 1996 and 1997 was determined to be $0.025 and $32.06 per share,
respectively. None of the options are exercisable at December 31, 1997. Had
compensation expense for the Company's stock option plan been determined based
on the fair values at the grant date for stock option awards granted during the
years ended December 31, 1996 and 1997, in accordance with the method of
accounting prescribed by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net income would have
been reduced to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Net income allocable to common stock, as
reported......................................... $4,250 $ 167
Pro forma.......................................... 4,250 147
Net income per common share, as reported:
Basic............................................ $76.18 $1.67
Fully diluted.................................... $67.47 $1.35
Pro forma:
Basic............................................ $76.18 $1.47
Fully diluted.................................... $67.47 $1.19
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model based upon the following
assumptions: expected volatility of 55% in 1996 and 1997; risk-free interest
rates of 6.5% in 1996 and 5.5% in 1997; expected lives of 5 years for 1996 and
1997 and no expected dividend payments. The weighted average remaining
contractual life of the options was 7.5 years at December 31, 1996 and 5.1 years
at December 31, 1997.
401(k) Savings Plan
The Company retains a defined contribution 401(k) employee benefit plan
which covers all employees meeting certain age and service requirements. Up to
5% of the employee's compensation may be matched at the Company's discretion.
This discretionary percentage has been maintained at 25% of an employee's
contribution subject to Plan maximums. The Company's matching contributions were
approximately $39,000, $50,000 and $57,000 in 1995, 1996 and 1997, respectively.
The Company has the option to make additional contributions to the Plan on
behalf of covered employees; however, no such contributions were made in 1995,
1996 or 1997.
NOTE 10 -- RELATED PARTIES
Inventory is purchased in the ordinary course of business from an entity
owned by a substantial shareholder of the Company. It is management's opinion
that these purchases are made on substantially the same terms as those
prevailing at the time for comparable transactions with other entities.
Purchases approximated $3.3 million, $2.3 million and $1.4 million in 1995, 1996
and 1997, respectively.
The Company purchases inventory from a manufacturer in which one of the
Investors also has a significant ownership interest. Purchases from this
manufacturer totaled $610,109, $297,774 and $216,847 in 1995, 1996 and 1997,
respectively.
The Company also paid other substantial shareholders approximately $59,000,
$47,000 and $89,000 in 1995, 1996 and 1997, respectively, for rental of aircraft
in connection with business travel.
F-18
<PAGE> 85
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of risk are primarily cash and cash equivalents. The Company
places its cash and cash equivalents in insured depository institutions and
attempts to limit the amount of credit exposure to any one institution within
the covenant restrictions imposed by the Company's debt agreements. At December
31, 1996 and 1997, the Company's uninsured cash balance totaled $10.4 million
and $10.1 million, respectively.
Employment Agreements
In July 1996, the Company entered into employment agreements with three key
management employees and a consulting agreement with another individual, all of
whom were shareholders of the Company. The management agreements have terms of
four years and require annual payments of $825,000. Additionally, these
employees own all of the outstanding Class C Preferred Stock. These employment
agreements also require the Company to pay an annual amount equal to 9% of the
outstanding balance of this preferred stock (see Note 6). The consulting
agreement has a term of seven years and requires an annual payment of $679,000.
Subsequent to December 31, 1997, one of the management employees resigned and
his stock was redeemed (see Note 12).
Litigation
The Company is party to pending legal proceedings and claims. Although the
outcome of such proceedings and claims cannot be determined with certainty, the
Company's management is of the opinion that it is unlikely that these
proceedings and claims will have a material effect on the financial condition or
operating results of the Company.
NOTE 12 -- SUBSEQUENT EVENT
During the fourth quarter of 1997, a management employee of the Company
resigned and the Company began negotiations to settle his employment agreement
and repurchase his stock. The final settlement became effective on January 7,
1998. The redemption was financed through $7 million in additional borrowings
under the Company's Tranche B Senior Debt. The total amount paid to the former
management employee amounted to $6,888,566, which represents the stated value of
his Class B Preferred Stock, Class C Preferred Stock and common stock. In
connection with the redemption, the options previously granted to the former
officer under the 1996 Plan to purchase 2,381 shares of common stock of the
Company were canceled.
The former management employee's employment agreement had approximately two
and one-half years remaining and stipulated annual payments to the former
management employee of $534,000. A portion of the payments will continue to be
made in the future. The Company recorded an aggregate charge of $756,000 of
which $676,000 was accrued as of December 31, 1997 to provide for the balance of
the required payments to be made subsequent to that date. This amount is
included within severance charge on the combined statement of income.
NOTE 13 -- EFFECT OF CONTEMPLATED TRANSACTION
As noted elsewhere in this Prospectus, prior to the closing of the
Offering, all of the outstanding common stock of each affiliated corporation
(collectively, the "Kirkland Companies") will be contributed to Kirkland's, Inc.
(the "Contribution"). As of December 31, 1997, Kirkland's, Inc. had 100,000
shares of common stock outstanding and, in the aggregate, the Kirkland Companies
had 11,328,000 common shares outstanding.
F-19
<PAGE> 86
KIRKLAND'S, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
As a result of the Contribution, the outstanding common shares will be
100,000, before the effect the redemption of 7,900 shares from a former
management employee described in Note 12 (92,100 after such redemption).
The accompanying combined financial statements, including all common share
and per common share information therein, give retroactive effect to the
Contribution as if the Contribution occurred as of the beginning of the earliest
period.
F-20
<PAGE> 87
======================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN SHARES OF COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSONS IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary............................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Unaudited Pro Forma Combined Condensed
Financial Statements................ 19
Selected Combined Financial Data...... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 32
Management............................ 41
Certain Transactions.................. 51
Principal Shareholders................ 54
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 64
Experts............................... 64
Available Information................. 64
Index to Combined Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
======================================================
======================================================
SHARES
KIRKLAND'S, INC.
COMMON STOCK
------------------------
PROSPECTUS
, 1998
------------------------
LEHMAN BROTHERS
THE ROBINSON-HUMPHREY
COMPANY
BANCAMERICA ROBERTSON STEPHENS
MORGAN KEEGAN
& COMPANY, INC.
======================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which will be paid by the Company, in connection with the issuance and
distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee...................................... $ 18,659
Nasdaq National Market Listing Fee........................ 83,500
NASD Fee.................................................. 6,825
Printing and engraving fees............................... 100,000
Registrant's counsel fees and expenses.................... *
Accounting fees and expenses.............................. 150,000
Officers and Directors Liability Insurance................ 150,000
Blue Sky expenses and counsel fees........................ 5,000
Transfer agent and registrar fees......................... 5,000
Miscellaneous............................................. *
--------
TOTAL................................................... $750,000
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") sets forth in Sections
48-18-502 through 48-18-508 the circumstances governing the indemnification of
directors, officers, employees and agents of a corporation against liability
incurred in the course of their official capacities. Section 48-18-502 of the
TBCA provides that a corporation may indemnify any director against liability
incurred in connection with a proceeding if (i) the director acted in good
faith, (ii) the director reasonably believed, in the case of conduct in his or
her official capacity with the corporation, that such conduct was in the
corporation's best interest, or, in all other cases, that his or her conduct was
not opposed to the best interests of the corporation and (iii) in connection
with any criminal proceeding, the director had no reasonable cause to believe
that his or her conduct was unlawful. In actions brought by or in the right of
the corporation, however, the TBCA provides that no indemnification may be made
if the director or officer is adjudged to be liable to the corporation.
Similarly, the TBCA prohibits indemnification in connection with any proceeding
charging improper personal benefit to a director, if such director is adjudged
liable on the basis that a personal benefit was improperly received. In cases
where the director is wholly successful, on the merits or otherwise, in the
defense of any proceeding instigated because of his or her status as a director
of a corporation, Section 48-18-503 of the TBCA mandates that the corporation
indemnify the director against reasonable expenses incurred in the proceeding.
Notwithstanding the foregoing, Section 48-18-505 of the TBCA provides that a
court of competent jurisdiction, upon application, may order that a director or
officer be indemnified for reasonable expense if, in consideration of all
relevant circumstances, the court determines that such individual is fairly and
reasonably entitled to indemnification, whether or not the standard of conduct
set forth above was met. Officers, employees, and agents who are not directors
are entitled, through the provisions of Section 48-18-507 of the TBCA to the
same degree of indemnification afforded to directors under Sections 48-18-503
and 48-18-505.
The Amended and Restated Charter (the "Charter") and Amended and Restated
Bylaws (the "Bylaws") of the Company will provide that the Company will
indemnify from liability, and advance expenses to, any present or former
director or officer of the Company to the fullest extent allowed by the TBCA, as
amended from time to time, or any subsequent law, rule, or regulation adopted.
Additionally, the Charter provides that no director of the Company will be
personally liable to the Company or any of its shareholders for monetary damages
for breach of any fiduciary duty except for liability arising from (i) any
breach of a
II-1
<PAGE> 89
director's duty of loyalty to the Company or its shareholders, (ii) any acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) any unlawful distributions, or (iv) receiving any
improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 1, 1995, the Company has sold the following securities (giving
retroactive effect to a - for-one stock split to be effected in connection
with the Pre-Offering Transactions described in the Prospectus) without
registration under the Securities Act:
1. In June 1996, in connection with the Recapitalization, the Company
issued an aggregate of 68,400 shares of Common Stock and 68,400 shares of
Class A Preferred Stock to Kirkland Holdings, L.L.C., an accredited
investor, in exchange for a $30.8 million investment in the Company by
Holdings.
2. In June 1996, in connection with the Recapitalization, certain of
the outstanding shares of Common Stock of the Company held by four
accredited investors were recapitalized into 31,600 shares of Class B
Preferred Stock and 20,000 shares of Class C Preferred Stock.
3. In June 1996, in connection with the Recapitalization, the Company
granted incentive stock options for 2,381 shares of Common Stock of the
Company to each of three executive officers under the Company's 1996
Executive Incentive and Non-Qualified Stock Option Plan (the "1996 Option
Plan"), pursuant to the terms of the employment agreements between the
Company and each officer. The per share exercise price of these stock
options is $0.045.
4. In June 1997, the Company granted stock options to approximately
225 of its employees to purchase an aggregate of 3,769 shares of Common
Stock under the 1996 Option Plan at an exercise price of $95.00 per share.
5. In February 1998, the Company granted a stock option for 2,283
shares of Common Stock to an executive officer under the 1996 Option Plan.
The per share exercise price of this stock option is $285.65.
The Company believes that the transactions described in paragraphs 1
through 5 above were exempt from registration under Section 3(b) or 4(2) of the
Securities Act because the subject securities were either (i) issued pursuant to
a compensatory benefit plan pursuant to Rule 701 under the Securities Act or
(ii) sold to a limited group of persons, each of whom was believed to have been
a sophisticated investor or to have had a preexisting business or personal
relationship with the Company or its management and to have been purchasing for
investment without a view to further distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
2.1 Recapitalization Agreement dated June 12, 1996, by and among
Kirkland Holdings L.L.C., Kirkland's, Inc., Certain
Companies Affiliated with Kirkland's, Inc., Carl Kirkland,
Robert Kirkland, Bruce Moore and Robert Alderson (Certain
exhibits and schedules have been omitted in accordance with
Item 601(b)(2) of Regulation S-K. A copy of such exhibits
and schedules shall be furnished supplementally to the
Securities and Exchange Commission upon request.)
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.2 Contribution, Redemption and Purchase Agreement dated as of
April 29, 1998 by and among Kirkland's, Inc., Affiliates of
Kirkland's, Inc., Kirkland Holdings L.L.C., Members of
Kirkland Holdings L.L.C., Capital Resource Lenders II, L.P.,
Allied Capital Corporation, Allied Capital Corporation II,
the Marlborough Capital Investment Fund, L.P., Capital Trust
Investments, Ltd., the Allison Leigh Alderson Trust, the Amy
Katherine Alderson Trust, the Carl T. Kirkland Grantor
Retained Annuity Trust 97-1, Carl Kirkland, Robert Kirkland,
and Robert Alderson (Certain exhibits and schedules have
been omitted in accordance with Item 601(b)(2) of Regulation
S-K. A copy of such exhibits and schedules shall be
furnished supplementally to the Securities and Exchange
Commission upon request.)
3.1 Amended and Restated Charter of Kirkland's, Inc.
3.2 Form of Amended and Restated Charter of Kirkland's, Inc. (to
become effective immediately prior to completion of the
Offering)
3.3 Bylaws of Kirkland's, Inc.
3.4 Form of Amended and Restated Bylaws of Kirkland's, Inc. (to
become effective immediately prior to completion of the
Offering)
4.1 Form of Specimen Stock Certificate
*5.1 Opinion of Pepper Hamilton LLP
10.1 Credit Agreement dated as of June 12, 1996, among Kirkland's
Holdings, L.L.C., the entities listed on Schedule 1.1A
thereto, the several banks and other financial institutions
or entities from time to time parties to the agreement, the
First National Bank of Boston, and Lehman Commercial Paper
Inc. (with 3 amendments)
10.2 Senior Subordinated Note Due 2003 in the amount of
$8,000,000 dated June 12, 1996 issued to Capital Resource
Lenders II, L.P. (Identical Senior Subordinated Notes Due
2003, except as to the payee and the amount of the notes,
were issued to The Marlborough Capital Investment Fund, L.P.
($3,800,000), Allied Capital Corporation ($3,600,000),
Allied Capital Corporation II ($2,800,000), and Capital
Trust Investments, Ltd. ($1,800,000)
10.3 Advent Fee Agreement dated as of June 12, 1996, by and among
Advent International Corporation, Kirkland's, Inc., and
Affiliates of Kirkland's, Inc.
10.4 Registration Rights Agreement dated as of June 12, 1996, by
and among Kirkland Holdings L.L.C., Kirkland's, Inc.,
Capital Resource Lenders II, L.P., Allied Capital
Corporation, Allied Capital Corporation II, the Marlborough
Capital Investment Fund, L.P., Capital Trust Investments,
Ltd., Carl Kirkland, Robert Kirkland, Bruce Moore and Robert
Alderson
10.5 Consulting Agreement by and between the Company and Robert
Kirkland dated June 12, 1996
10.6 Employment Agreement by and between the Company and Carl
Kirkland dated June 12, 1996 (Identical Employment
Agreements, except as to the employee and the annual salary,
were entered into with Robert Alderson ($424,500) and Bruce
Moore ($534,000))
*10.7 Employment Agreement by and between the Company and Reynolds
Faulkner dated as of February 2, 1998
10.8 Employment Agreement by and between the Company and Steven
J. Collins dated February 1,1997
10.9 1996 Executive Incentive and Non - Qualified Stock Option
Plan, as amended
10.10 1998 Incentive Plan
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.11 Employee Stock Purchase Plan
10.12 401(k) Plan
10.13 Shareholders Agreement dated as of June 12, 1996, by and
among Kirkland Holdings L.L.C., Kirkland's, Inc., Capital
Resource Lenders II, L.P., Allied Capital Corporation,
Allied Capital Corporation II, the Marlborough Capital
Investment Fund, L.P., Capital Trust Investments, Ltd., Carl
Kirkland, Robert Kirkland, Bruce Moore and Robert Alderson
10.14 Redemption Agreement dated December 26, 1997 by and among
Kirkland's, Inc., Certain Companies Affiliated with
Kirkland's, Inc., and Bruce Moore
23.1 Consent of Price Waterhouse LLP
23.2 Consent of KPMG Peat Marwick LLP
*23.3 Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on Signature Pages)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable, not
required or the required information is included in the Financial Statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post - effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement
II-4
<PAGE> 92
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.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jackson, State of Tennessee, on the 29th day of
April, 1998.
KIRKLAND'S, INC.
By: /s/ CARL KIRKLAND
------------------------------------
Carl Kirkland
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert E. Alderson and Reynolds C.
Faulkner, and each or any of them, his true and lawful attorney-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
(including post-effective amendments) to this Registration Statement, or any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or 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 any of them, or their or his 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/ CARL KIRKLAND Chief Executive Officer; Director April 29, 1998
- ------------------------------------------ (principal executive officer)
Carl Kirkland
/s/ REYNOLDS C. FAULKNER Senior Vice President and Chief Financial April 29, 1998
- ------------------------------------------ Officer; Director (principal financial
Reynolds C. Faulkner officer)
/s/ STEVEN J. COLLINS Director of Finance and Treasurer April 29, 1998
- ------------------------------------------ (principal accounting officer)
Steven J. Collins
/s/ ROBERT E. ALDERSON Director April 29, 1998
- ------------------------------------------
Robert E. Alderson
/s/ ALEXANDER S. MCGRATH Director April 29, 1998
- ------------------------------------------
Alexander S. McGrath
/s/ DAVID M. MUSSAFER Director April 29, 1998
- ------------------------------------------
David M. Mussafer
</TABLE>
II-6
<PAGE> 94
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. WILSON ORR, III Director April 29, 1998
- ------------------------------------------
R. Wilson Orr, III
/s/ JOHN P. OSWALD Director April 29, 1998
- ------------------------------------------
John P. Oswald
</TABLE>
II-7
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
2.1 Recapitalization Agreement dated June 12, 1996, by and among
Kirkland Holdings L.L.C., Kirkland's, Inc., Certain
Companies Affiliated with Kirkland's, Inc., Carl Kirkland,
Robert Kirkland, Bruce Moore and Robert Alderson
2.2 Contribution, Redemption and Purchase Agreement dated as of
April 29, 1998 by and among Kirkland's, Inc., Affiliates of
Kirkland's, Inc., Kirkland Holdings L.L.C., Members of
Kirkland Holdings L.L.C., Capital Resource Lenders II, L.P.,
Allied Capital Corporation, Allied Capital Corporation II,
the Marlborough Capital Investment Fund, L.P., Capital Trust
Investments, Ltd., the Allison Leigh Alderson Trust, the Amy
Katherine Alderson Trust, the Carl T. Kirkland Grantor
Retained Annuity Trust 97-1, Carl Kirkland, Robert Kirkland,
and Robert Alderson
3.1 Amended and Restated Charter of Kirkland's, Inc.
3.2 Form of Amended and Restated Charter of Kirkland's, Inc. (to
become effective immediately prior to completion of the
Offering)
3.3 Bylaws of Kirkland's, Inc.
3.4 Form of Amended and Restated Bylaws of Kirkland's, Inc. (to
become effective immediately prior to completion of the
Offering)
4.1 Form of Specimen Stock Certificate
10.1 Credit Agreement dated as of June 12, 1996, among Kirkland's
Holdings, L.L.C., the entities listed on Schedule 1.1A
thereto, the several banks and other financial institutions
or entities from time to time parties to the agreement, the
First National Bank of Boston, and Lehman Commercial Paper
Inc. (with 3 amendments)
10.2 Senior Subordinated Note Due 2003 in the amount of
$8,000,000 dated June 12, 1996 issued to Capital Resource
Lenders II, L.P. (Identical Senior Subordinated Notes Due
2003, except as to the payee and the amount of the notes,
were issued to The Marlborough Capital Investment Fund, L.P.
($3,800,000), Allied Capital Corporation ($3,600,000),
Allied Capital Corporation II ($2,800,000), and Capital
Trust Investments, Ltd. ($1,800,000))
10.3 Advent Fee Agreement dated as of June 12, 1996, by and among
Advent International Corporation, Kirkland's, Inc., and
Affiliates of Kirkland's, Inc.
10.4 Registration Rights Agreement dated as of June 12, 1996, by
and among Kirkland Holdings L.L.C., Kirkland's, Inc.,
Capital Resource Lenders II, L.P., Allied Capital
Corporation, Allied Capital Corporation II, the Marlborough
Capital Investment Fund, L.P., Capital Trust Investments,
Ltd., Carl Kirkland, Robert Kirkland, Bruce Moore and Robert
Alderson
10.5 Consulting Agreement by and between the Company and Robert
Kirkland dated June 12, 1996
10.6 Employment Agreement by and between the Company and Carl
Kirkland dated June 12, 1996 (Identical Employment
Agreements, except as to the employee and the annual salary,
were entered into with Robert Alderson ($424,500) and Bruce
Moore ($534,000))
10.8 Employment Agreement by and between the Company and Steven
J. Collins dated February 1,1997
10.9 1996 Executive Incentive and Non - Qualified Stock Option
Plan, as amended
10.10 1998 Incentive Plan
10.11 Employee Stock Purchase Plan
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
10.12 401(k) Plan
10.13 Shareholders Agreement dated as of June 12, 1996, by and
among Kirkland Holdings L.L.C., Kirkland's, Inc., Capital
Resource Lenders II, L.P., Allied Capital Corporation,
Allied Capital Corporation II, the Marlborough Capital
Investment Fund, L.P., Capital Trust Investments, Ltd., Carl
Kirkland, Robert Kirkland, Bruce Moore and Robert Alderson
10.14 Redemption Agreement dated December 26, 1997 by and among
Kirkland's, Inc., Certain Companies Affiliated with
Kirkland's, Inc., and Bruce Moore
23.1 Consent of Price Waterhouse LLP
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included on Signature Pages)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.1
EXECUTION COPY
RECAPITALIZATION AGREEMENT
AMONG
KIRKLAND HOLDINGS L.L.C.,
KIRKLAND'S, INC.,
CERTAIN COMPANIES AFFILIATED WITH KIRKLAND'S, INC.,
CARL KIRKLAND,
ROBERT KIRKLAND,
BRUCE MOORE,
AND
ROBERT ALDERSON
<PAGE> 2
TABLE OF CONTENTS
Part Page
- ---- ----
Preambles.................................................................. 1
ARTICLE 1 - DEFINITIONS.................................................... 2
ARTICLE 2 - BORROWING OF NEW DEBT; PAYMENTS TO FORMER
LENDERS........................................................... 18
2.1. Borrowing of New Debt....................................... 18
2.2. Pre-Closing Debt............................................ 18
2.3. Cash Register Financing Line................................ 18
ARTICLE 3 - PRELIMINARY RECAPITALIZATION; INVESTMENT IN
SHARES BY HOLDINGS AND CERTAIN SHAREHOLDERS................................ 18
3.1. Preliminary Recapitalization................................ 18
3.2. Purchase and Sale of Purchased Shares....................... 19
3.3. Purchase Price.............................................. 19
3.4. Kirkland's to Receive Purchase Price and Other
Payments in Trust....................................... 19
3.5. Tax Stamps.................................................. 20
3.6. Purchase of Shares by Certain Shareholders.................. 20
ARTICLE 4 - REDEMPTION OF SHARES........................................... 20
4.1. Redemption of Minority Redeemed Shares...................... 20
4.2. Redemption of Majority Redeemed Shares...................... 21
4.3. Post-Closing Adjustments.................................... 21
4.4. Compliance with Corporate Law............................... 23
ARTICLE 5 - RECAPITALIZATION OF THE COMPANIES.............................. 24
5.1. Recapitalization............................................ 24
5.2. Conversion of Common Stock.................................. 24
5.3. Common Stock................................................ 26
5.4. Class A Preferred Stock..................................... 26
5.5. Class B Preferred Stock..................................... 28
5.6. Class C Preferred Stock..................................... 28
5.7. By-laws of the Companies.................................... 29
ARTICLE 6 - SCHEDULES AND COLLATERAL DOCUMENTS............................. 30
6.1. Delivery of Schedules....................................... 30
6.2. Right of Termination........................................ 30
6.3. Delivery of Collateral Documents............................ 30
-i-
<PAGE> 3
Part Page
- ---- ----
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS................. 31
7.1. Organization, Power and Authority........................... 31
7.2. Authorization............................................... 31
7.3. Capitalization of the Companies............................. 32
7.4. Subsidiaries................................................ 33
7.5. Conflict with other Instruments; Absence of
Restrictions................................................ 33
7.6. Government and Third-Party Approvals........................ 34
7.7. Title to Properties; Adequacy of Properties................. 34
7.8. Other Representations Regarding Company Assets.............. 34
7.9. Financial Statements and Related Information................ 38
7.10. Permits.................................................... 39
7.11. Foreign Corrupt Practices Act of 1977...................... 39
7.12. Corporate Records.......................................... 39
7.13. Litigation................................................. 39
7.14. Conduct of Business........................................ 39
7.15. Absence of Changes......................................... 39
7.16. Contracts, Leases, Etc..................................... 41
7.17. Warranties and Liabilities................................. 43
7.18. Product Matters............................................ 43
7.19. Insurance.................................................. 44
7.20. Licensing Arrangements, Joint Ventures, Etc................ 44
7.21. Transactions with Affiliates............................... 44
7.22. Compensation to Employees, etc............................. 45
7.23. Overtime, Back Wages, Vacation, Discrimination,
and Occupational Safety Claims......................... 46
7.24. Benefit Matters............................................ 46
7.25. Hazardous Substances....................................... 50
(a) Compliance.......................................... 50
(b) Discharges, Etc..................................... 51
(c) Disposal; Conditions................................ 51
(d) Spillage, Etc....................................... 51
7.26. Solvency................................................... 52
7.27. Title to Redeemed Shares................................... 52
7.28. Brokerage and Expenses..................................... 52
7.29. Statements and Other Documents Not Misleading.............. 53
ARTICLE 8 - TAX RELATED MATTERS............................................ 54
8.1. Representations and Warranties.............................. 54
(a) S Election.......................................... 54
(b) Corporate Returns................................... 54
(c) Audit Information................................... 54
-ii-
<PAGE> 4
Part Page
- ---- ----
8.2. Majority Shareholders' Indemnifications..................... 55
8.3. The Companies' Indemnifications............................. 56
8.4. Indemnity Priority.......................................... 56
8.5. Restoration of S Status..................................... 56
8.6. Filing of Returns........................................... 56
8.7. Future Tax Contests......................................... 57
8.8. Conduct of Proceedings...................................... 58
8.9. Cooperation and Record Retention............................ 59
ARTICLE 9 - REPRESENTATIONS AND WARRANTIES OF HOLDINGS..................... 59
9.1. Organization and Good Standing.............................. 59
9.2. Legal Power and Authority................................... 59
9.3. Conflict With Articles, Contracts or Regulations............ 60
9.4. Compliance with Securities Laws............................. 60
9.5. Brokerage and Expenses...................................... 61
9.6. Veracity of Statements...................................... 61
ARTICLE 10 - ACTIVITIES OF THE COMPANIES PRIOR TO CLOSING
DATE.............................................................. 61
10.1. Operation of Business...................................... 61
(a) Organizational Documents............................ 61
(b) Corporate Name...................................... 62
(c) Compensation........................................ 62
(d) Management.......................................... 62
(e) Mergers, Acquisitions, Etc.......................... 62
(f) New Companies....................................... 62
(g) Disposition of Assets............................... 62
(h) Indebtedness........................................ 62
(i) Payables............................................ 62
(j) Maintenance of Assets............................... 63
(k) Insurance............................................ 63
(l) Contracts and Permits............................... 63
(m) Goodwill............................................ 63
(n) Litigation, Etc..................................... 63
(o) Interim Financial Statements........................ 63
(p) Commitment.......................................... 63
(q) Dividends and Distributions......................... 63
10.2. Access to Information...................................... 63
10.3. Benefit Plans.............................................. 64
(a) Plan Changes........................................ 64
(b) Contributions and Payments.......................... 64
-iii-
<PAGE> 5
Part Page
- ---- ----
10.4. Taxes...................................................... 65
10.5. Delivery of Unaudited Closing Date Financial
Statements............................................. 65
10.6. Notice of Change........................................... 65
10.7. Best Efforts; No Discussions............................... 65
ARTICLE 11 - ACTIVITIES OF HOLDINGS PRIOR TO CLOSING DATE.................. 65
11.1. Notice of Change........................................... 65
11.2. Best Efforts............................................... 66
ARTICLE 12 - CONDITIONS PRECEDENT TO THE CLOSING........................... 66
12.1. Obligation of Companies and Majority
Shareholders to Close.................................. 66
(a) Representations and Warranties; Compliance
with Agreement.................................. 67
(b) Secretary's Certificate............................. 67
(c) Opinion of Counsel of Holdings...................... 67
(d) Litigation Affecting Closing........................ 68
(e) Bank Debt, Mezzanine Debt and Revolving Line
of Credit....................................... 68
(f) Approval of Counsel; Corporate Matters.............. 68
(g) Approval of Collateral Documents.................... 68
(h) Other Documents..................................... 68
12.2. Obligation of Holdings to Close............................ 68
(a) Representations and Warranties; Compliance
with Agreement.................................. 68
(b) Secretary's Certificate............................. 69
(c) Opinion of Counsel for the Companies and the
Majority Shareholders........................... 69
(d) Litigation Affecting Closing........................ 70
(e) Required Consents................................... 70
(f) Bank Debt, Mezzanine Debt and Revolving Line
of Credit....................................... 70
(g) No Material Adverse Effect Suffered by
Business........................................ 70
(h) Approval of Counsel; Corporate Matters.............. 72
(i) Title Insurance..................................... 72
(j) Survey.............................................. 72
(k) Working Capital..................................... 72
(l) Due Diligence Investigation......................... 73
-iv-
<PAGE> 6
Part Page
- ---- ----
(m) Solvency............................................ 73
(n) Approval of Collateral Documents.................... 73
(o) Other Documents..................................... 73
ARTICLE 13 - INDEMNIFICATION............................................... 73
13.1. By Majority Shareholders................................... 73
13.2. By Holdings................................................ 74
13.3. Direct Liability........................................... 74
13.4. Third-Party Claim.......................................... 75
13.5. Limitation of Indemnity.................................... 76
13.6. Non-Exclusive Remedy; Right of Set-Off..................... 77
13.7. Majority Shareholders' Claims Against any of the
Companies.............................................. 78
ARTICLE 14 - SURVIVAL OF REPRESENTATIONS, - WARRANTIES,
GUARANTEES, AND COVENANTS......................................... 79
ARTICLE 15 - THE CLOSING................................................... 80
15.1. Time and Place............................................. 80
15.2. Conduct of Closing......................................... 80
ARTICLE 16 - CONDUCT OF THE PARTIES AFTER CLOSING.......................... 82
ARTICLE 17 - TERMINATION................................................... 82
17.1. Events of Termination...................................... 82
(a) Mutual Consent...................................... 82
(b) Prior to Closing Date............................... 82
(c) After Specified Date by Holdings.................... 82
(d) After Specified Date by the Companies and the
Majority Shareholders........................... 83
(e) Under Article 6..................................... 83
17.2. Survival................................................... 83
ARTICLE 18 - GENERAL....................................................... 83
18.1. Entire Agreement; Amendments............................... 83
18.2. Headings................................................... 83
18.3. Gender; Number............................................. 84
18.4. Schedules.................................................. 84
18.5. Severability............................................... 84
18.6. Reliance................................................... 84
18.7. Notices.................................................... 84
-v-
<PAGE> 7
Part Page
- ---- ----
18.8. Waiver..................................................... 85
18.9. Assignment................................................. 85
18.10. Successors and Assigns.................................... 86
18.11. Governing Law............................................. 86
18.12. No Benefit to Others...................................... 86
18.13. Agreement to Vote......................................... 86
18.14. Publicity................................................. 86
18.15. Scope of Representations and Warranties................... 86
18.16. Counterparts.............................................. 87
18.17. November 30, 1995 Agreement............................... 87
COLLATERAL DOCUMENTS
Form of Consulting Agreement
Form of Management Agreement: Carl Kirkland
Form of Management Agreement: Bruce Moore
Form of Management Agreement: Robert Alderson
Form of Minority Shareholder Redemption Agreement
Form of 1996 Stock Option Plan
Form of Option Agreement
Form of Shareholder Release
Form of Shareholders Agreement
Form of Trademark Assignment
SCHEDULES
1 Corporations Affiliated with Kirkland's
1P Percentage Values
4 Redemption Schedule
7.1 States of Incorporation and Foreign Qualification
Jurisdictions; Officers and Directors
7.3 Capitalization
7.6 Government and Third Party Approvals
7.7 Title to Properties: Adequacy of Properties
7.8(b) Cash Accounts
7.8(f) Owned Real Property
7.8(g) Leased Real Property
7.8(h) Owned or Leased Real Property: Legal Issues
7.8(i) Intellectual Property Claims
7.13 Litigation
7.16 Contracts, Leases, Etc.
7.19 Insurance
7.20 Licensing Arrangements, Joint Ventures, Etc.
7.21 Transactions With Affiliates
7.22 Compensation to Employees, Etc.
7.24 Benefit Plan Issues
7.25 Hazardous Substance: Compliance
-vi-
<PAGE> 8
Part Page
- ---- ----
8.1(a) Tax Status
8.1(b) Corporate Returns
8.1(c) Audit Information
10.1(e) New Store Openings
-vii-
<PAGE> 9
RECAPITALIZATION AGREEMENT
This Recapitalization Agreement (the "Agreement") is made this
26th day of April, 1996, by and among KIRKLAND HOLDINGS L.L.C., a limited
liability company formed under Delaware law ("Holdings"), KIRKLAND'S, INC., a
corporation incorporated under Tennessee law ("Kirkland's"), the 111 other
corporations listed on the signature pages hereto (such other corporations,
together with "Kirkland's, being herein referred to individually as an "Existing
Company" and collectively as the "Existing Companies"), CARL KIRKLAND, ROBERT
KIRKLAND, BRUCE MOORE and ROBERT ALDERSON (Carl Kirkland, Robert Kirkland, Bruce
Moore and Robert Alderson being herein referred to collectively as the "Majority
Shareholders").
BACKGROUND
WHEREAS, the Companies are mall-based specialty retailers of
gifts and home accessories; and
WHEREAS, Majority Shareholders together own a majority or all
of the outstanding capital stock of all of the Companies, except for #103 -
Kirkland's of Tennessee, Inc.; and
WHEREAS, the Companies have determined to redeem a portion of
the outstanding capital stock of certain of the Companies owned by the Majority
Shareholders and all of the outstanding capital stock of each of the Companies
owned by the Minority Shareholders (as defined below), as more particularly set
forth herein; and
WHEREAS, the Companies have determined to refinance certain
existing bank debt, as more particularly set forth herein; and
WHEREAS, in order to fund the redemptions and debt refinancing
described above, the Companies have determined to borrow $45 million in bank
debt and $20 million in mezzanine debt, and to obtain revolving line of credit
financing in the amount of $15 million, as more particularly set forth herein;
and
WHEREAS, certain of the Majority Shareholders have determined
to purchase shares of common stock in those Companies in which they currently
own no shares of common stock, as more particularly set forth herein; and
WHEREAS, Holdings has agreed to purchase from the Companies,
and the Companies have agreed to sell to Holdings, $30,780,000 of equity in the
Companies, as more particularly set forth herein; and
WHEREAS, the Companies have determined to recapitalize
their capital structure following the transactions described
<PAGE> 10
above in order to authorize and issue three classes of preferred stock and one
class of common stock; and
WHEREAS, the parties are entering into this Agreement to
evidence their agreement with respect to the foregoing and the other matters
described herein, all on the terms and subject to the conditions more
particularly set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants, representations, warranties, and agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings set forth below.
"Accounts Receivable" shall mean the accounts
receivable of the Companies.
"Advisors" of a party shall mean such party's
accountants, counsel and other representatives.
"Affiliate" of a Person shall mean any Person
which, directly or indirectly, controls, is controlled by, or is under common
control with such Person. The term "control" (including, with correlative
meaning, the terms "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 elect a majority of the board of directors or to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Recapitalization
Agreement.
"Aggregate Net Equity" shall mean the Preliminary
Redemption Proceeds, plus Fourteen Million Two Hundred Twenty Thousand Dollars
($14,220,000), minus the aggregate amount paid by the Majority Shareholders to
purchase shares pursuant to Section 3.6 and minus the 1995 Pre-Tax Income of all
Companies.
"Allowable Store Expenses" shall mean the amount
of capital expenditures incurred through the day preceding the Closing Date
related to the opening of the store owned by each New Company or related to the
refurbishing of the store owned by each Remodeled Company, together with the
1996 Net Losses of the stores owned by each New Company and each Remodeled
Company.
-2-
<PAGE> 11
"Audited Closing Date Balance Sheet" shall mean
the combined balance sheet of the Companies included in the Audited Closing Date
Financial Statements.
"Audited Closing Date Financial Statements" shall
mean the audited combined financial statements of the Companies consisting of a
balance sheet and the related income statement and statement of changes in
financial position for the period from January 1, 1996 through the day
immediately preceding Closing Date, together with the notes thereto and
accompanied by an unqualified opinion thereon of Kirkland's Accountants.
"Audited Historical Financial Statements" shall
mean the audited combined financial statements of the Companies consisting of
balance sheets dated December 31, 1993, 1994 and 1995 and the related income
statements and statements of changes in financial position for the years then
ended, together with the notes thereto and accompanied by an unqualified opinion
thereon of Kirkland's Accountants.
"Bank Debt" shall mean no less than Forty Five
Million Dollars ($45,000,000) in debt financing to be loaned to the Companies in
connection with the Closing, such financing to be senior in priority to the
Mezzanine Debt and to be secured by a first priority perfected security interest
in all of the Companies' assets (other than accounts receivable) and a first
mortgage on the Owned Real Property.
"Benefit Plan" shall mean a plan, program, trust,
contract, policy or arrangement (a) which is sponsored by any of the Companies
or to which any Company contributes, (b) in which Employees participate and (c)
that provides any pension, profit sharing, thrift, deferred compensation, stock
purchase, group insurance, accident, sickness, medical, dental, life, health,
disability, savings, stock option, stock appreciation, retirement, severance
payments, fringe benefits, incentive compensation, vacation pay, holiday pay,
sick pay or other employee benefits whether or not such plan, program, trust,
contract, policy or arrangement is an "employee benefit plan" within the meaning
of Section 3(3) of ERISA.
"Books and Records" shall mean all records,
documents and lists pertaining to the Business including, without limitation,
stock ledgers, minute books, lists of the Companies' customers, suppliers and
personnel, all product, business and marketing plans and all books, ledgers,
files and business and financial records of, or relating to, the Business.
"Business" shall mean the Companies' business as a
mall-based specialty retailer of gifts and home accessories, and any other
business conducted by any of the Companies.
-3-
<PAGE> 12
"Business Day" shall mean any calendar day which
is not a Saturday, Sunday or public holiday under the laws of
Tennessee.
"C Year" shall mean one or more of the taxable
years of any Company ending after the Closing Date.
"Cash Register Financing Line" shall mean that
certain debt financing of the Companies with First American Bank, Nashville,
Tennessee, used to finance the purchase of cash registers for use in the
operation of the Business, pursuant to which approximately $865,000 is
outstanding and owed by the Companies on the date hereof, including without
limitation any applicable prepayment fee required to be paid by the Companies to
the Former Lenders in connection with the prepayment at the Closing of the Cash
Register Financing Line, if such prepayment is required in accordance with
Section 2.3 hereof.
"Change in Control" shall mean the acquisition of
more than fifty percent (50%) of the outstanding shares of common stock of
Companies representing a majority of the Percentage Values by a Person or group
of Persons, who are not on the date hereof, or are not at Closing, shareholders
of any of the Companies.
"Closing" and "Closing Date" shall have the meaning
set forth in Section 15.1 of this Agreement.
"Closing Date Adjusted Working Capital" shall mean
the working capital (e.g. current assets minus current liabilities) of the
Companies on a combined basis as of the close of business on the day preceding
the Closing Date, excluding for purposes of the calculation any indebtedness
owed to any of the Former Lenders (as determined in accordance with GAAP),
before giving effect to any of the transactions contemplated hereby, but reduced
by the sum of the 1995 Pre-Tax Income and 1996 Pre-Tax Income in each case to
the extent not distributed prior to Closing, and adjusted as set forth in
Section 7.28 hereof.
"Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated
thereunder or with respect thereto.
"Collateral Documents" shall mean collectively,
the Minority Shareholder Redemption Agreement, the Trademark Assignment, the
Management Agreements, the Consulting Agreement, the Fee Letter, the
Shareholders Agreement, the Shareholders Releases, the 1996 Stock Option Plan
for the benefit of the Management Shareholders, the Option Agreements and each
of the other documents, agreements and instruments to be executed, delivered and
performed in connection with this Agreement.
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"Commitment" shall mean a commitment for title
insurance for the Owned Real Property, naming Kirkland's
as an insured.
"Companies" shall mean the Existing Companies as
well as any corporation incorporated after the date of this Agreement and prior
to the Closing in connection with the Business, any shares of which are owned by
any of the Majority Shareholders.
"Company Net Equity" shall mean , for any Company
other than a Group D Company, the sum of (i) the product of (A) the Aggregate
Net Equity less the Group D Net Equity, times (B) the Percentage Value for that
Company, plus (ii) the 1995 Pre-Tax Income of that Company; and for any Group D
Company, Ten Dollars ($10).
"Condition" shall mean the assets, Liabilities,
business, operations, results of operations or financial
condition of the Companies and the Business.
"Confidential Information" shall have the meaning
set forth in Section 11.3 of this Agreement.
"Consulting Agreement" shall mean the Consulting
Agreement pursuant to which Robert Kirkland will be engaged to provide
consulting services on behalf of the Companies following the Closing.
"Contract" shall mean any written or oral
contract, agreement, commitment, note, bond, pledge, lease, mortgage, deed,
guaranty, indenture, license, consulting agreement, supply contract, repair
contract, distribution agreement, purchase order, joint venture agreement,
franchise, technology and know-how agreement, employment agreement, instrument
or any other contractual commitment that is binding on any Company or its
property, and any amendment thereto.
"Copyrights" shall mean registered copyrights,
copyright applications and unregistered copyrights.
"Court Order" shall mean any judgment, decree,
writ, injunction, order or ruling of any Governmental Entity.
"Default" shall mean (1) a breach of or default
under any Contract, (2) the occurrence of an event which with the passage of
time or the giving of notice or both would constitute a breach of or default
under any Contract, or (3) the occurrence of an event that (with or without the
passage of time or the giving of notice or both) would give rise to a right of
damages, specific performance, termination, renegotiation or acceleration under
any Contract.
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"Due Diligence Investigation" shall have the
meaning set forth in Section 10.2 of this Agreement.
"Employees" shall mean employees of each of the
Companies at any time prior to or up to the Closing.
"Environmental Claim" shall mean any written or
oral demand, claim, suit, lien, action, expense (and counsel fees) cause of
action, investigation or notice by any Person (whether asserted or arising
before or after the Closing) alleging actual or potential liability (including,
without limitation, potential or actual liability for investigatory costs,
cleanup costs, governmental response costs, national resources damages, property
damages, personal injuries or penalties) arising out of or relating to the
presence, migration, leak, discharge, handling, removal, transport, disposal,
spill, emission, injection, escape, dumping or release, threat of release or
exposure, of any kind whatsoever of any Materials of Environmental Concern
occurring on or prior to the Closing Date.
"Environmental Laws" shall mean all federal, state
and local laws and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), 42 U.S.C.A. Sections 9601 et seq., the
Occupational Safety and Health Act, 29 U.S.C. Section 651, et seq., the Resource
Conversation and Recovery Act ("RCRA"), 42 U.S.C.A. Sections 6901 et seq.,
the Clean Water Act, 33 U.S.C.A. Sections 1251 et seq., the Clean Air Act
42 U.S.C.A. Sections 7401 et seq., and all similar state and local
environmental laws as well as Laws and Regulations relating to emissions,
spills, leaks, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, possession,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"Equipment" shall mean the furniture, fixtures,
machinery, equipment, motor vehicles, office equipment, computers, tools and
replacement parts currently used in the operation of the Business.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder or with respect thereto.
"ERISA Affiliate" shall mean any member of any
"controlled group", as defined in Section 414(b) of the Code of which any
Company is a member, all trades or businesses, whether or not incorporated,
under common control (within the meaning of Section 414(c) of the Code) and of
which any Company is a member,
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and all affiliated service groups (within the meaning of Section 414(m) of the
Code) of which any Company is a member.
"Excess Working Capital" shall mean the amount
equal to (a) the Closing Date Adjusted Working Capital less Eleven Million
Dollars ($11,000,000) (which difference may be a negative number), plus (b) the
Allowable Store Expenses.
"Fee Letter" shall mean that certain letter agreement
to be entered into at Closing between the Companies and Advent International
Corporation ("Advent"), pursuant to which the Companies will pay Advent a fee in
the aggregate amount of $1,000,000 in consideration of the services rendered by
Advent to the Companies in connection with the structuring of the transactions
contemplated by this Agreement.
"Financial Statements" shall mean the Audited
Historical Financial Statements and the Interim Financial Statements.
"Former Lenders" shall mean First American Bank,
First Union Bank, Union Planters Bank, Volunteer Bank, First Citizens Bank, Bank
of Canada, Bank of Sharon, First State Bank, and such other institutional
lenders to which amounts are owed for borrowed money at the Closing Date.
"Future Payment Obligations" shall have the meaning
given in Section 13.6 hereof.
"GAAP" shall mean generally accepted accounting
principles consistently applied, as applied in the United States
of America.
"Governmental Entity" shall mean any government
and political subdivisions thereof, court, arbitral tribunal, administrative
agency, tribunal or commission or any other governmental or regulatory body,
instrumentality or authority, whether domestic (federal, state or local) or
foreign.
"Group A Companies" shall mean Company Nos. 100,
123, 125, 126 and 128 through 204, such Companies being those commencing
business prior to May 1, 1995 in which Carl Kirkland, Robert Kirkland, Bruce
Moore and Robert Alderson own 37.5%, 37.5%, 15% and 10%, respectively, of the
issued and outstanding common stock (measured prior to giving effect to any of
the transactions contemplated by this Agreement).
"Group B Companies" shall mean Company Nos. 205
through 214, such Companies being those commencing business after April 30, 1995
but before January 1, 1996 in which Carl Kirkland, Robert Kirkland, Bruce Moore
and Robert Alderson own 37.5%, 37.5%, 15% and 10%, respectively, of the issued
and outstanding
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common stock (measured prior to giving effect to any of the transactions
contemplated by this Agreement).
"Group C Companies" shall mean Company Nos. 101
through 104, 107, 109 through 111, 115 through 120, 122 and 127, which are all
of the Companies other than Group A, B or D Companies. Group C Companies are the
Companies in which the shares of the Majority Shareholders are not owned in the
same percentages as the shares of the Group A, B or D Companies.
"Group D Companies" shall mean Company Nos. 215
through 221, such Companies being those commencing business in 1996.
"Group D Net Equity" shall mean the product of the
number of Group D Companies times Ten Dollars ($10).
"Holdback Amount" shall mean the ten percent of the
Redemption Price held back from a Minority Shareholder pursuant to Section 4.1
hereof.
"Holdings' Accountants" shall mean Price Waterhouse
LLP.
"Indemnifiable Losses" shall have the respective
meanings given in Sections 13.1 and 13.2 hereof.
"Intellectual Property and Information" shall mean
collectively, all Copyrights, Patents, Trademarks, tradenames, brand names,
brand marks, logos, licenses, mask work rights, computer software, computer
systems and related proprietary documentation, trade secrets and related data,
inventions, inventer's work papers and notebooks, disclosure of inventions,
proprietary technology, formulae, processes, research and development in
progress, know-how, designs, and all other proprietary information and similar
intangible rights.
"Interim Financial Statements" shall mean monthly
combined financial statements of the Companies for each completed month
commencing with January 1996, a balance sheet, a statement of income and a
statement of changes in financial position.
"Inventory" shall mean the inventories of finished
goods for resale.
"IRS" shall mean the Internal Revenue Service.
"Kirkland's Accountants" shall mean KPMG Peat
Marwick.
"Known" or "know" or "to the knowledge" or "to the
best knowledge" or words of similar import with respect to any
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Company or any Shareholder shall mean the knowledge of any Management
Shareholder or any of the corporate managers working in the Companies' Jackson,
Tennessee offices (currently consisting of Betsy Weiss, James Harris, Connie
Scoggins, Chris LaFont and Toni Warren).
"Law" shall mean any applicable law, statute,
ordinance, governmental regulation, order, decree or edict.
"Lease" shall mean any Contract under which any
Company is a lessee of Leased Real Property, and any amendment thereto.
"Leased Real Property" shall mean all Real Property
presently leased by or otherwise used by any of the Companies in the operation
of the Business other than the Owned Real Property.
"Leasehold Improvements" shall mean all leasehold
improvements, fixtures and appurtenances owned by the Companies and attached to
any Leased Real Property.
"Legal Expenses" of a person shall mean any and all
out-of-pocket fees, costs and expenses of any kind incurred by such person and
its counsel in investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect to any
threatened or asserted claim.
"Lenders" shall mean the lenders financing the Bank
Debt, the Mezzanine Debt and the Revolving Line of Credit.
"Liability" shall mean any direct or indirect
liability, loss, damage, cost, contingent liability, loss contingency,
indebtedness, obligation, unpaid expense, claim, deficiency, guaranty or
endorsement of or by any person whether or not ascertainable.
"Lien" shall mean any mortgage, lien, security
interest, pledge, negative pledge, encumbrance, assessment, title retention
agreement, restriction or restraint on transfer, defect of title, charge in the
nature of a lien or security interest, or option (whether consensual, statutory
or otherwise).
"Litigation" shall mean any action, lawsuit,
arbitration, criminal prosecution, tax audit, or any legal, administrative or
other proceeding or investigation, or any inquiry asserting a violation of any
Regulation, by, before or for any Governmental Entity.
"Losses" shall mean any and all damages, losses,
obligations, deficiencies, Liabilities, claims, encumbrances,
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penalties, fines, costs and expenses, including, without limitation, any
diminution in value of any real or personal property and reasonable attorneys'
fees. Any Losses incurred by any Company shall be deemed to result in Losses to
each of the shareholders of such Company in an amount equal to the product of:
(A) the amount of Losses incurred by such Company, multiplied by (B) each such
shareholder's percentage ownership of the common stock of such Company after the
Closing.
"Majority Redeemed Shares" shall mean the number of
shares of common stock of each Company owned by each Majority Shareholder which
will be redeemed by each Company at the Closing, as determined in accordance
with Schedule 4 hereto.
"Majority Shareholders" shall mean Carl Kirkland,
Robert Kirkland, Bruce Moore and Robert Alderson.
"Management Agreements" shall mean the Management
Agreements pursuant to which Carl Kirkland, Bruce Moore and Robert Alderson,
respectively, will be employed by the Companies following the Closing and
pursuant to which each of them will agree to a non-competition covenant as set
forth more fully therein.
"Management Shareholders" shall mean Carl Kirkland,
Bruce Moore and Robert Alderson.
"Material Adverse Effect" shall mean an event, change
or effect which is or would be materially adverse to the Business, operations,
properties, assets, Liabilities, financial condition or results of operation, of
the Companies or Holdings, as the case may be.
"Materials of Environmental Concern" shall mean any
toxic, reactive, corrosive, carcinogenic, flammable or hazardous pollutant or
other substance, including, but not limited to, any "hazardous substance," or
"hazardous waste," as defined in Environmental Laws, petroleum and petroleum
products, natural gas or synthetic gas, material that is a source, special
nuclear or by-product material, as defined by the Atomic Energy Act of 1954, 42
U.S.C.A. Sections 3011 et seq., and the regulations promulgated thereto
and "hazardous chemical" as defined in 29 C.F.R. Part 1910.
"Mezzanine Debt" shall mean no less than Twenty
Million Dollars ($20,000,000) in debt financing to be loaned to the Companies in
connection with the Closing, such financing to be subordinated to the Bank Debt
and to be unsecured.
"Minority Redeemed Shares" shall mean the number of
shares of common stock of each Company owned by each Minority
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Shareholder which will be redeemed by each Company at the Closing, as determined
in accordance with Schedule 4 hereto.
"Minority Shareholder Redemption Agreement" shall
mean that certain Minority Shareholder Redemption Agreement to be executed and
delivered at the Closing by the Companies and each of the Minority Shareholders.
"Minority Shareholders" shall mean Ken Kirkland, John
Kirkland, Chris Kirkland, Bill Butler, Anita Fletcher, Toni Warren, Russell
Kirkland, Bedford Kirkland and Macy Kirkland, constituting all of the
shareholders of the Companies other than the Majority Shareholders. The Minority
Shareholders are shareholders in only certain of the Companies.
"Negative Adjustment Amount" shall have the meaning
given in Section 4.3(e) hereof.
"New Company" shall mean each Company which commenced
operations after December 31, 1995.
"1995 Balance Sheet" shall mean the combined balance
sheet of the Companies as at December 31, 1995 and included in the Audited
Historical Financial Statements.
"1995 Pre-Tax Income" shall mean either the taxable
income of a particular Company for the year ended December 31, 1995 or the
taxable income of all of the Companies for the year ended December 31, 1995 on a
combined basis, as the context requires, in each case as shown on Schedule K of
the 1995 Forms 1120S of the Company or Companies by aggregating all items of
income, loss and deduction.
"1996 Net Losses" shall mean an amount equal to the
actual net losses (excluding depreciation and amortization) incurred by each New
Company or Remodeled Company from the date on which each such New Company opens
for business or each such Remodeled Company closes for or commences remodeling,
and in each case continuing until the close of business on the date immediately
preceding Closing.
"1996 Pre-Tax Income" shall mean either the taxable
income of a particular Company for the period beginning January 1, 1996 and
ended on the day immediately preceding the Closing Date or the taxable income of
all of the Companies for the period beginning January 1, 1996 and ended on the
day immediately preceding the Closing Date on a combined basis, as the context
requires, in each case as shown on Schedule K of the 1996 Forms 1120S of the
Company or Companies by aggregating all items of income, loss and deduction.
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"Notified Shareholder" shall mean any Majority
Shareholder receiving notice of an intention to audit or of a Proposed
Adjustment pursuant to Section 8.7 hereof.
"Option Agreement" shall mean an Option Agreement to
be entered into among the Management Shareholders, on the one hand, and the
Companies, on the other hand, providing for the grant of an option to purchase
shares of capital stock in the Companies.
"Owned Real Property" shall mean all Real Property
presently owned of record or beneficially by any of the Companies.
"Patents" shall mean all letters patent and pending
applications for patents of the United States and all countries foreign thereto,
including regional patents, certificates of invention and utility models, rights
of license or otherwise to or under letters patent, certificates of intention
and utility models which have been opened for public inspection and all
reissues, divisions, continuations and extensions thereof.
"Percentage Interest" shall mean, with respect to
each of the following Shareholders, the amount indicated next to his or her name
below:
Carl Kirkland 38.4898%
Robert Kirkland 36.6799%
Bruce Moore 13.9925%
Robert Alderson 8.0738%
Chris Kirkland 0.1133%
Bedford Kirkland 0.1133%
Macy Kirkland 0.1133%
Ken Kirkland 0.4506%
John Kirkland 0.2705%
Anita Fletcher 0.5994%
Russell Kirkland 0.1812%
Toni Warren 0.5426%
Bill Butler 0.3798%
"Percentage Value" shall mean the values of the
Companies expressed as a percentage of the total values of all of the Companies,
as set forth on Schedule 1P attached hereto.
"Permits" shall mean any and all licenses,
franchises, permits, easements, rights, consents, orders, approvals, variances
and other authorizations of or issued by any Governmental Entity to or in favor
of the Companies.
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"Permitted Liens" shall mean (i) Liens for current
taxes not yet delinquent for which appropriate reserves in accordance with GAAP
have been created, (ii) statutory liens imposed by law which are incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers and materialmen, and (iii) other Liens specifically
described and reflected on the Financial Statements, (iv) any other liens set
forth on Schedule 7.7 of this Agreement; provided, however, that if any Lien
described in clause (i), (ii) or (iii) above, individually or in the aggregate,
materially detracts or will detract from or interferes or will interfere with
the Business or any Company's right to dispose of any property, the use of such
property or their business or operations, as presently conducted, then such Lien
shall not be considered to be a Permitted Lien.
"Permitted Title Exceptions" shall mean those Liens
and other matters to which the title of the Owned Real Property is subject
which, in the sole discretion of Holdings, will not prevent or materially
interfere with or adversely affect the Companies' operation of the Business
consistent with past practice or materially detract from the value or the
marketability of the Owned Real Property. Any exception for (i) Liens for labor
or materials, whether or not of record, (ii) for parties in possession (other
than tenants under tenant leases as tenants only), (iii) unrecorded easements,
(iv) taxes or special assessments not shown by public records other than taxes
or special assessments, the payment of which is not yet due on the Closing Date,
or (v) any state of facts which a current survey would disclose, shall not
constitute Permitted Title Exceptions.
"Person" shall mean an individual, a sole
proprietorship, a corporation, a partnership, a joint venture, an association, a
trust, or any other entity or organization, including a government or a
political subdivision, agency or instrumentality thereof.
"Positive Adjustment Amount" shall have the meaning
given in Section 4.3(e) hereof.
"Pre-Closing Debt" shall mean all principal, interest
and other amounts owed by the Companies to the Former Lenders for borrowed money
on the Closing Date (other than any portion of the Bank Debt, the Mezzanine Debt
or the Revolving Line of Credit which is owed to any Former Lenders and other
than the Cash Register Financing Line).
"Preliminary Recapitalization" shall mean the
recapitalization of the Companies prior to the transactions set forth in this
Agreement, as a result of which a portion of the outstanding common stock of the
Group A and B Companies will be
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converted into Class C Preferred Stock, all as set forth in Section 3.1 hereof.
"Preliminary Redemption Price" shall mean the
preliminary payment to be made by the Companies to each Shareholder, based on
the Preliminary Redemption Proceeds.
"Preliminary Redemption Proceeds" shall mean the
amount of the Redemption Proceeds as computed by reference to the Unaudited
Closing Date Balance Sheet.
"Proposed Adjustment" shall mean any adjustment
proposed by any Governmental Entity to an item of income, deduction, gain, loss
or credit on any Return or on any Majority Shareholder's federal or state tax
return, which item is attributable to the operations of any Company.
"Protected Amounts" shall mean the portions of the
Annual Salary (as defined in the Management Agreements) payable to Robert
Alderson, Carl Kirkland and Bruce Moore pursuant to their respective Management
Agreements which are not expressly subordinated to the Bank Debt and the
Mezzanine Debt pursuant to Section 10 of such Management Agreements, and which
will not be subject to the offset provisions of Section 13.6 hereof.
"Purchase Price" shall have the meaning given in
Section 3.3 hereof.
"Purchased Shares" shall mean the shares to be
purchased by Holdings from the Companies pursuant to Section 3.2 hereof.
"Qualified Public Offering" shall mean the sale of
shares of the Companies' capital stock in a registered underwritten public
offering resulting in gross proceeds to the Companies of at least Thirty Million
Dollars ($30,000,000).
"Real Property" shall mean any real estate, together
with all buildings, improvements, fixtures, easements, options to acquire real
estate, rights to unpaid insurance proceeds in respect of Losses to real estate,
rights to unpaid condemnation awards and all other rights in or appurtenant
thereto.
"Recapitalization" shall mean the recapitalization of
the Companies, as a result of which the outstanding common stock of each Company
will be converted as described in Article 5 hereof.
"Redeemed Shares" shall mean the Minority Redeemed
Shares and the Majority Redeemed Shares.
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"Redemption" shall mean the redemption of the
Redeemed Shares effected pursuant to Article 4 hereof.
"Redemption Price" shall mean the amount to be
received by each Shareholder from all of the Companies on an aggregate basis,
pursuant to the Redemption.
"Redemption Proceeds" shall mean an amount equal to
the sum of (a) $90,780,000 less the Pre-Closing Debt, plus (b) the 1995 Pre-Tax
Income (to the extent not distributed prior to Closing), plus (c) 1996 Pre-Tax
Income (to the extent not distributed prior to Closing), plus (d) the Excess
Working Capital, plus (e) the aggregate amount paid by the Majority Shareholders
to purchase shares pursuant to Section 3.6 hereof.
"Refinancing" shall mean any refinancing of the
Companies' indebtedness for borrowed money after the Closing, in connection with
which the Companies repurchase or redeem any capital stock for value.
"Regulation" shall mean any statute, law, ordinance,
regulation, order, rule, decree or other requirement of any Governmental Entity,
including, but not limited to, those covering environmental, safety, health,
transportation, bribery, recordkeeping, zoning, employment, tax,
anti-discrimination, antitrust, wage and hour and price and wage control
matters.
"Remodeled Company" shall mean each Company which
owns a store which was closed for any period during 1996 for renovations.
"Required Consents" shall mean any and all licenses,
waivers, consents or approvals of or from any Governmental Entity, including the
expiration of any periods of time under statutory and regulatory notice
provisions without action on the part of any Governmental Entity, and any and
all approvals, consents or waivers from other parties to leases, licenses,
franchises, permits, indentures, Contracts and other instruments necessary to
consummate the transaction contemplated hereby.
"Returns" shall mean all returns, reports, claims for
refunds or other information required or permitted to be supplied to or filed
with any Governmental Entity by any Company in connection with Taxes (including,
without limitation, information returns and declarations of estimated tax).
"Revolving Line of Credit" shall mean a revolving
line of credit in the amount of no less than Fifteen Million Dollars
($15,000,000) to be made available to the Companies in connection with the
Closing.
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"S Year" shall mean one or more of the taxable years
of any Company falling within the period commencing on the date of incorporation
of such Company and ending as of the close of business on the day preceding the
Closing Date.
"Sale" shall mean the sale of all or a majority in
value of the Companies' assets.
"Schedules" shall mean the schedules referenced in,
and delivered pursuant to this Agreement.
"Shareholder Releases" shall mean the Shareholder
Releases which are to be executed by the Shareholders, which include a general
release by each Shareholder of each of the Companies and the officers, directors
and shareholders of each of the Companies.
"Shareholders" shall mean the Minority Shareholders
and the Majority Shareholders.
"Shareholders Agreement" shall mean a Shareholders
Agreement to be entered into among the Majority Shareholders and Holdings
relating to their holding and disposition of their shares of capital stock in
the Companies.
"Start Date" shall mean the first date that a Company
had shareholders or assets or began doing business.
"Straddle Period" shall mean any taxable period of a
Company which begins before the Closing Date and ends after the Closing Date.
"Sub Debt Warrants" shall mean warrants to purchase
shares of common stock of the Companies to be issued to the lenders of the
Mezzanine Debt.
"Subsidiary" shall mean with respect to any party,
any entity, the majority of whose voting stock (or any class of stock having the
power to elect directors) is owned directly or indirectly by such party.
"Survey" shall have the meaning given in Section
12.2(k) hereof.
"Survival Date" shall mean that date which is two
years after the Closing Date.
"Tax Claim" shall mean a claim for Taxes which if
successful might result in an indemnity payment pursuant to Article 8 hereof.
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"Taxes" shall mean all taxes, charges, fees, levies
or other assessments, whether federal, state, local or foreign based upon or
measured by income, capital, net worth or gain and any other tax including but
not limited to all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, withholding, payroll (including
withholding), employment, social security, unemployment, FICA, FUTA, excise,
estimated, stamp, occupation, property or other taxes, customs duties, fees,
assessments or charges of any kind whatsoever, including all interest and
penalties thereon, and additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign.
"Title Company" shall have the meaning set forth in
Section 12.2(j) of this Agreement.
"Trademark Assignment" shall mean the Trademark
Assignment, pursuant to which Carl and Robert Kirkland will convey all or their
right, title and interest in and to the Trade Name to Kirkland's.
"Trademarks" shall mean registered trademarks,
registered service marks, trademark and service mark applications and
unregistered trademarks and service marks.
"Trade Name" shall mean the name "Kirkland's," which
is currently owned by Carl and Robert Kirkland and will be conveyed to
Kirkland's at the Closing pursuant to the Trademark Assignment.
"Unaudited Closing Date Balance Sheet" shall mean the
unaudited combined balance sheet of the Companies projected as of the close of
business on the day preceding the Closing Date and included in the Unaudited
Closing Date Financial Statements.
"Unaudited Closing Date Financial Statements" shall
mean the unaudited combined financial statements of the Companies consisting of
the Unaudited Closing Date Balance Sheet and the related unaudited income
statement and unaudited statement of changes in financial position for the
period from January 1, 1996 projected through the close of business on the day
preceding the Closing Date, before giving effect to the other transactions
contemplated hereby.
"Warranties" shall mean all warranty obligations,
whether express or implied, of the Companies for the return, repair or
replacement of products sold by the Companies.
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ARTICLE 2
BORROWING OF NEW DEBT; PAYMENTS TO FORMER LENDERS
2.1. Borrowing of New Debt. On the Closing Date, the Companies
will borrow the Bank Debt and the Mezzanine Debt. A portion of the proceeds of
the Bank Debt and the Mezzanine Debt will be used to pay the Pre-Closing Debt to
the Former Lenders in accordance with Sections 2.2 and 2.3 hereof.
2.2. Pre-Closing Debt. On the Closing Date, the Companies
shall pay the Pre-Closing Debt to the Former Lenders, to discharge any and all
indebtedness owed to the Former Lenders on the Closing Date (other than any
portion of the Bank Debt and the Mezzanine Debt which is owed to the Former
Lenders).
2.3. Cash Register Financing Line. The Cash Register Financing
Line shall not be required to be repaid to the Former Lenders on the Closing
Date unless required by the Lenders. If such prepayment is required, then, on
the Closing Date, the Companies shall pay all principal, interest and other
amounts outstanding under the Cash Register Financing Line to the Former
Lenders, to discharge any and all indebtedness owed to the Former Lenders in
respect of the Cash Register Financing Line on the Closing Date.
ARTICLE 3
PRELIMINARY RECAPITALIZATION; INVESTMENT IN
SHARES BY HOLDINGS AND CERTAIN SHAREHOLDERS
3.1. Preliminary Recapitalization. On the Closing Date, prior
to the purchase of the Purchased Shares by Holdings, the Group A Companies and
the Group B Companies will file amendments to their charters with their
respective states of incorporation in order to effect a recapitalization of
their capital stock as described in this Section 3.1 (the "Preliminary
Recapitalization"). The amended charters shall provide that the authorized
capital of each recapitalized Company shall include, in addition to the common
stock currently provided by each such charter, 20,000 shares of Class C
Preferred Stock ("Class C Preferred Stock").
In the Preliminary Recapitalization, a percentage of the
outstanding shares of common stock of each recapitalized Company shall be
converted into 20,000 shares of Class C Preferred Stock. Such percentage shall
be, (i) in the case of each Group A Company, equal to $15,000,000 divided by the
aggregate Company Net Equity of all Group A Companies, and (ii)
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in the case of each Group B Company, equal to $5,000,000 divided by the
aggregate Company Net Equity of all Group B Companies.
The total shares of each recapitalized Company so
converted shall be allocated among the Majority Shareholders as follows: Carl
Kirkland -- 39.5839%, Robert Kirkland -- 37.7225%, Bruce Moore -- 14.3903% and
Robert Alderson -- 8.3033%. The Class C Preferred Stock shall not bear
dividends.
The aggregate stated value and liquidation preference of
the shares of Class C Preferred Stock to be issued by all Group A Companies and
Group B Companies to the Majority Shareholders in the Preliminary
Recapitalization will be $20,000,000, and such aggregate amounts of stated value
and liquidation preference shall be allocated $15,000,000 to the Group A
Companies in accordance with the relative Percentage Values of such Companies
and $5,000,000 to the Group B Companies in accordance with the relative
Percentage Values of such Companies.
3.2. Purchase and Sale of Purchased Shares. On the Closing
Date, prior to the Redemption, Holdings shall purchase from each of the
Companies, and each of the Companies shall sell to Holdings, free and clear of
all Liens, 68,400 shares of Class A Preferred Stock and that number of shares as
will equal 68.4% of the total number of shares of common stock of such Company
as will be outstanding after giving effect to the Preliminary Recapitalization,
the Redemptions and the purchase of shares of common stock in certain of the
Companies pursuant to Section 3.6 hereof.
3.3. Purchase Price. The purchase price for the Purchased
Shares (the "Purchase Price") shall be $30,780,000 which shall be paid in cash
at the Closing by Holdings, by means of a wire transfer of immediately available
Federal funds to an account designated by Kirkland's no less than three days
prior to the Closing Date. The Purchase Price to be paid by Holdings shall be
allocated among the Companies so as to achieve a purchase price per share of
Class A Preferred Stock and common stock of a Company which will be as close as
possible to the price at which common shares of such Company are redeemed
pursuant to Section 4.1 (based on the Preliminary Redemption Proceeds).
3.4. Kirkland's to Receive Purchase Price and Other Payments
in Trust. Each of the Companies hereby authorizes Kirkland's to accept, on
behalf of the Companies, the proceeds of the Bank Debt and the Mezzanine Debt,
amounts paid by Holdings for the Purchased Shares and any amounts paid by the
Majority Shareholders to purchase shares pursuant to Section 3.6 hereof, and
Kirkland's agrees to receive such amounts in trust and to disburse all such
amounts on behalf of the Companies in accordance with the terms of this
Agreement.
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3.5. Tax Stamps. The cost of original issue tax stamps, if
any, in connection with the issuance and delivery of the Purchased Shares by the
Companies to Holdings shall be borne by the Companies.
3.6. Purchase of Shares by Certain Shareholders. On the
Closing Date, prior to the Redemption, each of the Majority Shareholders will
purchase from each of the Companies in which he is not a shareholder, and each
such Company shall sell to each such Majority Shareholder, such number of shares
of common stock as may be required so that the purchasing Majority Shareholder
will own the same number of shares of common stock of each such Company as will
be owned by each other Majority Shareholder, in each case after giving effect to
the Preliminary Recapitalization and the Redemption. The shares of a Company so
purchased shall be purchased at the same price as the shares of such Company are
redeemed in the Redemptions (based on the Preliminary Redemption Proceeds).
ARTICLE 4
REDEMPTION OF SHARES
The balance of the proceeds of the Bank Debt and the Mezzanine
Debt which were not used to pay the Pre-Closing Debt to the Former Lenders in
accordance with Article 2 hereof, together with the Purchase Price and any other
available funds of the Companies, will be used to pay the Redemption Proceeds to
the Shareholders in accordance with this Article 4. The Redemption Proceeds will
be allocated among the Companies in accordance with Schedule 4 attached hereto.
4.1. Redemption of Minority Redeemed Shares.
(a) On the Closing Date, prior to the Recapitalization,
each of the Companies in which a Minority Shareholder owns shares shall purchase
and redeem from each Minority Shareholder all of his or her Minority Redeemed
Shares, in consideration of the payment by the Companies to each Minority
Shareholder of an amount determined in accordance with Schedule 4 (his or her
"Redemption Price"). Ninety percent (90%) of the Preliminary Redemption Price
for each Minority Shareholder shall be paid in cash at the Closing by means of a
wire transfer of immediately available Federal funds to accounts designated by
each Minority Shareholder no less than three days prior to the Closing Date, and
the other ten percent (10%) (the Holdback Amount) shall be applied as provided
for in Section 4.3 hereof. Adjustments to each Minority Shareholder's
Preliminary Redemption Price shall be made following the Closing, if required
pursuant to Section 4.3 hereof.
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(b) The redemption of the Minority Shareholders
described in this Section 4.1 shall be effected pursuant to the Minority
Shareholder Redemption Agreement, which shall be executed and delivered by the
Companies listed on Schedule 4 and each of the Minority Shareholders.
4.2. Redemption of Majority Redeemed Shares. On the Closing
Date, prior to the Recapitalization, the Companies shall purchase and redeem
from each Majority Shareholder his Majority Redeemed Shares, in consideration of
the payment by the Companies to each Majority Shareholder of an amount
determined in accordance with Schedule 4 (his "Redemption Price"). A Preliminary
Redemption Price payable to each Majority Shareholder shall be paid in cash at
the Closing by means of a wire transfer of immediately available Federal funds
to accounts designated by each Majority Shareholder no less than three days
prior to the Closing Date. Adjustments to each Majority Shareholder's
Preliminary Redemption Price shall be made following the Closing, if required
pursuant to Section 4.3 hereof.
4.3. Post-Closing Adjustments.
(a) Audited Closing Date Financial Statements. As
promptly as reasonably practicable following the Closing Date, the Management
Shareholders shall cause the Unaudited Closing Date Financial Statements to be
delivered to Holdings pursuant to Section 10.5 hereof to be audited by
Kirkland's Accountants, it being understood that there will be no physical
inventory taken in connection with such audit if a physical inventory is not
required in order for Kirkland's Accountants to render an unqualified opinion on
the Audited Closing Date Financial Statements. A copy of the Audited Closing
Date Financial Statements shall be delivered to Holdings and the Majority
Shareholders.
(b) Notice of Disagreement. The Audited Closing Date
Financial Statements shall become final and binding upon the parties hereto
unless Holdings gives written notice of its disagreement (a "Notice of
Disagreement") to the Majority Shareholders within twenty (20) days following
the delivery to Holdings of the Audited Closing Date Financial Statements. A
Notice of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. During a period of ten (10) days following the receipt
by the Majority Shareholders of a Notice of Disagreement from Holdings, the
parties shall attempt to resolve in writing any differences they may have with
respect to any matters specified in the Notice of Disagreement. If at the end of
the aforesaid 10-day period, the parties have reached written agreement with
respect to all matters covered by a Notice of Disagreement, the Audited Closing
Date Financial Statements shall be adjusted to reflect such written agreement
and shall become final and binding upon the parties hereto.
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(c) Disputed Matters. If at the end of the aforesaid
10-day period, the parties shall have failed to reach written agreement with
respect to all matters covered by a Notice of Disagreement, then all such
matters as to which written agreement has been reached shall become final and
binding upon the parties hereto and all such matters as to which written
agreement has not been reached (the "Disputed Matters") shall be submitted to
and reviewed by the Washington, D.C. office of Deloitte & Touche LLP (the
"Arbitrator").
(d) Arbitration. The Arbitrator shall consider only the
Disputed Matters. The Arbitrator shall act promptly to resolve all Disputed
Matters and its decision with respect to all Disputed Matters shall be final and
binding upon the parties hereto. Upon resolution by the Arbitrator of all
Disputed Matters, the Arbitrator shall prepare and shall deliver to Holdings and
the Majority Shareholders a conclusion letter reflecting any written agreement
between the parties with respect to adjustments to be made to the Audited
Closing Date Financial Statements and reflecting any determination of the
Arbitrator with respect to any Disputed Matters, and the Audited Closing Date
Financial Statements as adjusted based on the conclusion letter shall be final
and binding upon the parties hereto. The fees and expenses of the Arbitrator
shall be borne equally by Holdings, on the one hand, and the Majority
Shareholders, on the other hand, unless the Arbitrator determines that one of
the parties has not proceeded in good faith with respect to the Disputed
Matters, in which case such party shall bear fully the fees and expenses of the
Arbitrator.
(e) Post-Closing Adjustment.
(i) Not later than five Business Days subsequent to
the date the Audited Closing Date Financial Statements become final and binding
upon the parties hereto in accordance with the preceding paragraphs of this
Section 4.3, a post-closing adjustment will be made, and payments will be made
by the Companies to the Shareholders or by the Shareholders to the Companies, as
follows:
(A) The Redemption Proceeds shall be recalculated
by reference to the Audited Closing Date Financial Statements, as adjusted
pursuant to the provisions of paragraphs (b) through (d) of this Section 4.3.
(B) If the Preliminary Redemption Proceeds paid
or credited to Shareholders at the Closing, including the Holdback Amount,
exceed the Redemption Proceeds as calculated in accordance with paragraph (A)
above, such excess shall constitute the "Negative Adjustment Amount." If the
Redemption Proceeds as so computed exceed the Preliminary
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Redemption Proceeds paid to Shareholders at the Closing, such excess shall
constitute the "Positive Adjustment Amount."
(C) The Positive Adjustment Amount or Negative
Adjustment Amount, as the case may be, shall be allocated among the Shareholders
in proportion to each Shareholder's Percentage Interest.
(ii) Any Negative Adjustment Amount allocated (A) to
each Majority Shareholder shall be paid to the Companies by such Majority
Shareholders in cash (i.e. by ordinary check), and (B) to each Minority
Shareholder shall be applied against the Holdback Amount and the balance of the
Negative Adjustment Amount thereafter remaining shall be paid by each Minority
Shareholder to the Companies in cash (i.e., by ordinary check). Any Holdback
Amount not so applied shall be paid by the Companies to the Minority
Shareholders in cash (i.e., by ordinary check). The portion of any Negative
Adjustment Amount to be allocated to each Company shall be determined by the
Board of Directors of each Company at the time of receipt.
(iii) Any Positive Adjustment Amount allocated to
each Shareholder shall be paid by the Companies to such Shareholders in cash
(i.e. by ordinary check), and at the same time, the Companies shall pay the
Holdback Amount to the Minority Shareholders in cash (i.e. by ordinary check).
The portion of any Positive Adjustment Amount to be paid by each Company shall
be determined by the Board of Directors of each Company at the time of payment.
4.4. Compliance with Corporate Law. The Redemption is subject
to the restrictions governing the right of a corporation to purchase its own
capital stock under applicable corporate law and such other pertinent
Regulations as are now, or may hereafter become, effective. If any of the
Companies does not on the Closing Date have sufficient capital available to
permit it lawfully to redeem the Minority Redeemed Shares or Majority Redeemed
Shares which it is required pursuant to this Article 4 to redeem, the parties
shall enter into such amendments to this Agreement as shall reasonably be
required in order to provide: (a) for the Companies to redeem fewer Majority
Redeemed Shares than currently required pursuant to this Article 4, such that
following the Redemption (as so adjusted) and the purchase of shares of common
stock by Holdings from the Majority Shareholders as discussed in clause (b)
below, the Shareholders shall have received the same net proceeds as would have
been the case had the Redemption been able to be consummated in full without
regard to this Section 4.4, and (b) for Holdings to purchase fewer shares of
common stock from the Companies than is currently required pursuant to Article 3
hereof and for Holdings to purchase such number of shares of common stock
directly from the
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Majority Shareholders such that following the purchase of the Purchased Shares
by Holdings from the Companies and the purchase of shares by Holdings from the
Majority Shareholders, Holdings and the Majority Shareholders shall own the same
relative percentage interests of the common stock of each Company as would have
been the case had the Redemption been able to be consummated in full without
regard to this Section 4.4.
ARTICLE 5
RECAPITALIZATION OF THE COMPANIES
5.1. Recapitalization. On or by the Closing Date, the
Companies will file amendments to their charters with their respective states of
incorporation in order to effect the Recapitalization as described in this
Article 5. The amended charters shall provide that the authorized capital of
each Company shall consist of 500,000 shares of common stock and 100,000 shares
of preferred stock, of which preferred stock 68,400 shares will be designated as
Class A Preferred Stock ("Class A Preferred Stock") and 31,600 shares will be
designated as Class B Preferred Stock ("Class B Preferred Stock"); except that
the amended charters of all Group A Companies and Group B Companies shall
include an additional 20,000 shares of preferred stock which will be designated
as Class C Preferred Stock ("Class C Preferred Stock"), for a total number of
shares of preferred stock of Group A Companies and Group B Companies of 120,000
per Company. The 500,000 shares of authorized common stock shall be designated
as Voting Common Stock ("Voting Common Stock") and Non-Voting Common Stock
("Non-Voting Common Stock"), depending on whether the Company is a Group A
Company, Group B Company, Group C Company or Group D Company, as follows: for
Group A Companies and Group B Companies, 498,700 shares of common stock will be
designated as Voting Common Stock and 1,300 shares will be designated as
Non-Voting Common Stock; and for Group C Companies and Group D Companies,
484,200 shares of common stock will be designated as Voting Common Stock and
15,800 shares will be designated as Non-Voting Common Stock. Of the total of
31,600 shares of authorized Class B Preferred Stock of all Group C Companies and
Group D Companies, 21,800 shall be designated as Voting Class B Preferred Stock
("Voting Class B Preferred Stock") and 9,800 shall be designated as Non-Voting
Class B Preferred Stock ("Non-Voting Class B Preferred Stock"). The 31,600
shares of authorized Class B Preferred Stock of all Group A Companies and Group
B Companies shall be designated simply as Class B Preferred Stock.
5.2. Conversion of Common Stock.
(a) In the Recapitalization, the outstanding shares of
common stock of each Company held by Majority Shareholders shall be converted so
that the
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total outstanding stock will be all of the authorized stock designated in the
charters amended pursuant to Section 5.1. Any Class C Preferred Stock and Class
A Preferred Stock outstanding prior to the Recapitalization will remain
outstanding and will not be affected by the Recapitalization.
(b) The Class A Preferred Stock and the Class B
Preferred Stock shall accrue cumulative dividends at the rate of eight percent
(8%) per year, payable upon redemption if not earlier paid. The Class C
Preferred Stock shall not bear dividends. No dividends shall be paid on the
Class A Preferred Stock, Class B Preferred Stock or Common Stock, unless all
amounts then due under the Management Agreements have been paid.
(c) The common stock of each Company following the
Recapitalization shall be issued and outstanding such that Holdings owns 68.4%
of the outstanding common stock and each of the Majority Shareholders owns 7.9%
of the outstanding common stock. All of the common stock outstanding after the
Recapitalization will be Voting Common Stock, except for the following number of
shares of the common stock to be issued to each of Bruce Moore and Robert
Alderson, which will be Non-Voting Common Stock: 650 shares for each Group A
Company and Group B Company and 7,900 shares for each Group C Company and Group
D Company.
(d) The Class A Preferred Stock of each Company shall be
owned by Holdings, and the Class B Preferred Stock of each Company shall be
owned by the Majority Shareholders according to the following percentages:
Robert Alderson, 25%; Carl Kirkland, 25%; Bruce Moore, 25%; and Robert Kirkland,
25%. All of the Class B Preferred Stock outstanding after the Recapitalization
by the Group C Companies and the Group D Companies will be Voting Class B
Preferred Stock, except for 4,900 shares of the Class B Preferred Stock to be
owned by each of Bruce Moore and Robert Alderson, which will be Non-Voting Class
B Preferred Stock.
(e) The aggregate stated value and liquidation
preference of the shares of Class A Preferred Stock to be issued by all of the
Companies to Holdings will be $30,472,200, the aggregate stated value and
liquidation preference of the shares of Class B Preferred Stock to be issued by
all of the Companies to the Majority Shareholders will be $14,077,800, and such
aggregate amounts of stated value and liquidation preference shall be allocated
as follows: Group A Companies -- 74%, Group B Companies -- 25%, Group C
Companies -- 0.999% and Group D Companies -- 0.001%. The amounts of stated value
and liquidation preference allocated to the Group A Companies, the Group B
Companies and the Group C Companies pursuant to the preceding sentence shall be
further allocated among each of the Companies within each such Group in
accordance with their relative Percentage Values, and the amount of stated value
and liquidation
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preference allocated to the Group D Companies pursuant to the preceding sentence
shall be allocated equally among the Group D Companies. The aggregate stated
value and liquidation preference of the shares of Class C Preferred Stock to be
issued by all of the Group A Companies and Group B Companies to the Majority
Shareholders will be $20,000,000, and such aggregate amounts of stated value and
liquidation preference shall be allocated $15,000,000 to the Group A Companies
in accordance with the relative Percentage Values of such Companies and
$5,000,000 to the Group B Companies in accordance with the relative Percentage
Values of such Companies. In any liquidation of the Companies or any redemption
of any preferred stock of the Companies, the holders of the Class C Preferred
Stock of each Company with Class C Preferred Stock outstanding shall receive
liquidation payments or redemption proceeds, as the case may be, prior to the
holders of common stock, Class A Preferred Stock or Class B Preferred Stock,
until the full liquidation preference or redemption proceeds, as the case may
be, of such Class C Preferred Stock shall have been fully paid.
5.3. Common Stock. The amended and restated Articles or
Certificate of Incorporation to be adopted by each of the Companies pursuant to
Section 5.1 shall provide that the Voting Common Stock shall have all voting
rights accorded to holders of common stock pursuant to the corporate law of the
state of incorporation (at the rate of one vote per share), except with respect
to the election of directors. Such amended and restated Articles or Certificate
of Incorporation shall also provide that the Non-Voting Common Stock shall be
equal in all respects to the Voting Common Stock, except that the Non-Voting
Common Stock shall not have voting rights. With respect to the election of
directors for any Company, the holders of the Voting Common Stock, voting as a
separate voting group, shall have the special and exclusive right at all times
to elect three (3) directors to the Board of Directors of such Company. Any
director elected by the holders of the Voting Common Stock shall not be subject
to removal, other than for cause, unless such removal is approved by a majority
of all the votes entitled to be cast by the holders of the Voting Common Stock.
A majority of the directors elected by the holders of the Voting Common Stock
shall have the right to make all determinations concerning the taking of action
by the Companies to enforce the Companies' rights under this Agreement.
5.4. Class A Preferred Stock. The designations and preferences
of the Class A Preferred Stock to be adopted by each of the Companies pursuant
to Section 5.1 shall provide that the Class A Preferred Stock shall not have any
voting rights except as set forth in this Section.
(a) The holders of a majority of the Class A Preferred
Stock of any Company shall have the right at any time
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to call a special meeting of the shareholders of such Company in order for the
shareholders to vote on a proposal to engage in a business combination
transaction with one or more other businesses, whether by purchase, sale of
substantially all assets, merger, consolidation or otherwise.
(b) At any time following the earlier to occur of: (A)
such time as it shall be possible for a Company to do so without resulting in a
breach of any agreement to which such Company is a party or any event, which
with or without the giving of notice or the passage of time, would result in
such a breach, or (B) the first anniversary of the Closing Date, the holders of
a majority of the Class A Preferred Stock of such Company shall have the right
to call a special meeting of the shareholders of such Company in order for the
shareholders to vote on a proposal to amend such Company's Articles or
Certificate of Incorporation and By-laws as set forth in this paragraph. Such
amendment shall eliminate all special voting rights and restrictions of the
Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock, as
the case may be, and shall provide that the Class A Preferred Stock, Class B
Preferred Stock and Class C Preferred Stock shall have no voting rights except
as provided by applicable law. Such amendment shall eliminate any reference to
the special voting rights and restrictions of the common stock and shall provide
for the conversion of all Non-Voting Common Stock into Voting Common Stock. Such
amendment shall delete from the By-laws the special approval provisions set
forth in Section 5.7 hereof.
(c) At any shareholders meeting called pursuant to
paragraph (a) or (b) above, each share of Class A Preferred Stock shall entitle
the holder thereof to one vote on the proposal being voted upon, voting together
with the holders of common stock and either Voting Class B Preferred Stock, in
the case of Group C Companies and Group D Companies, or Class C Preferred Stock,
in the case of Group A Companies and Group B Companies, as one voting group. If
the shareholders approve such proposal, the matter shall be submitted to the
vote of the Board of Directors of the Company. If the Board of Directors of the
Company shall not approve the proposal within five days after the date of the
shareholders meeting, then the holders of the Class A Preferred Stock, voting as
a separate voting group, shall thereafter have the special and exclusive right
at all times to elect two (2) directors to the Board of Directors of such
Company. Any director elected by the holders of the Class A Preferred Stock
shall not be subject to removal, other than for cause, unless such removal is
approved by a majority of all the votes entitled to be cast by the holders of
the Class A Preferred Stock.
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5.5. Class B Preferred Stock.
(a) The designations and preferences of the Class B
Preferred Stock to be adopted by each of the Group A Companies and Group B
Companies pursuant to Section 5.1 shall provide that the Class B Preferred Stock
shall not have any voting rights.
(b) The designations and preferences of the Class B
Preferred Stock to be adopted by each of the Group C Companies and Group D
Companies pursuant to Section 5.1 shall provide that the Class B Preferred Stock
shall not have any voting rights except as set forth in this paragraph. Except
with respect to the election of directors, the holders of the Voting Class B
Preferred Stock in Group C Companies and Group D Companies shall have the right
to vote on all matters as to which holders of the common stock shall be entitled
to vote (at the rate of one vote per share), in the same manner and with the
same effect as such holders of common stock, voting together with the holders of
common stock as one voting group. With respect to the election of directors for
any Company, the holders of such Voting Class B Preferred Stock, voting as a
separate voting group, shall have the special and exclusive right at all times
to elect four (4) directors to the Board of Directors of such Company. Any
director elected by the holders of the Voting Class B Preferred Stock shall not
be subject to removal, other than for cause, unless such removal is approved by
a majority of all the votes entitled to be cast by the holders of the Voting
Class B Preferred Stock. The designations and preferences of the Class B
Preferred Stock to be adopted by each of the Group C Companies and Group D
Companies in connection with the Recapitalization shall provide that the
Non-Voting Class B Preferred Stock shall be equal in all respects to the Voting
Class B Preferred Stock, except that the Non-Voting Class B Preferred Stock
shall not have voting rights.
5.6. Class C Preferred Stock. The designations and preferences
of the Class C Preferred Stock to be adopted by each of the Group A Companies
and Group B Companies pursuant to Section 5.1 shall provide that the Class C
Preferred Stock shall not have any voting rights except as set forth in this
Section. Except with respect to the election of directors, the holders of the
Class C Preferred Stock shall have the right to vote on all matters as to which
holders of the common stock shall be entitled to vote (at the rate of one vote
per share), in the same manner and with the same effect as such holders of
common stock, voting together with the holders of common stock as one voting
group. With respect to the election of directors for any Company, the holders of
the Class C Preferred Stock, voting as a separate voting group, shall have the
special and exclusive right at all times to elect four (4) directors to the
Board of Directors of such Company. Any director elected by the holders
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of the Class C Preferred Stock shall not be subject to removal, other than for
cause, unless such removal is approved by a majority of all the votes entitled
to be cast by the holders of the Class C Preferred Stock. The Class C Preferred
Stock shall be redeemable in whole or in part (pro rata if in part) at the
option of the Companies at any time, and shall be mandatorily redeemable in
whole upon the earlier to occur of the seventh anniversary of the Closing or the
closing of any Sale, Change in Control, Qualified Public Offering or
Refinancing. In the event that the Companies do not redeem the Class C Preferred
Stock when required in accordance with its terms, dividends will accrue and
cumulate thereon at an annual rate of nine percent (9%) until the redemption
occurs. All redemption and dividend payment obligations will be subordinated to
the Bank Debt and the Mezzanine Debt.
5.7. By-laws of the Companies. In connection with the
Recapitalization, the By-laws of the Companies shall be amended in order to
include a provision requiring the approval of at least one of the directors
designated by Holdings pursuant to the terms of the Shareholders Agreement in
order for any Company to take any of the following actions:
(i) Any sale, lease or assignment of any Company's
interest in any assets outside the ordinary course of business.
(ii) Any borrowings or incurrence of indebtedness (or
series of borrowings or incurrences of indebtedness) within any 12-month period,
or any commitment for any of the foregoing, in an amount exceeding $300,000 by
any Company or $5 million by all Companies in the aggregate.
(iii) Any capital expenditures within any 12-month
period in excess of $50,000 by any Company or $1 million by all Companies in the
aggregate.
(iv) Any sale or other issuance, or any purchase or
redemption, of any securities of any Company by any Company.
(v) Any merger or consolidation by any Company with any
other entity or corporation or liquidation or dissolution.
(vi) Any amendment to any Company's Certificate of
Incorporation or By-laws.
(vii) The removal or election of any corporate officer,
or the termination of employment of or hiring of any employee earning annualized
compensation of more than $100,000.
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(viii) Any contract with any Majority Shareholder or any
Affiliate of any Majority Shareholder not in the ordinary course of business.
ARTICLE 6
SCHEDULES AND COLLATERAL DOCUMENTS
6.1. Delivery of Schedules. The Management Shareholders shall
deliver to Holdings, no later than May 2, 1996, all of the Schedules required by
the terms of this Agreement to be attached hereto other than any which have been
attached hereto on the date hereof. In order for such delivery to satisfy the
covenant set forth in the preceding sentence, such Schedules must be accompanied
by a certificate executed by the Management Shareholders, stating that such
Schedules are being attached hereto pursuant to this Section 6.1.
6.2. Right of Termination. Holdings may terminate this
Agreement, if: (i) either (A) any of the Schedules provided by the Management
Shareholders pursuant to Section 6.1 hereof shall not be acceptable to Holdings,
in Holdings' sole discretion, or (B) the Management Shareholders shall have
failed to provide any of the Schedules required to be provided to Holdings
pursuant to Section 6.1 by May 2, 1996, and (ii) Holdings provides notice to the
Management Shareholders of its election to terminate this Agreement pursuant to
this Section 6.2 no later than May 10, 1996.
6.3. Delivery of Collateral Documents. Each of the Majority
Shareholders and Holdings agree to negotiate the terms of the Collateral
Documents in good faith, with the goal of agreeing to such terms on or before
May 15, 1996. After agreement to such terms shall have been reached, each of the
Majority Shareholders and Holdings shall sign a certificate reflecting such
agreement and setting forth the parties' agreement that the forms of the
Collateral Documents as agreed upon shall be the forms in which such Collateral
Documents shall be executed and delivered at the Closing, unless otherwise
required by the Lenders as a condition to their funding the Bank Debt or the
Mezzanine Debt. Any changes to the Collateral Documents required by the Lenders
shall be subject to the approval of each of the Majority Shareholders and
Holdings.
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Management Shareholders hereby jointly and
severally makes the following representations and warranties to Holdings, each
of which shall survive the Closing and expire only in accordance with Article 14
hereof, and Robert Kirkland hereby joins in this Article 7 solely for the
purpose of making the representations and warranties set forth in Sections
7.2(b), 7.5(b), 7.27(b) and 7.29(b) (individually and not jointly and severally
with the Management Shareholders), each of which shall survive the Closing and
expire only in accordance with Article 14 hereof:
7.1. Organization, Power and Authority. Each Company is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and is duly qualified and in good standing as a
foreign corporation authorized to transact business and to own and lease
property in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties owned or leased by it requires
such qualification in order to avoid liability or disadvantage. All of such
states of incorporation and foreign qualification jurisdictions are listed on
Schedule 7.1. Each Company has the power and authority to own its property and
to carry on its business as presently conducted or contemplated. Correct and
complete copies of the Articles or Certificate of Incorporation and By-laws of
the Companies, as amended to date have been previously provided to Holdings.
None of the Companies is in violation of any term of its Articles or Certificate
of Incorporation or By-laws, as amended to date, which violation would have a
Material Adverse Effect on any Company. A true and complete list of the officers
and directors of the Companies is set forth on Schedule 7.1 hereto, and each
such officer and director has been duly elected to such office or directorship.
Other than the Majority Shareholders, each of the Companies, and the officers
and directors listed on Schedule 7.1 hereto, none of the Companies has any
Affiliates.
7.2. Authorization.
(a) This Agreement constitutes the valid and binding
obligation of each of the Companies and the Management Shareholders, enforceable
against each of them in accordance with its terms, and the Collateral Documents
will constitute, upon their execution and delivery by the Companies and the
Management Shareholders, as the case may be, the valid and binding obligation of
each of each of them, enforceable in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or
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similar laws affecting the rights of creditors generally. The execution,
delivery and performance of this Agreement has been duly authorized by all
necessary corporate and shareholder action of each Company.
(b) Robert Kirkland represents and warrants (and the
Management Shareholders do not represent and warrant) that this Agreement
constitutes his valid and binding obligation, enforceable against him in
accordance with its terms, and the Collateral Documents to which Robert Kirkland
is a party will constitute, upon their execution and delivery by Robert
Kirkland, his valid and binding obligations, enforceable in accordance with
their respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the rights of
creditors generally.
7.3. Capitalization of the Companies. The authorized capital
stock of each Company consists of 1,000 shares of common stock, of which 1,000
shares are currently issued and outstanding (except as shown on Schedule 7.3)
and are owned of record and beneficially as shown on Schedule 7.3. All of the
outstanding shares have been validly issued, fully paid and nonassessable, and
are not subject to, nor were they issued in violation of, any preemptive rights.
The Purchased Shares are validly issued, fully paid and nonassessable, and will
not be subject to, nor will they have been issued in violation of, any
preemptive rights. Except for the outstanding shares, the Purchased Shares, the
Sub Debt Warrants to be issued at the Closing and the options to be granted to
the Management Shareholders pursuant to the Option Agreements at the Closing, or
as otherwise provided herein, none of the Companies has issued any other shares
of capital stock, there are no outstanding warrants, options or other rights,
commitments, agreements or understandings to purchase or acquire any shares of
capital stock or other equity securities of any Company, and there are no
outstanding debt securities of any Company convertible into equity securities or
otherwise containing equity provisions. Except as provided herein, none of the
Companies has reserved any of its authorized shares of capital stock for any
purpose. Except as disclosed on Schedule 7.3 hereto, (a) there are no
restrictions on the transfer of the capital stock of any of the Companies other
than those arising from federal and state securities laws, and (b) none of the
Companies has any understandings or agreements with any of the Shareholders or
any other person or entity respecting its capital stock or other securities. All
shares of capital stock, options, warrants, notes, bonds or other equity or debt
securities which have ever been offered or sold by the Companies ("Securities")
have been exempt from registration pursuant to the registration provisions of
the Securities Act of 1933 and applicable state securities laws, and no such
Securities were registered under any such Act or laws. No private offering
memorandum or other information furnished (whether orally or in
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writing) to any offeree or purchaser of such Securities contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
7.4. Subsidiaries. None of the Companies has any direct or
indirect investments in, and none of the Companies is a party to any agreement,
commitment or understanding requiring the Company to purchase or acquire any
interest in, the equity of any corporation, trust, partnership or business
entity, or debt securities convertible into such securities or otherwise
containing equity provisions.
7.5. Conflict with other Instruments; Absence of
Restrictions.
(a) The execution, delivery and performance of
this Agreement by the Companies and the Management Shareholders, and the
execution, delivery and performance of the Collateral Documents by the Companies
and the Management Shareholders, will not contravene any provision of any
Company's Articles or Certificate of Incorporation or by-laws and will not
result in a breach of, or constitute a Default under, any agreement or other
document to which any Company or any of the Management Shareholders is a party
or by which any Company or any of the Management Shareholders is bound, or any
Regulation which is binding on any Company or any of the Management Shareholders
or on any assets of any Company, or result in the creation or imposition of any
mortgage, pledge, lien, charge, assessment, encumbrance, claim or restriction of
any nature on any assets of any Company or give to others any interest or rights
therein or create in any third party the right to modify, terminate or
accelerate (or to make a claim for damages in respect of) any instrument or
contract to which any Company or any of the Management Shareholders is a party
or by which any Company or any of the Management Shareholders is bound. None of
the Companies and none of the Management Shareholders has any reason to believe
that the execution, delivery and performance of this Agreement and the
Collateral Documents will adversely affect performance by third parties under
any supply contracts or distribution agreements to which the Company is a party.
As of the date hereof, no Default has occurred under this Agreement by any of
the Companies or any of the Management Shareholders.
(b) Robert Kirkland represents and warrants (and the
Management Shareholders do not represent and warrant) that the execution,
delivery and performance of this Agreement by him, and the execution, delivery
and performance of the Collateral Documents by him, will not result in a breach
of, or constitute a Default under, any agreement or other document to which he
is a party or by which he is bound, or any Regulation which is binding
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on him. As of the date hereof, no Default has occurred under this Agreement by
Robert Kirkland.
7.6. Government and Third-Party Approvals. Except as listed on
Schedule 7.6 attached hereto, no consent by, approval or authorization of or
filing, registration or qualification with any Governmental Entity, corporation,
person or other entity (including any party to any contract or agreement with
any Company or any of the Majority Shareholders) is required (i) for the
execution, delivery and performance of this Agreement by the Companies and the
Majority Shareholders, (ii) for the execution, delivery and performance of the
Collateral Documents by the Companies and the Majority Shareholders, (iii) in
connection with the Companies' and the Majority Shareholders' consummation of
the transactions contemplated hereby and thereby or (iv) in order to vest in
Holdings good and marketable title in and to all of the Purchased Shares upon
the Closing.
7.7. Title to Properties; Adequacy of Properties. Each Company
has good and marketable title to its properties and assets, whether tangible or
intangible, and whether consisting of real or personal property, including,
without limitation Copyrights, Patents, Trademarks and other intangibles which
it purports to own, as well as all of the properties and assets reflected in the
1995 Balance Sheet and those acquired since the date thereof (except in each
case for properties and assets sold or otherwise disposed of in the ordinary
course of business consistent with past practice since the dates thereof), free
and clear of all Liens, except as specifically disclosed in Schedule 7.7
attached hereto. All of said properties and assets currently used in the
operation of the Business are in good working order and fit for their intended
use. The properties and assets of each Company are adequate in all respects to
conduct its Business as now conducted.
7.8. Other Representations Regarding Company Assets.
(a) Accounts Receivable. All of the Accounts Receivable as of
December 31, 1995 are reflected on the 1995 Balance Sheet and all of the
Accounts Receivable as of the Closing Date will be reflected on the Unaudited
Closing Date Balance Sheet. Each of the Accounts Receivable constitutes a valid
claim in the full amount thereof against the debtor charged therewith on the
books of the Company, has been acquired in the ordinary course of business, and
no such account receivable has arisen from any transaction with the United
States or any department or agency thereof. The Accounts Receivable listed on
the 1995 Balance Sheet and/or on the Unaudited Closing Date Balance Sheet (i)
have arisen or will arise solely in the ordinary course of business of the
Company; (ii) represent or will represent, upon their creation, valid
obligations due to the Company and are enforceable or will, upon their creation,
be
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enforceable in accordance with their terms; and (iii) are or upon their
creation will be collectible on or before the 120th day following the Closing
Date in the ordinary course of business in the aggregate recorded amounts
thereof in accordance with their terms, less the amount of any reserve for
doubtful accounts maintained by the Company in accordance with GAAP. No account
debtor has any valid set-off, deduction or defense with respect thereto, and no
account debtor has asserted any such set-off, deduction or defense, except as
may result from the right of the Companies' customers to return merchandise in
accordance with the provisions of the Companies' standard merchandise return
policy.
(b) Cash Accounts. Schedule 7.8(b) hereto lists (i) the name
and city of every bank or other financial institution in which each Company
maintains an account (whether checking, savings or otherwise), lock box or safe
deposit box, and (ii) the account number of each account.
(c) Equipment. The items of Equipment are, and on the Closing
Date will be, in good working order and fit for their intended use.
(d) Inventory Generally. All items of Inventory reflected in
the Financial Statements are, and all items of Inventory to be reflected on the
Unaudited Closing Date Balance Sheet will be, in good and merchantable condition
and salable in the ordinary course of business. Such Inventory is valued on an
average cost basis in accordance with GAAP, and does not include any defective
or obsolete items. The Companies do not hold any items of Inventory on
consignment or have title to any items of Inventory in the possession of others
except for items of Inventory in shipment to the Companies.
(e) Leasehold Improvements. The Leasehold Improvements are,
and on the Closing Date will be, fit for their intended use. All of the movable
trade fixtures may be removed by the Company, as the current lessee, from the
premises on which they are attached without giving rise to any obligation on the
part of the Company, as the lessee, to compensate the applicable landlord for
any diminution in the value of the leased premises as a result of such removal.
(f) Owned Real Property. Attached hereto as Schedule 7.8(f) is
an accurate list and summary description of all Owned Real Property, together
with a brief description of all structures located thereon and any existing
title insurance policies which any of the Companies has, and except as set forth
on Schedule 7.8(f), there are no options, licenses, leases, rights of first
refusal, conditional sales agreements, or similar arrangements respecting the
Owned Real Property. Except as set forth in Schedule 7.8(f), Kirkland's has and
on the Closing Date will have, free and clear of all Liens except for Permitted
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Liens, good, valid, record and marketable title to all of the Owned Real
Property. Other than the Owned Real Property, the Companies own no Real
Property. Since December 31, 1995, there has been no damage, destruction or loss
(whether or not covered by insurance), with respect to any Owned Real Property.
(g) Leased Real Property.
(i) Attached hereto as Schedule 7.8(g) is an
accurate list and summary description of all Leased Real Property. The Leased
Real Property constitutes all of the Real Property which is leased or used by
the Companies other than the Owned Real Property. The lessor of each parcel of
Leased Real Property is identified on Schedule 7.8(g), together with the full
and accurate mailing address of each such lessor, of which the Companies have
notice. The Companies and the Management Shareholders have previously delivered
to Holdings the Leases. All of the Leases contain customary commercial terms
and, subject to provisions concerning default, afford the Companies peaceful and
undisturbed possession of the Leased Real Property.
(ii) Except for the occupancy and use of the Leased
Real Property by the Company, there are no leases, tenancies, licenses or other
rights of occupancy or use for any portion of the Leased Real Property, and no
person or entity other than the Companies occupies or uses any portion of the
Leased Real Property.
(h) Real Property Generally.
(i) No assessments for public improvements have been
made against any Owned Real Property or, to the best knowledge of the Management
Shareholders, any Leased Real Property, and no current installments of such
assessments remain unpaid and, to the best knowledge of the Management
Shareholders, no such Real Property will be assessed for any street paving or
curbing heretofore laid or any other public improvements heretofore made. To the
best knowledge of the Management Shareholders, no ordinance authorizing
improvements, the cost of which might be assessed against any Owned Real
Property or Leased Real Property, is pending or contemplated.
(ii) There are no pending or, to the knowledge of any
of the Management Shareholders, threatened, (A) condemnations, eminent domain or
similar proceedings, or (B) assessments, which could affect any part of the
Owned Real Property. To the knowledge of any of the Management Shareholders,
there are no pending or threatened condemnations, eminent domain or similar
proceedings, or assessments, which could affect any part of the Leased Real
Property. From the date of this Agreement through the Closing Date, the
Management Shareholders and the Companies agree to notify Holdings
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immediately upon learning that any assessment, or any condemnation, eminent
domain or similar proceeding, has been commenced or is threatened, which could
affect any part of the Owned Real Property or Leased Real Property.
(iii) Except as listed on Schedule 7.8(h), the
zoning, land use, building or safety law or ordinance or other administrative
regulation of the city, town, county, village, state or municipality in which
any Owned Real Property or, to the knowledge of the Management Shareholders, any
Leased Real Property, is located are not violated by existing structures, and
are not violated by nor prevent or interfere with or adversely affect, the
continued use and operation of the Business for the same purposes and operations
as presently exist, none of the Companies has received any notice of any such
violation with which it has not fully and timely complied. Except as set forth
on Schedule 7.8(h), there is no outstanding notice of violation, order or
citation against any Company under any law, ordinance, governmental rule or
regulation relating to any of the Leased Real Property, and the Leased Real
Property is in good operating condition and in a state of good maintenance and
repair sufficient for the efficient operation of the Business.
(i) Intellectual Property and Information. To the knowledge of
the Management Shareholders, no patent, tradename, trademark, service mark,
copyright or license not included in the Intellectual Property and Information
is necessary to permit the business of the Company to be conducted as now
conducted. Except as set forth on Schedule 7.8(i) hereto, no claim is pending or
threatened to the effect that (i) the present or past operations of the Business
infringe upon or conflict with the asserted rights of any other person in
respect of any of the Intellectual Property and Information or (ii) any
Intellectual Property and Information is invalid or unenforceable. To the
knowledge of the Management Shareholders, none of the Intellectual Property and
Information infringes on the rights of third parties, and the Company is not
making unauthorized use of any confidential information or trade secrets of any
person.
(j) Completeness and Condition of Assets. All of the assets
used in the operation of the Business, including the Owned Real Property and
Leased Real Property and the structures thereon, are in good operating condition
sufficient to operate the Business as presently conducted (reasonable wear and
tear excepted) and are fit for the purpose for which they are intended. The
Companies has access to all utilities, including water and sewage or subsurface
disposal systems, as the case may be, necessary to operate the Business in the
normal course as presently operated. Other than the Companies, there are no
corporations or other entities which conduct the Business, any shares of which
are owned by any of the Majority Shareholders.
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7.9. Financial Statements and Related Information.
(a) Financial Statements. The Audited Historical Financial
Statements have been delivered to Holdings. The Audited Historical Financial
Statements are based on the Books and Records of the Companies (with adjustments
to reflect inventory capitalization and depreciation) and were prepared in
accordance with GAAP and, when read together with the notes thereto, present
fairly and accurately the financial position and the results of the operations
of the Companies as at the respective dates thereof and for the periods reported
therein, and the Audited Historical Financial Statements do not reflect the
financial position or include the results of operations of any corporation or
entity other than the Companies (other than any corporation which has been
dissolved). Any Interim Financial Statements delivered in accordance with
Section 10.1(n) hereof will be in accordance with the Books and Records of the
Companies and will be prepared in accordance with GAAP (other than the absence
of adjustments to reflect inventory capitalization and depreciation) and will
present fairly and accurately the financial position and the results of the
operations of the Companies as at the respective dates thereof and for the
periods reported therein. Upon delivery in accordance with Section 10.5 hereof,
the Unaudited Closing Date Financial Statements will be in accordance with the
Books and Records of the Companies and will be prepared in accordance with GAAP
(other than the absence of adjustments to reflect inventory capitalization and
depreciation), and will present accurately the financial position and the
results of the operations of the Companies as of the date preceding the Closing
Date; with the understanding that the financial information respecting the month
in which the Closing occurs will be presented by the Management Shareholders
based on the Books and Records of the Companies, and that the Management
Shareholders agree to use their best efforts to project as accurately as
reasonably possible such Closing month financial information.
(b) Absence of Undisclosed Liabilities. On December 31, 1995,
the Companies had no Liabilities except as and to the extent reflected in the
1995 Balance Sheet or in this Agreement or in any Schedule hereto. The Companies
have no Liabilities, and, to the knowledge of the Management Shareholders, no
basis for any Liability exists other than (i) any reflected in the 1995 Balance
Sheet, the balance sheet included in the most recent Interim Financial
Statements, in this Agreement or in any Schedule hereto or (ii) any Liabilities
meeting both of the following conditions: (A) such Liabilities arose since
December 31, 1995 in the ordinary course of business of the Company and in
compliance with the covenants and agreements of the Company herein contained,
and (B) such Liabilities are set forth on the Unaudited Closing Date Balance
Sheet.
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(c) Affiliated Relationships. All services rendered by any
Company to any of the Shareholders or any Affiliate of any of the Shareholders,
and all services rendered by any of the Shareholders or any Affiliate of any of
the Shareholders to any Company, have been recorded in the accounts of such
Company at their full value, as if they were rendered in arm's length
transactions. All goods sold by any Company to any of the Shareholders or any
Affiliate of any of the Shareholders, and all goods sold by any of the
Shareholders or any Affiliate of any of the Shareholders to any Company, have
been recorded in the accounts of such Company at their full value, as if such
goods were transferred in arm's length transactions.
7.10. Permits. The Companies have obtained all Permits
required by Law. All such Permits are in full force and effect, and the Business
is currently being operated in compliance with the terms of all such Permits.
7.11. Foreign Corrupt Practices Act of 1977. None of the
Companies and none of the Majority Shareholders on behalf of any Company has
made any offer, payment, promise to pay or authorization for the payment of
money or an offer, gift, promise to give, or authorization for the giving of
anything of value to any person in violation of the Foreign Corrupt Practices
Act of 1977.
7.12. Corporate Records. The Books and Records are true and
complete in all material respects and fairly record and reflect all transactions
material to the operations of the Companies.
7.13. Litigation. Except as set forth on Schedule 7.13, no
litigation, arbitration, investigation or other proceeding of or before any
court, arbitrator or governmental or regulatory official, body or authority is
pending or, to the knowledge of the Management Shareholders, threatened against
any Company or the transactions contemplated by this Agreement, and none of the
Management Shareholders knows of any basis for any such litigation, arbitration,
investigation or proceeding. No Company is a party to or subject to the
provisions of any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental or regulatory official, body or authority.
7.14. Conduct of Business. Between December 31, 1995 and the
date hereof, the Business has been conducted only in the ordinary course and in
a manner consistent with past practices.
7.15. Absence of Changes. Between December 31, 1995 and the
date hereof there has not been:
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(a) Any Material Adverse Effect, except changes in the
ordinary course of business, none of which has resulted or could be reasonably
expected to result in a Material Adverse Effect;
(b) Any event or condition of any nature whatsoever which
individually or in the aggregate has resulted in or could be reasonably expected
to result in a Material Adverse Effect;
(c) Any Material Adverse Effect which has resulted from or has
been threatened in any way as a result of fire, explosion, earthquake, disaster,
accident, labor dispute, any action by any governmental authority, flood,
drought, embargo, riot, civil disturbance, uprising, activity of armed forces or
act of God or public enemy, whether or not covered by insurance.
(d) Any claims not covered by applicable policies of liability
insurance within the maximum insurable limits of such policies;
(f) Any transaction by any Company not in the ordinary course
of business as conducted on that date;
(g) Any amendment to the Articles or Certificate of
Incorporation or By-laws of any Company;
(h) The creation or attachment, or notice thereof, of any Lien
on the assets of any Company;
(i) Any sale or transfer of any of the Companies' assets not
in the ordinary course of business (other than the sale of used cash registers
and semi-annual discount sales);
(j) Any incurrence of any debts, Liabilities or obligations
except in the ordinary course, consistent with past practice, or any waiver of
any rights of substantial value;
(k) Any discharge or satisfaction of any Liens, or any payment
of any Liens or Liabilities, except in the ordinary course of business,
consistent with past practice;
(l) Any increase in the salary or other compensation payable
by any Company to any of its executive officers or directors or the declaration,
payment, commitment or obligation of any kind for the payment by the Company of
a bonus or other additional salary or compensation to any such person;
(m) Any dividends or distributions of cash or property by any
Company to any of the Shareholders, including, without limitation, any portion
of the 1995 Pre-Tax Income;
(n) Any sale, transfer or issuance of any capital stock,
equity security or debt security of any Company or any
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option, warrant, right or commitment or agreement entered into requiring or
permitting any such sale, transfer or issuance; or
(o) Any agreement by any Company to do any act which would
render any of the preceding clauses inaccurate, other than the transactions
specifically contemplated to occur pursuant to this Agreement.
7.16. Contracts, Leases, Etc. Except as listed and
described on Schedule 7.16 or any other Schedule attached hereto,
none of the Companies is a party to any Contract of the type
described below:
(a) agreement or commitment with any present or former
shareholder, director, or officer.
(b) agreement, commitment or arrangement with any labor union
or other representative of Employees;
(c) written employment agreement or severance agreement with
any Employee involving the payment of more than $10,000 individually during the
term thereof. If the Companies are parties to such agreements involving the
payment by the Companies of more than $50,000 in the aggregate during the term
thereof, then all such Contracts shall be listed and described on Schedule 7.16
without regard to the amount required to be paid under any individual agreement;
(d) agreement or commitment for the performance of services by
a third party which involves in any one case Fifty Thousand Dollars ($50,000.00)
and is not cancelable on thirty (30) days notice or less without penalty.
Schedule 7.16 also contains a list of the 20 largest (in terms of dollar amount)
outstanding purchase orders for Inventory as of April 5, 1996;
(e) agreement or commitment to sell or supply products or to
perform services which obligates any Company to sell products or perform
services which involves in any one case Fifty Thousand Dollars ($50,000.00)
which is not cancelable on thirty (30) days notice or less without penalty;
(f) distribution agreement where any Company is acting as
supplier or distributor or any agency agreement where any Company is acting as
principal or agent;
(g) any lease under which the Company is either lessor or
lessee of personal property requiring annual lease payments (including rent and
any other charges) in excess of $10,000, and any lease under which the Company
is either lessor or lessee of Real Property, including any Lease (as defined
herein), other than any Lease listed on Schedule 7.8(g);
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(h) note, debenture, mortgage, pledge, charge, security
agreement, bond, conditional sale agreement, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for
borrowing or lending of money (including, without limitation, loans to or from
officers, directors, Shareholders or any member of their immediate families),
agreement or arrangements for a line of credit or guarantee, pledge or
undertaking of the indebtedness of any other person;
(i) agreement, contract or commitment for any charitable or
political contribution;
(j) agreement, contract or commitment for any capital
expenditure in excess of Twenty Five Thousand Dollars ($25,000.00);
(k) agreement, contract or commitment limiting or restraining
it from engaging or competing in any lines of business with any person;
(l) license, franchise, distributorship or other similar
agreement, including those which relate in whole or in part to any patent,
trademark, trade name, service mark or copyright or to any ideas, technical
assistance or other know-how of or used by it in the operation of its business;
(m) agreement with any Governmental Entity;
(n) power of attorney granted by any Company in favor of any
person or entity, other than any power of attorney contained in any Lease listed
on Schedule 7.8(g);
(o) other agreement requiring payments or other consideration
by or from any Company in excess of Twenty Five Thousand Dollars ($25,000.00)
during the remainder of its term; or
(p) other material agreement, contract or commitment not made
in the ordinary course of business.
Each of the Contracts is valid and enforceable in accordance with its terms; the
Companies, and to the knowledge of the Management Shareholders, the other
parties thereto, are in compliance with the provisions thereof; none of the
Companies, and to the knowledge of the Management Shareholders, none of the
other parties thereto, is in default in the performance, observance or
fulfillment of any obligation, covenant or condition contained therein; and no
event has occurred which with or without the giving of notice or lapse of time,
or both, would constitute a default thereunder by any Company, or to the
knowledge of the Management Shareholders, any other party.
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Except for the provisions of any Lease which specifically requires the payment
of fees in connection with the assignment of the Lease (including a collateral
assignment to secure indebtedness) or a change in control of the Company which
is the lessee thereunder, none of the Contracts contains any provisions which
would cause the Company which is a party thereto to be liable to the other party
thereto for any amount (or any increased price for goods or services being
provided by the other party thereto) as a result of the consummation of the
transactions contemplated hereby. None of the Contracts (other than the Leases)
contains any provisions which would cause the Company which is a party thereto
to be liable to the other party thereto for any amount in the event that
following the Closing, the Company terminates such Contract, so long as such
termination does not constitute a breach of such Contract by the applicable
Company.
None of the terms or provisions of any of the Contracts (other than the Leases)
includes a restriction on any Company's ability to compete and none of the terms
or provisions of any of the Contracts adversely affects the Condition. Each
lease of personal property to which the Company is a party, which provides for
total rental payments during the lease term in excess of $25,000, is fully
effective and affords the Company peaceful and undisturbed possession of the
subject matter of the lease. The Companies and the Majority Shareholders agree
to make all of the Contracts available to Holdings prior to the Closing upon the
request of Holdings.
7.17. Warranties and Liabilities. Except pursuant to the
Companies' standard merchandise return policy, none of the Companies has given
or made any warranties to third parties with respect to any products sold or
services performed by it, except for warranties arising by operation of law and
warranties made in respect of products which are no broader in scope or longer
in duration than the respective warranties on such products given to the Company
by the manufacturers of such products.
7.18. Product Matters. The Companies and the Management
Shareholders have delivered to Holdings a loss run, statistical run and a
narrative of incidents, events and claims under all product warranty plans and
product liability insurance policies relating to the Companies, certified to be
correct by the Management Shareholders or, in the case of insurance policies,
the Companies' insurance brokers. Such loss run and narrative is true and
correct in all material respects. The Companies are insured under all policies
of insurance relating to product liability and listed on Schedule 7.19 for and
against any claim for product liability based on any event occurring prior to
the Closing Date, and such insurance coverage will continue in effect after the
Closing Date unless terminated in accordance with its terms by the Companies.
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7.19. Insurance. Schedule 7.19 sets forth a list of all
policies or binders of fire, liability, product liability, worker's
compensation, vehicular or other insurance held by or on behalf of the Companies
(specifying for each such insurance policy, except the policies for worker's
compensation and vehicular insurance, the insurer, the policy number or covering
note number with respect to binders, and each pending claim thereunder of more
than $5,000 and setting forth the aggregate amounts paid out under each such
policy through the date hereof). Such policies and binders are valid, in full
force and effect and sufficient to protect the Companies and their assets
against all insured hazards, subject to the deductibles provided in such
policies. None of the Companies is in default with respect to any provision
contained in any such policy or binder and none of the Companies has failed to
give any notice or present any claim of which it has notice under any such
policy or binder in a timely fashion. None of the Companies has received or
given a notice of cancellation or non-renewal with respect to any such policy or
binder. None of the Management Shareholders has any knowledge of any material
inaccuracy in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts which might form the basis for
termination of any such insurance. None of the Management Shareholders has any
knowledge of any state of facts or the occurrence of any event that is
reasonably likely to form the basis for any claim against any Company which is
not fully covered by the policies referred to on Schedule 7.19. None of the
Companies has received written notice from any of its insurance carriers that
any insurance premiums will be materially increased in the future or that any
insurance coverage listed on Schedule 7.19 will not be available in the future
on substantially the same terms as now in effect.
7.20. Licensing Arrangements, Joint Ventures, Etc. Schedule
7.20 attached hereto contains a list of all licensing arrangements, joint
ventures and royalty and franchise agreements which any Company has entered into
and by which it is bound or will be bound as of the Closing.
7.21. Transactions with Affiliates. Neither any director,
officer or shareholder of any Company, nor Betsy Weiss, James Harris, Connie
Scoggins, Chris LaFont or Toni Warren, nor any Affiliate of any of the foregoing
has during the past two years: (a) received or earned, or (b) had an ownership
interest (whether direct or indirect) in any business, corporate or otherwise,
which has or had any business arrangement or relationship of any kind under
which it has received or earned, payments from any Company in excess of $5,000
in any year (other than salaries, wages and bonuses), except as described in
Schedule 7.21 attached hereto. There are no contracts or obligations between any
Company and any director, officer, Shareholder or employee of any Company or any
Affiliate of any
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such person except for those identified on Schedule 7.21 or another Schedule
hereto, a complete copy of each of which (including all amendments) has been
delivered to Holdings. Except as set forth on Schedule 7.21, none of the
Companies is indebted to any Shareholder or the Affiliates of any Shareholder
(the "Shareholder Loans"), and Schedule 7.21 contains a complete list of all
amounts owed to any Company by any Shareholder or by the Affiliates of any
Shareholder (the "Shareholder Receivables").
7.22. Compensation to Employees, etc.
(a) Schedule 7.22 lists each of the Employees currently
employed by the Companies whose annualized aggregate compensation as salary,
wages and bonuses during 1995 exceeded $50,000 ("Highly Paid Employees"), and
indicating the amount of the 1995 salary, wages and bonuses for each such
Employee. In addition, Schedule 7.22 lists (i) the base salary, as currently in
effect, for each of the Highly Paid Employees, (ii) the bonus arrangements, if
any, currently in effect for each of the Highly Paid Employees, (iii) the
commission arrangements, if any, currently in effect for each of the Highly Paid
Employees and (iv) the date on which the most recent salary increase went into
effect for each of the Highly Paid Employees and the amount of each such
increase. There are no agreements, contracts or collective bargaining agreements
covering or applicable to any officer, director, or employee of any Company,
except as set forth on Schedule 7.21 or Schedule 7.22. Except as disclosed on
Schedule 7.21 or Schedule 7.22, the Company has not agreed to increase the
compensation level of any of its officers, directors, Employees or independent
contracts or has any understanding respecting such an increase.
(b) The Company does not have and for the past three fiscal
years has not had (i) any unfair labor practice charge or complaint or other
proceeding pending or, to the best knowledge of the Management Shareholders,
threatened against any Company before the National Labor Relations Board, and
there is no labor strike pending or, to the best knowledge of the Management
Shareholders, threatened against or involving any Company, (ii) any labor
strike, slowdown or stoppage pending or, to the best knowledge of the Management
Shareholders, threatened against or affecting any Company, (iii) any pending
collective bargaining negotiations relating to the employees of any Company,
(iv) pending petitions for recognition of a labor union or association as the
exclusive bargaining agent for any or all of the Employees, and, to the best
knowledge of the Management Shareholders, there has not been any general
solicitation of representation cards by any union seeking to represent any or
all of the Employees as their exclusive bargaining agent, (v) any collective
bargaining agreements or (vi) any arbitrations, grievances, suits or
administrative proceedings before any
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Governmental Entity relating to labor or employment matters involving any
Employees.
7.23. Overtime, Back Wages, Vacation, Discrimination, and
Occupational Safety Claims. Except as set forth in Schedule 7.23, there is no
Litigation against any Company (whether under federal or state law, under any
employment agreement, or otherwise) asserted by any Employee on account of or
for, and to the knowledge of the Management Shareholders, there are no
outstanding claims against any Company (whether under federal or state law,
under any employment agreement, or otherwise) asserted by any Employee on
account of or for, (i) overtime pay, other than overtime pay for work done
during the current payroll period; (ii) wages or salary for any period other
than the current payroll period; (iii) any amount of vacation pay or pay in lieu
of vacation time, other than vacation time or pay in lieu thereof earned in or
in respect of the current fiscal year; or (iv) any violation of any statute,
ordinance or regulation relating to minimum wages or maximum hours of work, and
there are no such claims which have not been asserted. Except as set forth on
Schedule 7.23, no person or party (including any governmental agency of any
kind) has commenced any Litigation against any Company or, to the best knowledge
of the Management Shareholders, threatened to assert any claims against or has
any basis for or contemplates any action or proceeding against any Company,
under or arising out of, any statute, ordinance or regulation relating to
discrimination or occupational safety in employment or employment practices
(including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, The Fair Labor Standards Act, as amended, Title VII of the Civil
Rights Act of 1964, as amended, or the Age Discrimination in Employment Act of
1967, as amended). Except as set forth on Schedule 7.23, the aggregate potential
Liability of the Companies under any and all claims against the Companies of the
type described in the preceding two sentences which are not the subject of
pending Litigation will not exceed $50,000.
7.24. Benefit Matters.
(a) Benefit Plans Generally. Schedule 7.24 attached hereto
contains a true and complete list of all Benefit Plans, maintained currently or
at any time in the past six years by any Company or any ERISA Affiliate or with
respect to which contributions are made or have been made at any time in the
past six years by any Company or any ERISA Affiliate (including health, life
insurance and other benefit plans maintained for retirees), whether or not such
plans are "employee benefit plans" within the meaning of Section 3(3) of ERISA,
and whether or not such plans, programs and arrangements are in the nature of
formal or informal understandings, and whether or not pursuant to any collective
bargaining arrangements, but excluding normal payroll practices including,
without limitation, the continuation of
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regular wage payments on account of vacation, holiday, short illness, jury duty
or other like absence.
(b) Multiemployer Plans Generally. None of the Companies and
none of the ERISA Affiliates is or has ever been a party to any pension plan or
welfare benefit plan that is a "multiemployer plan" (within the meaning of
Section 3(37) of ERISA), a "multiple employer plan" (within the meaning of
section 413 of the Code) or a "multiple employer welfare arrangement" (within
the meaning of Section 3(40) of ERISA).
(c) Pension Plans. None of the Companies and none of the ERISA
Affiliates maintains, has ever maintained, or has had any obligation under a
plan subject to Title IV of ERISA.
(d) Welfare Plans. No Benefit Plan maintained by the Companies
or its ERISA Affiliates which is a "welfare plan" within the meaning of Section
3(1) of ERISA has any reserves, assets, surplus, or prepaid premiums.
(e) Qualified Plans. With respect to each of the Benefit Plans
intended to qualify under Section 401(a) or 403(a) of the Code, the plan has
been maintained and administered at all times in material compliance with its
terms and applicable laws and regulations and has been so qualified during the
period from its adoption to date and the trust forming a part thereof is exempt
from taxation pursuant to Section 501(a) of the Code.
(f) Collective Bargaining. None of the Companies and none of
the ERISA Affiliates is or ever has been a party to any collective bargaining
agreement.
(g) Compliance. Each Benefit Plan complies in all material
respects and has been administered in all material respects in accordance with
all applicable laws and regulations including, without limitation, ERISA and the
Code. All applicable reporting, disclosure, fiduciary and tax qualification
requirements under ERISA and the Code have been fully and timely satisfied. The
Companies and the ERISA Affiliates have filed or caused to be filed with the
Internal Revenue Service annual reports on form 5500 or 5500C/R, as applicable,
for each Benefit Plan for all years and periods for which such reports were
required. All statements and disclosures made on documents or forms filed or
distributed pursuant to the applicable reporting and disclosure requirements
under ERISA and the Code have been true and complete in all material respects
and have been filed or distributed timely. No Benefit Plan has been assessed any
excise tax liability. To the best knowledge of the Companies and the Management
Shareholders, no event has occurred that would likely result in any Benefit Plan
incurring such excise tax liability.
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(h) Contributions. Each of the Companies and ERISA Affiliates,
as applicable, has made all payments and contributions to all Benefit Plans on a
timely basis as required by the terms of each such plan and any applicable law.
All such payments and contributions have been deducted fully by the applicable
Companies or ERISA Affiliates for federal income tax purposes. Such deductions
have not been challenged or disallowed by any government entity and none of the
Companies has any reason to believe that such deductions are not properly
allowable. The Companies and ERISA Affiliates have funded or will fund prior to
Closing each Benefit Plan in accordance with the terms of each such plan and,
with respect to the current plan year for benefits accrued through the Closing
Date, including the payment of applicable premiums on any insurance contract
funding a Benefit Plan for coverage provided through the date hereof. No Benefit
Plan is subject to Section 302 of ERISA or Section 412 of the Code.
(i) Prohibited Transactions. To the best knowledge of the
Companies and the Management Shareholders: (1) no "prohibited transaction," as
defined in Section 406 of ERISA or Section 4975 of the Code, has occurred with
respect to any Benefit Plan, for which no statutory, class or other exemption
exists and Schedule 7.24 sets forth a complete and accurate list of each such
prohibited transaction for which a statutory, class or other exemption applies;
(2) no civil or criminal action brought pursuant to part 5 of Title I of ERISA
is pending or is threatened in writing or orally against any fiduciary who is an
employee or director of any Company; (3) no civil or criminal action brought
pursuant to part 5 of Title I of ERISA is pending or is threatened in writing or
orally against any fiduciary who is not an employee or director of the Company;
and (4) no fiduciary violations, as defined in Section 404 of ERISA, have
occurred with respect to which any Company or any ERISA Affiliate could have any
present or future liability or obligation. Each Benefit Plan is, and has been,
operated and administered substantially in accordance with the appropriate
written plan documents or other applicable provisions of the Code.
(j) Documentation. The Companies and the Management
Shareholders have provided to Holdings correct and complete copies of the
following documents: (i) all plan documents, amendments and trust agreements
relating to each Benefit Plan including, without limitation, any insurance
contracts under which benefits are provided, as currently in effect; (ii) the
most recent annual and periodic accountings of plan assets; (iii) the most
recent Internal Revenue Service notification letter relating to the pension
benefit plans and a list identifying all amendments not covered by such
notification letter, regarding such plan, including the date such amendments
were adopted and effective; (iv) to the extent such reports were required, all
annual reports filed on form 5500 or 5500C/R, as applicable, for
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the past three years, including accompanying schedules; (v) the current summary
plan description, if any was required by ERISA to be prepared and distributed to
participants, for each Benefit Plan, as well as other Benefit Plan related
employee communications, such as pamphlets, booklets and brochures; and (vi) all
insurance contracts, annuity contracts, investment advisory agreements, fidelity
bonds and fiduciary liability policies and related applications, and all
filings, applications to and correspondence with any Governmental Entity,
written disputed claims made by or against any Benefit Plan, administration
contracts, investment management agreements, service provider agreements, audit
reports, written legal advice relating to any Benefit Plan, prohibited
transaction exemptions, and resolutions of the Board of Directors of the
Companies relating to any of the foregoing.
(k) Continuation Coverage. Each Benefit Plan that is a "group
health plan" (within the meaning of Section 607 of ERISA) is and has been
operated in compliance with all requirements of Sections 601 through 608 of
ERISA and either (i) Section 162(i)(2) and (k) of the Code and the regulations
promulgated thereunder (prior to 1989) or (ii) Section 4980B of the Code and the
regulations promulgated thereunder (after 1988), as well as all comparable
requirements arising under the laws of any state, relating to the continuation
of coverage under certain circumstances in which coverage would otherwise cease.
Schedule 7.24 attached hereto is a true and complete list of all former
Employees of the Companies and their ERISA Affiliates and the beneficiaries of
such Employees who, as of the Closing Date, are receiving or who are eligible to
elect to receive benefits pursuant to such plans, the provisions of ERISA and
the Code, or any state law.
(l) Post-Retirement Benefits. No Benefit Plan maintained by
the Companies or any ERISA Affiliate provides post-retirement medical benefits,
post-retirement death benefits or other post-retirement welfare benefits or has
any obligation under any plan that provides such benefits, except to the extent
of the continuation coverage rules as provided under the provisions of Section
4980B of the Code and Sections 601 through 608 of ERISA and the provision of
certain post-retirement life insurance benefits.
(m) Communications. To the best knowledge of the Companies and
the Management Shareholders, all communications with respect to each Benefit
Plan by any Person having the requisite authority to make such communications
reflect and always have reflected accurately the material terms and conditions
of each such Benefit Plan, and there have been no written statements or
communications, no oral statements or communications made to any Employee of any
Company or any ERISA Affiliate in any form by any Person (including, without
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limitation, any officer, director or other Employee having the requisite
authority to do so of any Company or ERISA Affiliate) which provide for or could
be construed as a contract or promise by any Company or ERISA Affiliate to
provide for any pension, welfare or other insurance type benefits to any such
Employee, whether before or after retirement.
(n) Additional Payments. None of the Companies and none of the
ERISA Affiliates is a party to any Contract, that has resulted or would result
from the consummation of the transactions contemplated herein or otherwise,
separately or in the aggregate, in: (i) the entitlement of any individual to
severance pay, or (ii) the acceleration of the time of payment or vesting of, or
an increase in the amount of compensation due to any individual from the
Companies or any ERISA Affiliate, or (iii) the payment of an amount subject to
the provisions of Code Section 280G.
(o) Litigation. There is not and there has not been any
pending or, to the best knowledge of the Management Shareholders, threatened,
litigation or arbitration concerning or involving any Benefit Plan. No
complaints to or by any Governmental Entity have been filed or, to the best
knowledge of the Management Shareholders, are threatened or are expected, with
respect to any Benefit Plan. No claims have been made or, to the best knowledge
of the Management Shareholders, are threatened or expected, with respect to any
bond or any fiduciary liability or other similar insurance with regard to the
actions of any Person in connection with any Benefit Plan, nor has there been
nor, to the best knowledge of the Management Shareholders, is there expected to
be any notice to any insurer under any such bond or policy with regard to any
Benefit Plan. No application for any bond or fiduciary liability or similar
insurance policy with respect to any Benefit Plan has been rejected, nor is any
such bond or policy now subject to any qualification, condition or exclusion.
7.25. Hazardous Substances.
(a) Compliance. Except as set forth on Schedule 7.25, each of
the Companies (i) to the knowledge of the Management Shareholders, is now and
has always been in compliance with all Environmental Laws (as hereinafter
defined) which compliance includes, but is not limited to, the possession by the
Companies of all Permits and other governmental authorizations currently or
previously required by the Companies under applicable Environmental Laws, and
compliance with the terms and conditions thereof; and (ii) has received no
written or oral notice from any Governmental Entity, citizens group, Employee or
other Person relating to the Companies' compliance with any Environmental Laws,
and is in full compliance with the terms or conditions of all Permits and
governmental authorizations. All Permits and
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other governmental authorizations currently held by any Company which relate to
the Environmental Laws are identified on Schedule 7.25 attached hereto.
(b) Discharges, Etc. To the knowledge of the Management
Shareholders, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern (as
hereinafter defined), that form or could reasonably be expected to form the
basis of any Environmental Claim against any Company or against any Person or
entity whose liability for any Environmental Claim any Company has or may have
retained or assumed either contractually or by operation of law. To the best
knowledge of the Management Shareholders, no impact on the operations of any
Company, and no restrictions on an expansion of the operations of any Company,
could result due to the presence of any environmentally sensitive area.
(c) Disposal; Conditions. All on-site and off-site locations
where any Company has stored, disposed or arranged for the disposal of Materials
of Environmental Concern are identified on Schedule 7.25 attached hereto. There
are no pending, or to the best knowledge of the Management Shareholders
threatened, claims against any Company arising in respect of any Real Property
now or formerly owned, leased or used by any Company. Except as set forth on
Schedule 7.25 attached hereto, to the knowledge of the Management Shareholders,
at no time have there been above-ground or underground storage tanks located on
or in any Real Property now or formerly owned, leased or used by any Company and
there is no asbestos or urea formaldehyde foam insulation contained in or
forming part of any building, building component, structure or office space
located on or in any Real Property now or formerly owned, leased or used by any
Company. To the knowledge of the Management Shareholders, no polychlorinated
byphenyls (PCBs) are present, in use or stored at any Real Property now or
formerly owned, leased or used by any Company.
(d) Spillage, Etc. To the knowledge of the Management
Shareholders, there have been no spills, discharges, leaks, emissions,
injections, escapes, dumpings or releases of any kind whatsoever of any
Materials of Environmental Concern in or on the Real Property now or formerly
owned, leased or used by any Company. No Company has discharged, leaked,
emitted, injected, allowed escape, dumped or released any Materials of
Environmental Concern on any Leased Real Property, Owned Real Property or on any
other Real Property. Each Company has complied in all material respects with all
notice requirements of the Environmental Laws regarding any storage, use,
spills, underground storage tanks, discharges, leaks, emissions,
injections, escapes, dumpings or releases of any kind whatsoever
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of any Materials of Environmental Concern in or on all Real Property now or
formerly owned or leased by any Company.
7.26. Solvency. Prior to the consummation of the transactions
contemplated hereby, each Company is solvent, has assets having a fair value in
excess of the amount required to pay its probable liabilities on its existing
debts as they become absolute and mature, and has the ability to pay its debts
from time to time incurred in connection therewith as such debts mature.
7.27. Title to Redeemed Shares.
(a) Each Management Shareholder has good and valid title to
his Majority Redeemed Shares, free and clear of all Liens (except for any Liens
disclosed on Schedule 7.27, each of which Liens will be discharged at the
Closing upon payment of the Pre-Closing Debt pursuant to Article 2 hereof). Upon
delivery of such Majority Redeemed Shares to the Companies and payment therefor
pursuant hereto, good and valid title to such Majority Redeemed Shares, free and
clear of all Liens will pass to the Companies.
(b) Robert Kirkland represents and warrants (and the
Management Shareholders do not represent and warrant) that he has good and valid
title to his Majority Redeemed Shares, free and clear of all Liens (except for
any Liens disclosed on Schedule 7.27, each of which Liens will be discharged at
the Closing upon payment of the Pre-Closing Debt pursuant to Article 2 hereof).
Upon delivery of such Majority Redeemed Shares to the Companies and payment
therefor pursuant hereto, good and valid title to such Majority Redeemed Shares,
free and clear of all Liens will pass to the Companies.
7.28. Brokerage and Expenses. The Companies shall be
responsible for the payment of all fees and expenses incurred or to be incurred
by the Companies, Holdings or by the Shareholders in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the Collateral Documents and the consummation of the transactions
contemplated hereby and thereby.
The fees and expenses of The Robinson-Humphrey Company,
Inc. and J.C. Bradford & Co. pursuant to an engagement letter dated February 23,
1995, and the fees and expenses of the accountants, attorneys and other experts
employed by the Companies in connection with the negotiation, preparation and
execution of this Agreement and the Collateral Documents and in regard to the
Closing documents that are not paid by the Companies prior to the Closing Date
but are accrued as a current liability under the Audited Closing Date Financial
Statements shall be deducted from the Closing Date Adjusted Working Capital.
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All other fees and expenses of the transaction that are
paid by the Companies prior to the Closing Date or are accrued as a current
liability under the Audited Closing Date Financial Statements, including without
limitation the costs incurred in connection with acquiring any Required
Consents, the fees and expenses of Kirkland's Accountants incurred in connection
with the audit of the Closing Date Financial Statements pursuant to Section
4.2(a), the preparation of any Returns for the portion of any Straddle Period
ending on and including the day preceding the Closing Date, and the fees and
expenses of Baker, Donelson, Bearman & Caldwell (up to a maximum of $20,000)
incurred in connection with the charter amendments required by this Agreement
and the issuance of the shares of capital stock in the Preliminary
Recapitalization and the Recapitalization and the state and local filing fees
and charges in regard to the transaction shall be added to the Closing Date
Adjusted Working Capital.
Other than the fees payable to The Robinson-Humphrey
Company, Inc. and J.C. Bradford & Co. described in the preceding sentence, none
of the Companies and none of the Majority Shareholders nor anyone on their
behalf has made any agreement or taken any action which may cause anyone
claiming through any Company or any of the Majority Shareholders to become
entitled to a commission as a result of the transactions contemplated pursuant
to this Agreement.
7.29. Statements and Other Documents Not Misleading.
(a) Neither this Agreement, including all Schedules, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by any of the Management Shareholders or the Companies to
Holdings in connection with the transactions contemplated hereby contains or
will contain any untrue statement of any material fact or omits or will omit to
state any material fact required to be stated in order to make such statement,
document or other instrument not misleading. There is no fact known to any
Company or any of the Management Shareholders which may materially adversely
affect the Condition which has not been set forth in this Agreement, the
Schedules or the other documents furnished to Holdings on or prior to the date
hereof in connection with the transactions contemplated hereby. Except as may be
specifically included in the representations and warranties contained in Article
7 (other than this Section 7.29), or Article 8 of this Agreement, the parties
understand and agree that the Majority Shareholders are not making any
representation or warranty concerning any projection or other forward looking
statement (as defined in Section 27A of the Securities Act of 1933, as amended),
concerning the Companies' results of operation, cash flow or financial
condition, and Holdings acknowledges that it is not relying upon any such
projection or forward looking statement,
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including but not limited to the Confidential Memorandum of the
Robinson-Humphrey Company, Inc. dated June 1995.
(b) Robert Kirkland represents and warrants (and the
Management Shareholders do not represent and warrant) that no financial
statement, document or other instrument heretofore or hereafter furnished by
Robert Kirkland to Holdings in connection with the transactions contemplated
hereby contains or will contain any untrue statement of any material fact or
omits or will omit to state any material fact required to be stated in order to
make such statement, document or other instrument not misleading.
ARTICLE 8
TAX RELATED MATTERS.
8.1. Representations and Warranties. Each of the Management
Shareholders hereby jointly and severally makes the following representations
and warranties to Holdings, each of which shall survive the Closing and expire
only in accordance with Article 14 hereof:
(a) S Election. Each Company duly and properly filed an
election to be taxed as an S corporation for federal and, except as set forth on
Schedule 8.1(a), state income tax purposes and each such election is currently
in effect, under Section 1362 of the Code and the rules and regulations
promulgated thereunder and the corresponding provisions of state income tax
laws. Each Company which is an S corporation for federal or state income tax
purposes will continue to be an S corporation for such purposes until the close
of business on the day immediately prior to the Closing Date.
(b) Corporate Returns. Except as set forth on Schedule 8.1(b),
each Company has duly and timely filed all Returns required to be filed on or
before the Closing Date (taking into account any extensions) with any
Governmental Entity, and all Taxes due and payable by each Company have been
paid, withheld or reserved for or, to the extent they relate to periods ending
on or prior to December 31, 1995, are reflected as a liability on the 1995
Balance Sheet and will be reflected as a liability on the Unaudited Closing Date
Balance Sheet.
(c) Audit Information. Except as set forth on Schedule 8.1(c):
(i) since the incorporation of each Company and within the six (6) full fiscal
years prior to the Closing Date, none of the Returns has ever been audited and
none of the Companies has entered into any agreements for an extension of time
for the assessment of any Tax or Tax delinquency, nor has it waived or requested
a waiver of any statute of limitations with
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respect to any Tax or Tax delinquency; (ii) since the incorporation of each
Company, none of the Companies has received any outstanding and unresolved
notices from the Internal Revenue Service or other Governmental Entity of any
proposed examination or of any proposed change in reported information which may
result either in a deficiency or assessment against any Company or in a change
in the calculation of amounts distributed by a Company to its shareholders in
respect of tax liabilities attributable to the pass through of Company income to
shareholders; (iii) there is no Litigation now pending against any Company in
respect of any Taxes; and (iv) none of the Companies and none of their
respective authorized representatives acting on their behalf, has executed any
extensions or waivers of the statute of limitations that are currently in effect
with respect to any Taxes.
8.2. Majority Shareholders' Indemnifications.
(a) Subject to paragraphs (b) and (c) below, the
Majority Shareholders jointly and severally agree to indemnify the Companies and
their successors and hold them harmless from any and all Taxes and related
Losses suffered or incurred, resulting from, related to or arising out of an
adjustment or change, including any increase in items of income or decrease in
items of loss, deduction or credit of the Companies, but only to the extent such
change or adjustment consists of (i) an increase in an item of a Company's, or
its successor's, income or gain in any C Year and a corresponding decrease in an
item of income or gain reported to the Minority Shareholders and Majority
Shareholders with respect to an S Year; or (ii) a decrease in an item of loss,
deduction or credit reported by a Company or its successors in any C Year and a
corresponding increase in an item of loss, deduction or credit with respect to
an S Year. Any payment with respect to a Loss for Taxes hereunder shall be paid
in cash by the Majority Shareholders no later than 10 days prior to the date
that any payment would be required to be made by the Company or their successors
with respect to such Taxes.
(b) In no event shall the Management Shareholders be
required to indemnify the Companies for Taxes and related Losses pursuant to
paragraph (a) above in excess of 62.2775% of such Taxes and related Losses.
Nothing in this paragraph (b) shall be construed to limit the right of any
Management Shareholder to seek contribution from any other Management
Shareholder in respect of any such Taxes and related Losses.
(c) In no event shall Robert Kirkland be required to
indemnify the Companies for Taxes and related Losses pursuant to paragraph (a)
above in excess of 37.7225% of such Taxes and related Losses.
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8.3. The Companies' Indemnifications. Each of the Companies
agrees to indemnify the Majority Shareholders and the Minority Shareholders and
hold each harmless from any and all Taxes and related Losses suffered or
incurred by any Majority Shareholder or Minority Shareholder, resulting from,
related to or arising out of an adjustment or change, including any increase in
items of income or gain or any decrease in items of loss, deduction or credit,
reported to such Shareholders by the Company with respect to an S Year, but only
to the extent that such adjustment or change consists of (i) an increase in an
item of the Company's income or gain with respect to an S Year and a
corresponding decrease in an item of income or gain with respect to a C Year; or
(ii) a decrease in an item of loss, deduction or credit of the Company with
respect to an S Year and a corresponding increase in an item of loss, deduction
or credit with respect to a C Year. Any payment with respect to a Loss for Taxes
shall be paid to such Shareholder in cash by the Company no later than ten (10)
days prior to the date that any payment would be required to be made by the
Shareholder with respect to such Taxes.
8.4. Indemnity Priority. The indemnity provisions of Sections
8.2 and 8.3 shall have priority over the indemnity provisions of Article 13
hereof, and to the extent applicable, indemnification under Sections 8.2 and 8.3
shall be in lieu of indemnification for the same matter under any other Section
of this Agreement.
8.5. Restoration of S Status. In the event that the S
corporation status of any Company is terminated for any reason other than the
Closing hereunder and such termination is applicable to any taxable period or
portion thereof ending on or prior to the Closing Date, each of the Majority
Shareholders shall take and shall cause the affected Company to take, such steps
as are reasonably necessary to request relief from such termination pursuant to
Section 1362(f) of the Code and the regulations thereunder. In any audit
proceeding, the Majority Shareholders shall not take any position inconsistent
with the S corporation status of the Companies which are taxed for federal or
state income tax purposes as S corporations.
8.6. Filing of Returns. The Companies shall prepare and timely
file with the appropriate authorities, pay all taxes shown due on, and bear all
expenses relating to, all Returns required to be filed for taxable periods
ending on, prior to or after the Closing Date. All Returns shall be prepared and
filed in a manner consistent with prior Returns. All Returns (other than Returns
for Straddle Periods) shall be filed on the basis that the relevant taxable
period ended as of the close of business on the day prior to the Closing Date,
unless the relevant Governmental Entity will not accept a Return filed on
that basis. To the extent any Governmental Entity requires the
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consent of any Majority Shareholders to filing on such basis, the Majority
Shareholders shall provide such consent.
8.7. Future Tax Contests.
(a) Audits. Any Majority Shareholder receiving either notice
of an intention by a Governmental Entity to audit, or any request for
information with respect to, any Return of any Company or of any Majority
Shareholder which includes any item of income, gain, deduction, loss or credit
reported by any of the Companies, with respect to any taxable period beginning
on or prior to the Closing Date shall inform Holdings and the Companies, in
writing, of the intended audit or information request within 15 days after
receipt of such notice and shall, at Holdings' request, keep Holdings informed
concerning and consult with Holdings on all aspects of the audit or request. Any
Company receiving notice of any intention by a Governmental Entity to conduct
such an audit or any such request for information shall inform the Majority
Shareholders and Holdings, in writing, of the intended audit or information
request within 15 days after receipt of such notice, and unless the Majority
Shareholders shall take control of the audit or request pursuant to Section 8.8,
shall keep the Majority Shareholders informed concerning and consult with the
Majority Shareholders on all aspects of the audit or request.
(b) Adjustments. Any Majority Shareholder receiving notice of
any Proposed Adjustment must give notice to Holdings, and any Company receiving
notice or any Proposed Adjustment must give notice to the Majority Shareholders,
of the Proposed Adjustment within 15 days after receipt of a notice of Proposed
Adjustment.
(c) Procedures. Holdings or the applicable Company may, upon
giving written notice to the Notified Shareholder(s), request that the Notified
Shareholder(s) contest such audit or Proposed Adjustment. If Holdings or the
applicable Company shall request that the audit or Proposed Adjustment be
contested, then the Notified Shareholder shall, at the Companies' expense,
(insofar as such contest relates to matters which could give rise to a claim by
the Notified Shareholder under Section 8.3), contest (or engage representatives
to contest) the audit or Proposed Adjustment and allow Holdings, the Companies
and their respective representatives, at their expense, to participate therein
or shall permit Holdings, the Companies and their respective representatives, at
their expense, to contest the Proposed Adjustment (including pursuing all
administrative and judicial appeals and processes). The Majority Shareholders
shall not make, accept or enter into a settlement or other compromise with
respect to any Tax Claims that are the subject of indemnification under Section
8.3 of this Agreement, or forego or terminate any proceeding relating to a
Proposed Adjustment
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without the consent of Holdings, which consent shall not be unreasonably
withheld or delayed.
8.8. Conduct of Proceedings.
(a) With respect to any Tax Claim that might result in
an indemnity payment to the Companies pursuant to Section 13.1 or Section 8.2
hereof or in a direct tax liability to any Majority Shareholder, the Majority
Shareholders shall have the right to control and shall bear the costs of all
Litigation with a Governmental Entity in connection with such Tax Claim,
including selection of counsel, provided that the Majority Shareholders shall
keep Holdings informed concerning all aspects of such Litigation and shall
permit Holdings and the Company which is the subject of the Litigation to
participate therein with counsel and other professionals of their choice. The
Majority Shareholders shall make all decisions concerning the settlement or
contest of the Litigation which is within their control pursuant to this Section
8.8(a) and Holdings or the Company may object to any such decision provided that
such objection is reasonable. In no case shall the Majority Shareholders make,
accept or enter into a settlement or other compromise with respect to Tax Claims
that are the subject of indemnification under this Agreement, or forego or
terminate any proceeding relating to any such Tax Claim without the prior
written consent of Holdings, which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, at any time, Holdings and the Company
which is the subject of the Litigation may, at their option, take control over
any such Litigation if (i) the Majority Shareholders are not using reasonable
efforts in pursuing such Litigation, or (ii) any Majority Shareholder is in
breach of the covenants undertaken in Section 8.5.
(b) With respect to any Tax Claim that might result in
an indemnity payment to the Majority or Minority Shareholders pursuant to
Section 8.3, the Companies shall have the right to control and shall bear the
costs of all Litigation with a Governmental Entity in connection with such Tax
Claim (including selection of counsel) provided that the Companies shall keep
the Majority or Minority Shareholders, as the case may be, informed concerning
all aspects of such Litigation and shall permit the Majority or Minority
Shareholders, as the case may be, at their election, with counsel and other
professionals of their choice to participate therein. The Companies shall make
all decisions concerning the settlement or contest of the Litigation which is
within its control pursuant to this Section 8.8(b) and the Majority Shareholders
may object to any such decision provided that such objection is reasonable. In
no case shall the Companies make, accept or enter into a settlement or other
compromise with respect to Tax Claims that are the subject of indemnification
under the this Agreement, or forego or terminate
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any proceeding relating to any such Tax Claim, without the prior written consent
of the Majority Shareholders, which consent shall not be unreasonably withheld
or delayed. Notwithstanding the foregoing, at any time, the Majority
Shareholders may, at their option, take control over any such Litigation if the
Companies are not using reasonable efforts in pursuing such Litigation.
8.9. Cooperation and Record Retention. The Companies will
retain all relevant Returns, schedules and workpapers, and all related material
records or other documents, and the Majority Shareholders will retain all
relevant personal Returns until the expiration of the statute of limitations
(including extensions) of the taxable years to which such Returns and other
documents relate, but in any event for a period of not less than seven years.
The Majority Shareholders and Holdings shall each provide the other, and each
shall cause the Companies to provide, such assistance as may reasonably be
requested by any of them in connection with the preparation of any Return, or
any audit or other examination by any Governmental Entity or judicial or
administrative proceeding relating to liability for Taxes. The Companies will
make available to the Majority Shareholders and Holdings all records and access
to employees reasonably requested by them in connection with Taxes.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF HOLDINGS.
Holdings hereby makes the following representations and
warranties to each of the Majority Shareholders, each of which shall survive the
Closing and expire only in accordance with Article 14 hereof:
9.1. Organization and Good Standing. Holdings is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
9.2. Legal Power and Authority. Holdings has the requisite
legal power and authority to enter into this Agreement and the Collateral
Documents to which it is a party, and to perform all of Holdings' covenants and
undertakings set forth herein and therein, including, without limitation, the
full legal power and authority to purchase and take title to the Purchased
Shares upon the terms and conditions set forth herein. The execution and
delivery of this Agreement and the Collateral Documents and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of Holdings and its members, and this Agreement
and the Collateral Documents to which it is a party will constitute valid and
binding obligations of Holdings, to the extent it is a party thereto,
enforceable in accordance with
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their terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally.
9.3. Conflict With Articles, Contracts or Regulations. The
execution and delivery of this Agreement, the Collateral Documents to which
Holdings is a party and the consummation of the transactions contemplated hereby
and thereby in the manner herein or therein provided will not: (i) contravene
any provision of the Articles of Organization or operating agreement of
Holdings; (ii) violate, be in conflict with, constitute a Default under, cause
the acceleration of any payments pursuant to, or otherwise impair the good
standing, validity, and effectiveness of any lease, license, permit,
authorization, or approval applicable to Holdings; or (iii) violate any
provision of Law, rule, Regulation, order, or Permit applicable to Holdings or
(iv) require that Holdings obtain any consent, approval, waiver, authorization,
or Permit from, or make any filing or registration with, or provide notification
to, any Governmental Entity.
9.4. Compliance with Securities Laws. Holdings acknowledges
that the Purchased Shares have not been registered under the Securities Act of
1933 ("1933 Act") or any state securities laws. Holdings is acquiring the
Purchased Shares for its own account and not with the intent to distribute the
Purchased Shares to an unrelated third party. Holdings has such knowledge and
experience in financial and business matters and investments in general that
make it capable of evaluating the merits and risks of the ownership and
acquisition of the Purchased Shares. Holdings and each of its members is an
"accredited investor" within the meaning of Rule 501(a) under the 1933 Act.
Holdings acknowledges and agrees that the certificates
representing the Purchased Shares will contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY OTHER STATE OR FEDERAL SECURITIES STATUTE. NO
REOFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF
MAY BE MADE UNLESS THE SHARES ARE REGISTERED UNDER THE ACT AND
ANY OTHER APPLICABLE SECURITIES STATUTE, OR AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS IS APPLICABLE TO SUCH
TRANSACTION.
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9.5. Brokerage and Expenses. The Companies shall be solely
responsible for payment of all fees and expenses of counsel and accountants and
other consultants and experts engaged by Holdings in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the Collateral Documents and the consummation of the transactions
contemplated hereby and thereby. Neither Holdings nor anyone on its behalf has
made any agreement or taken any action which may cause anyone claiming through
Holdings to become entitled to a commission as a result of the transactions
contemplated pursuant to this Agreement, except for the fees and expenses of The
Robinson-Humphrey Company, Inc. pursuant to an engagement letter dated November
21, 1995 (relating to the procurement of the Bank Debt and the Mezzanine Debt),
for which fees and expenses the Companies shall be solely responsible for
payment.
9.6. Veracity of Statements. No representation, warranty or
covenant by Holdings contained in this Agreement and no statement contained in
any certificate, schedule or other document or instrument furnished to the
Companies or the Majority Shareholders pursuant hereto or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact or omits to state a material fact necessary to make it not misleading or
necessary to provide the Companies and the Majority Shareholders with proper
information as to Holdings. Except as may be specifically included in the
representations and warranties contained in Article 9 of this Agreement (other
than this Section 9.6), the parties understand and agree that Holdings is not
making any representation or warranty concerning any projection or other forward
looking statement (as defined in Section 27A of the Securities Act of 1933, as
amended), concerning Holdings' or the Companies' results of operation, cash flow
or financial condition, and the Majority Shareholders acknowledge that none of
them is relying upon any such projection or forward looking statement.
ARTICLE 10
ACTIVITIES OF THE COMPANIES PRIOR TO CLOSING DATE
10.1. Operation of Business. Each of the Companies and the
Majority Shareholders hereby agrees that from and after the date hereof to the
Closing Date, except as otherwise contemplated by this Agreement, the Companies
shall conduct the Business solely in the ordinary course and the Companies
shall:
(a) Organizational Documents. Not amend their Articles or
Certificates of Incorporation or By-laws except as required to consummate the
Recapitalization;
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(b) Corporate Name. Not change their corporate names or permit
the use thereof by any other Person;
(c) Compensation. Not pay or agree to pay to any officer,
director, employee or agent of any Company compensation that is in excess of the
current compensation level of such employee, officer, or director except for
increases in compensation which are both made in the ordinary course of business
consistent with past practices and are described on Schedule 7.22 and except for
the one-time bonuses which will (i) reduce the amount of Excess Working Capital,
(ii) not commit the Companies to pay similar bonuses in the future, and (iii) be
paid no later than the day preceding the Closing Date and which will be
reflected in the Unaudited Closing Date Financial Statements;
(d) Management. Not make any changes in the responsibility,
authority and duties of (i) any Management Shareholder, or (ii) Betsy Weiss,
James Harris, Connie Scoggins, Chris LaFont and Toni Warren, the corporate
managers working in the Companies' Jackson, Tennessee offices.
(e) Mergers, Acquisitions, Etc. Not merge or consolidate any
Company with any other corporation or other entity or allow any Company to
acquire or agree to acquire or be acquired by any corporation, association,
partnership, joint venture, or other entity, other than the formation of the New
Companies on Schedule 10.1(e);
(f) New Companies. Provide to Holdings copies of the
organizational Board minutes and the filed charter of each New Company
incorporated from the date of this Agreement to the Closing Date, and cause each
such New Company to execute and deliver to Holdings a joinder to this Agreement
prior to the Closing.
(g) Disposition of Assets. Not sell, transfer, or otherwise
dispose of any assets, except in the ordinary course of business;
(h) Indebtedness. Not create, incur, assume, or guarantee any
indebtedness for money borrowed in excess of the Allowable Store Expenses,
except in the ordinary course of business; create or suffer to exist any Lien on
any of their assets, real or personal, except those in existence on the date
hereof and Liens created in connection with the borrowing of funds to use for
Allowable Store Expenses; or increase the amount of any indebtedness outstanding
under any loan agreement, mortgage, or other borrowing arrangement in existence
on the date hereof;
(i) Payables. Pay when due, in accordance with past practices,
all of their accounts payable and trade obligations;
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(j) Maintenance of Assets. Maintain their facilities, assets,
and properties in good operating repair, order, and condition, reasonable wear
and tear excepted, and notify Holdings immediately upon any loss of, damage to,
or destruction of any of their assets, which in the aggregate are material,
whether or not covered by insurance;
(k) Insurance. Maintain in full force and effect insurance
coverage of the types and in the amounts set forth in Schedule 7.19 attached
hereto and apply the proceeds received under any insurance policy or as a result
of any loss or destruction of or damage to any assets to the repair or
replacement of such assets;
(l) Contracts and Permits. Maintain in full force and effect
all Contracts and Permits necessary for or related to the operation of the
Business in all respects and in all places as such business is now conducted;
(m) Goodwill. Use its best efforts to preserve the Companies'
business organizations intact, to keep available the services of their present
Employees and to preserve the goodwill of their customers and others having
business relations with them;
(n) Litigation, Etc. Promptly advise Holdings in writing of
the commencement of, any known threat to commence any, and of any developments
or changes in any pending, Litigation against any of them;
(o) Interim Financial Statements. Deliver to Holdings as soon
as available, but in no case later than the 20th day of the following month,
Interim Financial Statements of the Companies commencing with the month of
January 1996 and for each month thereafter ending prior to the Closing Date.
(p) Commitment. Deliver to Holdings as soon as available, but
in no case later than May 15, 1996, the Commitment.
(q) Dividends and Distributions. Not make any dividends or
distributions of cash or property to any of the Shareholders.
10.2. Access to Information. The Companies and the Management
Shareholders have cooperated and will continue to cooperate fully with Holdings
and have provided and shall provide Holdings and its Advisors, during normal
business hours, full access to the books, records, equipment, real estate,
Contracts, and other assets of the Companies in order for the orderly conduct of
their due diligence investigation of the Companies and the Business from legal,
environmental, insurance, valuation and
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solvency perspectives ("Due Diligence Investigation"). In connection with the
Due Diligence Investigation, the Companies and the Management Shareholders will
provide Holdings the full opportunity to discuss the Companies' Business,
affairs and assets with its officers, employees, and independent accountants,
and, with the consent of the Management Shareholders which will not be
unreasonably withheld, the Companies' employees, customers, creditors, vendors
and suppliers, and the Companies and the Management Shareholders will furnish to
Holdings and its representatives copies of such documents, records, and
information with respect to the affairs of the Companies as Holdings or its
representatives may reasonably request. In connection with the Due Diligence
Investigation, Holdings may designate Advisors to observe the operation of the
Business and the Companies, which Advisors shall be permitted such access to the
Companies' Business and operations as Holdings may reasonably request and shall
be fully informed by it concerning all of the Companies' assets, operations, and
business affairs.
Holdings will use its best efforts to complete its Due
Diligence Investigation by May 15, 1996, with the understanding that based on
the results of the Due Diligence Investigation through that date and the
requirements of the equity owners of Holdings and the Lenders, the Due Diligence
Investigation may be required to continue beyond that date. No investigation by
Holdings shall diminish any of the representations, warranties, covenants or
agreements of the Companies and the Majority Shareholders or Management
Shareholders under this Agreement or reduce Holdings' right to pursue such
remedies at law or hereunder as it would otherwise have in the absence of having
conducted such investigation.
10.3. Benefit Plans. Between the date hereof and the Closing
Date, the Companies shall maintain in full force and effect the Benefit Plans as
they pertain to the Companies' Employees or former Employees and, in connection
therewith:
(a) Plan Changes. Except as set forth on Schedule 7.24, except
as may be required by Law or as may be necessary to continue the qualified
status under Section 401 of the Code, the Companies shall not adopt, terminate,
amend, extend, or otherwise change any Benefit Plan without the prior written
consent of Holdings, and the Companies and the Management Shareholders shall
give Holdings prior written notice of any Company's intention to take any such
action required by Law or necessary to continue the qualified status of any
Benefit Plans as they pertain to such Company's Employees or former Employees;
and
(b) Contributions and Payments. No Company shall make, cause
to be made, or agree to make any contribution, award, or payment under any
Benefit Plans as they pertain to such Company's Employees or former Employees,
except at the time and
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to the extent required by the written terms thereof, without the prior written
consent of Holdings.
10.4. Taxes. No Majority Shareholder shall take any position
in any Return filed with or otherwise submitted to any Governmental Entity if
such position is inconsistent with the representations of the Majority
Shareholders pursuant to Article 8 hereof that a Subchapter S election was
validly made, was in effect with respect to each Company on the Closing Date and
had continuously been in effect with respect to the Company since its date of
incorporation.
10.5. Delivery of Unaudited Closing Date Financial Statements.
Not less than three days prior to the Closing Date, the Management Shareholders
agree to deliver the Unaudited Closing Date Financial Statements to Holdings.
10.6. Notice of Change. The Companies and the Management
Shareholders will promptly notify Holdings of the existence or happening of any
fact, event or occurrence prior to the Closing Date and of which any of the
Management Shareholders or any of their respective representatives has knowledge
which may alter the accuracy or completeness of any representation or warranty
contained in Articles 7 or 8 of this Agreement. No such notification shall
result in a waiver of any of the conditions set forth in Section 12.2 hereof
without any express written waiver signed by Holdings.
10.7. Best Efforts; No Discussions. Subject to the other
provisions of this Agreement, the Companies and the Management Shareholders will
use their best efforts to cause the conditions listed in Section 12.2 hereof to
be satisfied on the Closing Date. None of the Companies or Majority Shareholders
will enter into, request, solicit or engage in any discussions, negotiations,
understandings, or agreements with any Person other than Holdings and its
Advisors relating to the sale of the assets or the capital stock of any of the
Companies (except for sales of inventory in the ordinary course of business) or
any type of business combination with any of the Companies unless this Agreement
is terminated pursuant to Article 17 hereof.
ARTICLE 11
ACTIVITIES OF HOLDINGS PRIOR TO CLOSING DATE
11.1. Notice of Change. Holdings will promptly notify the
Companies and the Majority Shareholders of the existence or happening of any
fact, event or occurrence prior to the Closing Date and of which Holdings or any
of Holdings' representatives has knowledge which may alter the accuracy or
completeness of any representation or warranty contained in Article 9 of this
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Agreement. No such notification shall be deemed to change any of the
representations or warranties of Holdings contained herein or any information
contained on the Schedules hereto, nor shall any such notification result in a
waiver of any of the conditions set forth in Section 12.1 hereof without any
express written waiver signed by the Companies and the Majority Shareholders.
11.2. Best Efforts. Subject to the other conditions of this
Agreement, Holdings will use its best efforts to cause the conditions listed in
Section 12.1 hereof to be satisfied on the Closing Date.
11.3. Confidentiality. Holdings shall retain in confidence,
and shall cause its Advisors to retain in confidence, all information obtained
by it pursuant to investigations made by Holdings or its Advisors pursuant to
Section 10.2 hereof (the "Confidential Information"). The parties agree that the
Confidential Information shall not include information which (i) was or becomes
generally available to the public other than as a result of a disclosure by
Holdings or its Advisors, (ii) was or becomes available to Holdings or its
Advisors on a non- confidential basis from a source other than any of the
Companies or the Majority Shareholders or their respective Advisors, provided
that such source is not bound by a confidentiality agreement or (iii) was, or in
the future is, developed independently by Holdings or its Advisors without
reference to the information furnished by any of the Companies or the Majority
Shareholders or their respective Advisors. The parties understand and agree that
all of the Confidential Information supplied to Holdings or its Advisors is
provided on the understanding that such Confidential Information remains the
property of the Companies and the Majority Shareholders and that all copies and
originals of Confidential Information, and all analyses and pro forma
information prepared by Holdings and its Advisors containing Confidential
Information, will be returned to the Companies or destroyed promptly upon their
request after termination of this Agreement pursuant to Article 17 hereof,
subject to the right of Holdings to use such of the Confidential Information as
shall be necessary in order to enforce its rights under this Agreement, in
accordance with the provisions of Section 17.2 hereof.
ARTICLE 12
CONDITIONS PRECEDENT TO THE CLOSING
12.1. Obligation of Companies and Majority Shareholders to
Close. The obligation of the Companies and the Majority Shareholders to
consummate the transactions contemplated hereby on the Closing Date shall be
subject to the satisfaction (or waiver by the Companies and each of the Majority
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Shareholders, in their sole and absolute discretion) of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties; Compliance with Agreement.
The representations and warranties of Holdings set forth in this Agreement shall
be true and correct as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date, and Holdings shall have performed
all covenants and agreements to be performed by it under this Agreement on or
prior to the Closing Date and Holdings shall have delivered to the Companies and
the Majority Shareholders a certificate to such effect, dated the Closing Date
and signed by its President, which certificate shall be in form and substance
satisfactory to the Companies, the Majority Shareholders and their counsel.
(b) Secretary's Certificate. Holdings shall have delivered to
the Companies and the Majority Shareholders a certificate or certificates dated
the Closing Date and signed on behalf of Holdings by its Secretary to the effect
that (i) (A) the copy of Holdings' Articles of Organization attached to the
certificate is true, correct and complete, (B) no amendment to Holdings'
Articles of Organization has occurred since the date of the last amendment
annexed (such date to be specified and a copy of such Articles, as amended, to
be annexed to such certificate), (C) a true and correct copy of the Operating
Agreement of Holdings as in effect on the date thereof and at all times since
the adoption of the resolutions referred to in clause (D) below is annexed to
such certificate, (D) the resolutions by the Board of Directors of Holdings
authorizing the actions taken and authorizing the officers of Holdings to
execute the Collateral Documents, including the execution and delivery of this
Agreement, were duly adopted and continue in force and effect (a copy of such
resolutions to be annexed to such certificate); (ii) the officers of Holdings
executing this Agreement and the Collateral Documents to which Holdings is a
party are incumbent officers of Holdings and the specimen signatures on such
certificate or certificates are their genuine signatures; and (iii) Holdings is
in good standing in all states in which Holdings does business. The certificate
referred to above in (iii) shall attach certificates of good standing certified
by the Secretaries of State or other appropriate officials of such states, dated
as of a date not more than five (5) days prior to the Closing Date.
(c) Opinion of Counsel of Holdings. Messrs. Pepper, Hamilton &
Scheetz, counsel for Holdings, shall have delivered to the Companies and the
Majority Shareholders their opinion, dated the Closing Date and opining as to
such matters and otherwise being in form and substance satisfactory to the
Companies, the Majority Shareholders and their counsel. In rendering such
opinion, such counsel may rely to the extent recited therein on
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certificates of public officials and of officers of Holdings as to matters of
fact, and as to any matter which involves other than federal or Delaware law,
such counsel may rely upon the opinion of local counsel of established
reputation.
(d) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened.
(e) Bank Debt, Mezzanine Debt and Revolving Line of Credit.
The proceeds of the Bank Debt and the Mezzanine Debt, in an amount not less than
Sixty-Five Million Dollars ($65,000,000), shall be on terms acceptable to each
of the Majority Shareholders and shall have been fully funded and loaned to the
Companies at the Closing; and the Lenders providing the Revolving Line of Credit
shall have entered into binding definitive documentation obligating them to fund
the Revolving Line of Credit to the Companies during the term thereof in
accordance with its terms.
(f) Approval of Counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by Messrs. Baker, Donelson, Bearman &
Caldwell, counsel for the Majority Shareholders and the Companies, in the
exercise of their reasonable judgment.
(g) Approval of Collateral Documents. Each of the Majority
Shareholders and the Companies shall have executed and delivered the certificate
referenced in Section 6.3 hereof.
(h) Other Documents. The Companies and the Majority
Shareholders shall have received all of the documents, agreements and
instruments to be delivered to them in accordance with Section 15.2 hereof and
shall have been provided with such other documents as they shall have reasonably
requested from Holdings.
12.2. Obligation of Holdings to Close. The obligation of
Holdings to consummate the transactions contemplated hereby on the Closing Date
shall be subject to the satisfaction or the waiver by Holdings, in its sole and
absolute discretion, of the following conditions on or prior to the Closing
Date:
(a) Representations and Warranties; Compliance with Agreement.
The representations and warranties of the Majority Shareholders and the
Management Shareholders set forth in this Agreement shall be true and correct as
of the date of this
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Agreement and as of the Closing Date as though made on and as of the Closing
Date, and the Companies and the Majority Shareholders shall have performed all
covenants and agreements to be performed by them under this Agreement on or
prior to the Closing Date, and the Companies shall have delivered to Holdings
certificates to such effect dated the Closing Date signed on behalf of the
Companies by their Presidents and on behalf of the Majority Shareholders and the
Management Shareholders, which certificates shall be in form and substance
satisfactory to Holdings' counsel.
(b) Secretary's Certificate. The Companies shall have
delivered to Holdings a certificate or certificates dated the Closing Date and
signed on behalf of the Companies by their Secretaries to the effect that (i)(A)
the copy of each Company's Articles or Certificate of Incorporation attached to
the certificate (or previously delivered to Holdings) is true, correct and
complete, (B) no amendment to any Company's Articles or Certificate of
Incorporation has occurred since the date of the last amendment annexed (or
previously delivered), constituting the amendment effecting the Recapitalization
(such date to be specified and a copy of such Articles or Certificate, as
amended, to be annexed to such certificate or separately delivered), (C) a true
and correct copy of the By-laws of each Company as in effect on the date thereof
and at all times since the adoption of the resolutions referred to in clause (D)
below is annexed to such certificate (or previously delivered to Holdings), (D)
the resolutions by the Board of Directors of each Company authorizing the
actions taken in connection with the transactions contemplated by this
Agreement, including the execution and delivery of this Agreement and the other
Collateral Documents, were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate (or previously delivered
to Holdings)); (ii) the officers of each Company executing this Agreement and
the other Collateral Documents to which each such Company is a party are
incumbent officers of such Company and the specimen signatures on such
certificate or certificates are their genuine signatures; and (iii) each Company
is in good standing in all jurisdictions in which the failure to be in good
standing would have a Material Adverse Effect upon such Company. The certificate
referred to above in (iii) shall attach certificates of good standing certified
by the Secretaries of State or other appropriate officials of such states, dated
as of a date not more than five days prior to the Closing Date, and certificates
of no tax liens with respect to the property of the Companies in such states
from each such state which has a practice of issuing certificates of no tax
liens. Such certificate or certificates shall be in form and substance
satisfactory to Holdings and Holdings' counsel.
(c) Opinion of Counsel for the Companies and the Majority
Shareholders. Messrs. Baker, Donelson, Bearman & Caldwell, counsel for the
Majority Shareholders and the
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Companies, shall have delivered to Holdings their opinion, dated the Closing
Date and opining as to such matters and otherwise being in form and substance
satisfactory to Holdings and its counsel. In rendering such opinion counsel may
rely to the extent recited therein on certificates of public officials and of
the Management or Majority Shareholders and officers of the Companies as to
matters of fact, and as to any matter which involves other than federal or local
law, such counsel may rely upon the opinion of local counsel of established
reputation. In addition, such counsel may assume for purposes of its opinion
that to the extent that matters governed by Delaware law are opined upon, the
laws of the State of Delaware are the same as those of the State of Tennessee.
(d) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened.
(e) Required Consents. The holders of any indebtedness of the
Companies, the lessors of any real or personal property or assets leased by the
Companies, the parties (other than the Companies) to any other Contract, to
which any Company is a party, any Governmental Entity or body or any other
person, firm or corporation which owns or has authority to grant any franchise,
license, Permit, easement, right or other authorization necessary for the
Business or operations of the Companies, and any Governmental Entity or
regulatory agency having jurisdiction over the Companies, to the extent that
their consent or approval is required under the pertinent debt, lease, Contract,
commitment or agreement or other document or instrument or under applicable
Laws, rules or Regulations for the consummation of the transaction contemplated
hereby in the manner herein provided, shall have granted such consent or
approval.
(f) Bank Debt, Mezzanine Debt and Revolving Line of Credit.
The proceeds of the Bank Debt and the Mezzanine Debt, in an amount not less than
Sixty Five Million Dollars ($65,000,000), shall be on terms acceptable to
Holdings and shall have been fully funded and loaned to the Companies at the
Closing; and the Lenders providing the Revolving Line of Credit shall have
entered into binding definitive documentation obligating them to fund the
Revolving Line of Credit to the Companies during the term thereof in accordance
with its terms.
(g) No Material Adverse Effect Suffered by Business.
Between the date of this Agreement and the Closing Date, there
shall not have been:
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(i) Any Material Adverse Effect, except changes in
the ordinary course of business, none of which has resulted or could be
reasonably expected to result in a Material Adverse Effect;
(ii) Any event or condition of any nature whatsoever
which individually or in the aggregate has resulted in or could be reasonably
expected to result in a Material Adverse Effect;
(iii) Any Material Adverse Effect which has resulted
from or has been threatened in any way as a result of fire, explosion,
earthquake, disaster, accident, labor dispute, any action by any governmental
authority (including any condemnation proceeding), flood, drought, embargo,
riot, civil disturbance, uprising, activity of armed forces or act of God or
public enemy, whether or not covered by insurance;
(iv) Any claims not covered by applicable policies of
liability insurance within the maximum insurable limits of such policies;
(v) Any transaction by any Company not in the
ordinary course of business as conducted on that date;
(vi) Any amendment to the Articles or Certificate of
Incorporation or By-laws of any Company, other than as contemplated by Article 5
hereof;
(vii) The creation or attachment, or notice thereof,
of any Lien;
(viii) Any sale or transfer of any of the Companies'
assets not in the ordinary course of business (other than the sale of used cash
registers and semi-annual discount sales);
(ix) Any incurrence of any debts, Liabilities or
obligations except in the ordinary course, consistent with past practice, or any
waiver of any rights of substantial value;
(x) Any discharge or satisfaction of any Liens, or
any payment of any Liens or Liabilities, except in the ordinary course of
business, consistent with past practice;
(xi) Any increase in the salary or other compensation
payable by any Company to any of its executive officers or directors or the
declaration, payment, commitment or obligation of any kind for the payment by
the Company of a bonus or other additional salary or compensation to any such
person;
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(xii) Any dividends or distributions of cash or
property by any Company to any of the Shareholders;
(xiii) Any sale, transfer or issuance of any capital
stock, equity security or debt security of any Company or any option, warrant,
right or commitment or agreement entered into requiring or permitting any such
sale, transfer or issuance, except for the agreement of the Companies to sell
the Purchased Shares to Holdings pursuant hereto and except for the purchase by
the Majority Shareholders of shares of common stock in certain Companies
pursuant to Section 3.6 hereof; or
(xiv) Any agreement by any Company to do any act
which would render any of the preceding clauses inaccurate, other than the
transactions specifically contemplated to occur pursuant to this Agreement.
(h) Approval of Counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by Messrs. Pepper, Hamilton & Scheetz, counsel
for Holdings, in the exercise of their reasonable judgment.
(i) Title Insurance. No later than May 2, 1996, Holdings shall
have received the Commitment. No later than the Closing, Holdings shall have
received an owner's coverage policies of title insurance covering fee title or
option rights to the Owned Real Property (and all improvements located thereon)
(on ALTA Form 5-1970, Rev. 10-17-84 & 4-6-90) naming Kirkland's as the insured
in an amount at least equal to the most recent appraised value of each parcel of
Owned Real Property at ordinary rates, issued by a title insurance company of
national reputation selected by Holdings ("Title Company"). Such policy shall
provide coverage updated through the Closing Date, insuring that Kirkland's has
good and marketable title to all Owned Real Property, subject only to Permitted
Title Exceptions, and shall contain such additional provisions as shall be
reasonably requested by Holdings or its counsel.
(j) Survey. To the extent required by the Title Company in
order for the Title Company to delete the printed survey exception, except for
"shortages in area," in the owner's title policy to be delivered pursuant to
this Agreement, the Companies and the Management Shareholders shall have
delivered to the Title Company and to Holdings a current on-the-ground staked
survey ("Survey"). Any required surveying work shall be done at the expense of
the Companies.
(k) Working Capital. The Closing Date Adjusted Working
Capital, as computed by reference to the Unaudited
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Closing Date Balance Sheet, shall be no less than Eleven Million Dollars
($11,000,000).
(l) Due Diligence Investigation. The Due Diligence
Investigation shall have been completed to the satisfaction of
Holdings.
(m) Solvency. Prior to, upon and as a result of the
consummation of the transactions contemplated hereby, each Company shall be
solvent and will have assets having a fair value in excess of the amount
required to pay its probable liabilities on its existing debts as they become
absolute and matured, and will have the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.
(n) Approval of Collateral Documents. Holdings shall
have executed and delivered the certificate referenced in Section
6.3 hereof.
(o) Other Documents. Holdings shall have received all of the
documents, agreements and instruments to be delivered to it in accordance with
Section 15.2 hereof and shall have been provided with such other documents as it
shall have reasonably requested from the Companies and the Majority
Shareholders, including all information required to enable counsel or title
company to effect the reporting requirements under Section 6045(e) of the Code,
if applicable, and the Companies and the Majority Shareholders shall have
provided a reasonably acceptable indemnity to those responsible for such filing
as to the accuracy and completeness of such information.
ARTICLE 13
INDEMNIFICATION
13.1. By Majority Shareholders. From and after the Closing
Date, each of the Majority Shareholders shall jointly and severally (A)
indemnify and hold harmless Holdings and Holdings' officers, directors,
employees and members from and against any and all Losses which Holdings or its
officers, directors, employees or members may suffer or incur, resulting from,
related to, or arising out of (i) any inaccuracy of any representation or
warranty of any of the Companies or any of the Shareholders which is contained
in or made pursuant to this Agreement or any of the Collateral Documents or any
misrepresentation in or omission from any Schedule to this Agreement,
certificate, financial statement or any other document furnished or to be
furnished to Holdings hereunder by any Company, any of the officers of any
Company, or any Majority Shareholder (other than an item which has been
recovered by the Companies pursuant to the post-Closing adjustment set forth in
Section 4.3(e) hereof); (ii) any breach
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by any of the Companies or any of the Shareholders of any of their agreements or
obligations contained in or made pursuant to this Agreement or any of the
Collateral Documents; (iii) any Taxes found to be owing as a result of either
the failure of an election to be taxed as an S corporation to be effective or
the inadvertent or other termination of the status of any Company as an S
corporation, in either case for federal or state tax purposes (other than an
item which has been recovered by the Companies pursuant to the post-Closing
adjustment set forth in Section 4.3(e) hereof); (iv) any violation of any law,
ordinance or governmental rule or regulation by any Company and any failure to
obtain, or to adhere to the requirements of, any license, permit or
authorization necessary to the ownership of any Company's assets or the
operation of the Business; (v) any breach by any officer or director of any of
the Companies of any fiduciary duty owed by such officer or director to any
shareholder of any of the Companies, which breach occurred prior to, in
connection with or as a result of the Closing and the transactions contemplated
to take place at Closing; and (vi) any and all Litigation arising out of any of
the foregoing; and (B) reimburse Holdings and each of its officers, directors,
employees and members for any and all reasonable fees, costs and expenses
related thereto (including, without limitation, Legal Expenses) (collectively,
"Indemnifiable Losses").
13.2. By Holdings. From and after the Closing Date, Holdings
shall (A) indemnify and hold harmless the Majority Shareholders and their heirs,
personal representative, administrators, successors and assigns, from and
against any and all Losses, which the Majority Shareholders may suffer or incur,
resulting from, related to, or arising out of (i) any inaccuracy of any
representation or warranty of Holdings which is contained in or made pursuant to
this Agreement or any of the Collateral Documents or any misrepresentation in or
omission from any certificate or any other document furnished or to be furnished
to the Companies and the Majority Shareholders by Holdings or any of its
officers; (ii) any breach by Holdings of any of its agreements or obligations
contained in or made pursuant to this Agreement or any of the Collateral
Documents; and (iii) any and all Litigation arising out of any of the foregoing;
and (B) reimburse the Majority Shareholders and each of its officers, directors
and employees for any and all reasonable fees, costs and expenses related
thereto (including, without limitation, Legal Expenses) (collectively,
"Indemnifiable Losses").
13.3. Direct Liability. In the event that the person or entity
seeking indemnification under this Article 13 (the "Indemnified Party") shall
become aware of an event which will give rise to or result in an Indemnifiable
Loss, he or it shall, within 30 days thereafter, give written notice to the
party from whom indemnification under this Article 13 is sought (the
"Indemnifying Party") of the amount of the Indemnifiable Loss,
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together with sufficient information to enable the Indemnifying Party to
determine the accuracy and nature of the claimed Indemnifiable Loss (the
"Indemnity Notice"). The failure of the Indemnified Party to give the
Indemnifying Party an Indemnity Notice shall not release the Indemnifying Party
of liability under this Article 13; provided, however, that the Indemnifying
Party shall not be liable for Losses incurred by the Indemnified Party which
would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Indemnity Notice. Within 15 business days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
Indemnifiable Loss or (ii) object to such claim, in which case the Indemnifying
Party shall give written notice to the Indemnified Party of such objection
together with the reasons therefor, it being understood that the failure of the
Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss.
13.4. Third-Party Claim. In the event the facts giving rise to
the claim for indemnification under this Article 13 shall involve any action or
threatened claim or demand by any third party against the Indemnified Party, or
shall involve after Closing the discovery of facts or circumstances which make
any of Indemnifying Party's representations or warranties contained in this
Agreement materially untrue or misleading, the Indemnified Party, within the
earlier of, as applicable, 10 days after receiving notice of the filing of a
lawsuit or 30 days after receiving notice of the existence of a claim or demand
giving rise to the claim for indemnification, shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 13; provided,
however, that the Indemnifying Party shall not be liable for Losses incurred by
the Indemnified Party which would not have been incurred but for the delay in
the delivery of, or the failure to deliver, the Claim Notice. Subject to the
provision contained in the second sentence immediately following this sentence,
the Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing.
The Indemnifying Party shall give the Indemnified Party notice in writing within
10 days after receiving the Claim Notice from the Indemnified Party in the event
of litigation, or otherwise within 30 days, of its intent to do so. The
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party (i) retains counsel
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satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party and (ii) posts a bond or similar surety in
form and substance satisfactory to the Indemnified Party to cover the estimated
litigation costs and expenses (including attorneys' fees and expenses) and the
estimated indemnification amount; otherwise, the Indemnified Party shall have
the right to control the defense of the claim or the litigation. Notwithstanding
any other provision contained in this Agreement, the party controlling the
defense of the claim or the litigation shall not settle any such claim or
litigation without the written consent of the other party; provided, that if the
Indemnified Party is controlling the defense of the claim or the litigation and
shall have, in good faith, negotiated a settlement thereof, which proposed
settlement contains terms that are reasonable under the circumstances, then the
Indemnifying Party shall not withhold such consent. In the event that the
Indemnifying Party is controlling the defense of the claim or the litigation and
shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 13.4) and contains
an unconditional release of the Indemnified Party and does not include the
taking of any actions by, or the imposition of any restrictions on the part of,
the Indemnified Party and the Indemnified Party shall refuse to consent to such
settlement, the liability of the Indemnifying Party under this Article 13, upon
the ultimate disposition of such litigation or claim, shall be limited to the
amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of the Indemnifying Party's liability as
provided for in this Section 13.4, and the Indemnifying Party shall continue to
be liable to the full extent of such litigation or claim.
13.5. Limitation of Indemnity.
(a) Except with respect to the provisions regarding
post-Closing adjustments in Section 4.3(e) hereof and the tax-related
indemnification pursuant to clause (iii) of Section 13.1(a) or pursuant to
either a breach of any representation and warranty contained in Section 8.1 or
pursuant to the provisions of Section 8.2, neither Holdings, on the one hand,
nor the Majority Shareholders, on the other hand, shall be required to indemnify
the other for any Indemnifiable Losses unless and until the aggregate amount for
which Holdings or the Majority Shareholders, as the case may be, would otherwise
(but for this provision) be liable on account thereof exceeds Seven Hundred
Fifty Thousand Dollars ($750,000) (the "Threshold
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Amount"); provided, however, that for the purpose of calculating such Threshold
Amount, any specific materiality provisions contained in such representations
and warranties shall be disregarded; provided further, however, that once the
Threshold Amount is reached, the indemnifying party shall be liable for the
entire Threshold Amount, less any amounts attributable to breaches of
representations and warranties that contain specific materiality provisions
which were disregarded for purposes of computing the Threshold Amount. In
addition, once the Threshold Amount has been reached, all claims for
indemnification shall take into account the specific materiality provisions
contained in the representations and warranties.
(b) In no event shall the Majority Shareholders be
required to indemnify Holdings for Indemnifiable Losses in excess of Twenty
Million Dollars ($20,000,000).
(c) Notwithstanding anything to the contrary contained
herein, except with respect to any inaccuracy of any representation or warranty
which is contained in or made pursuant to Sections 7.2(a), 7.27(a) or 7.29(a) of
this Agreement, in no event shall the Management Shareholders be required to
indemnify Holdings for Indemnifiable Losses in excess of 62.2775% of such
Indemnifiable Losses. Nothing in this paragraph (c) shall be construed to limit
the right of any Management Shareholder to seek contribution from any other
Management Shareholder in respect of any of Holding's Indemnifiable Losses.
(d) Notwithstanding anything to the contrary contained
herein, except with respect to any inaccuracy of any representation or warranty
which is contained in or made pursuant to Sections 7.2(b), 7.27(b) or 7.29(b) of
this Agreement, in no event shall Robert Kirkland be required to indemnify
Holdings for Indemnifiable Losses in excess of 37.7225% of such Indemnifiable
Losses.
13.6. Non-Exclusive Remedy; Right of Set-Off.
(a) The parties hereto agree that the availability of
indemnification under this Article 13 shall not in any way limit remedies at law
or in equity otherwise available to the parties, and the parties further agree
that, in the event of any such breach of any representation, warranty or
covenant contained herein or in the Collateral Documents, the parties will be
entitled to seek a decree of specific performance, mandamus or any other
appropriate remedy to enforce such provisions without any requirement that a
bond be posted.
(b) Holdings shall be entitled, at its option (except
as required as set forth in paragraph (ii) below) to recover any Indemnifiable
Losses payable by the Majority Shareholders through a reduction of amounts due
from the
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Companies to the Majority Shareholders as set forth in this paragraph, to the
extent any amounts are then or will in the future become payable by the
Companies to the Majority Shareholders under the terms of any Contracts or the
Articles or Certificates of the Companies then in effect, not including any
Protected Amounts ("Future Payment Obligations"), with the offset being applied
against the earliest Future Payment Obligations first. Each Company agrees that
it will make the offset as directed by Holdings in accordance with this Section
13.6.
(i) Inasmuch as the offset will be against Future
Payment Obligations owed by the Companies, and as a result of the transactions
contemplated hereby, Holdings will own less than all of the common stock of the
Companies, the amount to be offset against Future Payment Obligations shall be
equal to the quotient obtained by dividing (1) the amount of Holdings'
Indemnifiable Losses to be offset, by (2) Holdings' percentage ownership of the
common stock of the Companies on the date of offset. In addition, in order to
compensate for the fact that some or all of the amount to be offset against
Future Payment Obligations may be required to be applied against Future Payment
Obligations which would otherwise not have become due and payable by the
Companies to the Majority Shareholders for some period of time after the date of
offset, the amount to be offset against Future Payment Obligations shall be
increased by a factor of nine percent (9%) per year (prorated for partial years)
with respect to any amounts to be offset against Future Payment Obligations
which would otherwise not have become due and payable by the Companies to the
Majority Shareholders until after the date of offset.
(ii) Unless the Indemnifiable Losses of Holdings
are related to an event which Holdings determines in good faith has resulted or
is likely to result in (1) a breach of any affirmative or negative covenants
contained in any debt financing agreement or (2) insufficient liquidity at any
of the Companies (including, without limitation, insufficient availability under
the Revolving Line of Credit or any replacement working capital revolving line
of credit), the offset provided for in this Section 13.6(b) shall be mandatory
to the extent of the Future Payment Obligations. Any Indemnifiable Losses in
excess of the Future Payment Obligations which would otherwise be required to be
paid by means of an offset against the Future Payment Obligations shall instead
be payable to Holdings by the Majority Shareholders in cash.
13.7. Majority Shareholders' Claims Against any of the
Companies. The Majority Shareholders agree that none of them will seek, nor will
any of them be entitled to, contribution from, or indemnification by, any of the
Companies, under any of the Companies' bylaws, this Agreement, applicable
corporate laws or other laws or otherwise, in respect of amounts due from the
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Majority Shareholders to Holdings under this Article 13 or otherwise under this
Agreement, and each of the Majority Shareholders will hold each of the Companies
and Holdings harmless in respect of all such amounts and shall not seek to join
any of the Companies in connection with any suit arising under this Agreement.
The Majority Shareholders also agree that they will not make claim against any
directors and officers insurance policy maintained or to be maintained by the
Companies in respect of amounts due by the Majority Shareholders to Holdings
under this Article 13 or otherwise under this Agreement, if the carrier of such
insurance policy would have any right of subrogation against either of the
Companies in respect of such claim and shall indemnify and hold harmless
Holdings from any such action.
ARTICLE 14
SURVIVAL OF REPRESENTATIONS,
WARRANTIES, GUARANTEES, AND COVENANTS
Notwithstanding any investigation made by or on behalf of the
Companies, the Majority Shareholders or Holdings prior to or after the Closing
Date, except for (i) representations or warranties which were made by a party
fraudulently or with intent to defraud or mislead, which representations and
warranties shall survive indefinitely, (ii) representations and warranties set
forth in Section 7.7 (relating to title to properties) and Section 7.27
(relating to title of Purchased Shares), which shall survive indefinitely, (iii)
representations and warranties set forth in Section 7.18 (relating to certain
product liability matters), Section 7.24 (relating to certain ERISA matters),
Section 7.25 (relating to certain environmental matters) and Article 8 (relating
to certain tax matters), which shall survive in accordance with the applicable
statute of limitations (as the same may be extended in accordance with
applicable Regulations) plus an additional 90 days, all representations and
warranties made by the Majority Shareholders and Holdings in this Agreement or
pursuant hereto shall survive the Closing hereunder until the Survival Date, and
thereafter as to any Indemnifiable Losses with respect to which notice is given
prior to the Survival Date. All covenants and other agreements set forth herein
shall survive the Closing in accordance with the applicable statute of
limitations plus an additional 90 days, except for (1) the indemnification
obligations for breaches or misstatements of representations or warranties,
which shall survive with respect to a misstatement of a representation or a
breach of warranty, and Indemnifiable Losses related thereto, for a period of
time equal to the survival period of the particular representation or warranty
as provided in this Article 14 (and thereafter as to any Indemnifiable Losses
with respect to which notice is given prior to the end of such survival period),
and (2) the obligations to
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perform the covenants and agreements contained in Article 10 hereof which shall
survive the Closing until the Survival Date (and thereafter as to any such
Indemnifiable Losses with respect to which notice is given prior to the Survival
Date).
ARTICLE 15
THE CLOSING
15.1. Time and Place. The closing of the transactions (the
"Closing") contemplated hereby shall be held at 10:00 A.M. on May 1, 1996, or at
such other time and on such other date on or prior to June 7, 1996 as the
parties may mutually agree to in writing (the "Closing Date"). The Closing shall
be held at the offices of Baker, Donelson, Bearman & Caldwell, or at such other
place as the parties may mutually agree to in writing.
15.2. Conduct of Closing. Subject to the fulfillment of all of
the conditions set forth in Article 12 and the delivery of all certificates and
opinions required thereby, except such conditions as may be waived by the
parties, on the Closing Date, each of the parties hereto agrees to execute and
deliver each of the documents, agreements, instruments to which he or it is a
party or required signatory and which are required to be delivered at the
Closing pursuant to the terms of this Agreement and shall make all payments
required to be paid at the Closing pursuant to the terms of this Agreement,
including, without limitation, the following documents, agreements, instruments
and payments:
(i) stock certificates representing the
Purchased Shares shall be delivered to Holdings and all stock certificates
issuable to Holdings and the Majority Shareholders pursuant to the
Recapitalization shall be delivered to Holdings and the Majority Shareholders,
respectively;
(ii) evidence of the wire transfers and other
payments provided for in Article 2 and Sections 3.3, 3.6, 4.1(a) and 4.2(a)
hereof shall be delivered to the intended recipients of such wire transfers and
other payments, if requested by any such recipient;
(iii) the Fee Letter shall be delivered to the
parties thereto and the fee payment required pursuant thereto shall be paid by
the Companies by wire transfer of immediately available Federal funds to a bank
account designated by Advent;
(iv) the Minority Shareholder Redemption
Agreement shall be delivered to the parties thereto;
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(v) the Shareholders Agreement shall be delivered to
the parties thereto;
(vi) the Management Agreements shall be delivered to
the parties thereto;
(vii) the Consulting Agreement shall be delivered to
the parties thereto;
(viii) the Option Agreements shall be delivered
to the parties thereto;
(ix) evidence shall be delivered to Holdings
demonstrating, to Holdings' satisfaction, that the necessary amendments to the
Articles or Certificates of Incorporation of each of the Companies have been
filed in the appropriate state's Department of State and have become effective
in accordance with each such state's corporation law in order to effect the
Recapitalization;
(x) closing certificates executed by the Majority
Shareholders and the Secretaries of the Companies as required by Sections
12.2(a) and 12.2(b) of this Agreement shall be delivered to Holdings;
(xi) closing certificates executed by Holdings as
required by Sections 12.1(a) and 12.1(b) of this Agreement shall be delivered to
the Companies and the Majority Shareholders;
(xii) the opinion of Messrs. Pepper, Hamilton &
Scheetz, counsel to Holdings, shall be delivered to the Companies and the
Majority Shareholders;
(xiii) the opinions of Messrs. Baker, Donelson,
Bearman & Caldwell, counsel to the Majority Shareholders and the
Companies, shall be delivered to Holdings;
(xiv) the Shareholder Releases, executed by the
Minority Shareholders and executed by the Majority Shareholders, shall be
delivered to the Companies;
(xv) all consents and approvals referred to in
Section 12.2(f) hereof shall be delivered to Holdings;
(xvi) the Trademark Assignment conveying the Trade
Name in recordable form shall be delivered to Kirkland's; and
(xvii) Such other documents as may be necessary to
effectuate the transactions contemplated herein shall be delivered to the
appropriate parties.
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ARTICLE 16
CONDUCT OF THE PARTIES AFTER CLOSING
The Majority Shareholders will cooperate with Holdings upon
and after the Closing Date in effecting the orderly transfer of control of the
Business to Holdings. Without limiting the generality of the foregoing, the
Management Shareholders shall, if deemed necessary by Holdings, use their best
efforts to cause the United States and each State government, and every agency
and department and instrumentality thereof, to agree with the Companies to have
contracts between each of them and the Companies novated, and to the execution
of appropriate documents thereto. In addition, after the Closing Date, at the
request of any party hereto and at the requesting party's expense, but without
additional consideration, the other parties shall execute and deliver from time
to time such further instruments of assignment, conveyance and transfer, shall
cooperate in the conduct of litigation and the processing and collection of
insurance claims, and shall take such other actions as may reasonably be
required to convey and deliver more effectively to Holdings the Purchased Shares
and otherwise to accomplish the consummation of the transactions contemplated
hereby.
ARTICLE 17
TERMINATION
17.1. Events of Termination. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated by written notice
of termination at any time before the Closing Date only as follows:
(a) Mutual Consent. By mutual consent of the
Companies, the Majority Shareholders and Holdings;
(b) Prior to Closing Date. By the Companies and
the Majority Shareholders, on the one hand, or Holdings, on the other hand, if
Holdings, on the one hand, or any Company or Majority Shareholder, on the other
hand, shall have (a) materially misstated any representation or been in breach
of any warranty contained herein or (b) been in material breach of any covenant,
undertaking or restriction contained herein;
(c) After Specified Date by Holdings. By
Holdings, provided that Holdings is not in material default hereunder, if all of
the conditions precedent set forth in Section 12.2 hereof have not been met by
June 3, 1996.
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(d) After Specified Date by the Companies and the
Majority Shareholders. By the Companies and the Majority Shareholders, provided
that the Companies and the Majority Shareholders are not in material default
hereunder, if all of the conditions precedent set forth in Section 12.1 hereof
have not been met by June 3, 1996.
(e) Under Article 6. By Holdings in the manner
set forth in Article 6 hereof.
17.2. Survival. If this Agreement is validly terminated
pursuant to Section 17.1 and the transactions contemplated hereby are not
consummated as described above, this Agreement shall become void and of no
further force and effect; provided, however, that if either the Companies and
the Majority Shareholders or Holdings terminate this Agreement pursuant to
Section 17.1(b), then the terminating party shall have the right to pursue all
of its legal remedies for breach of contract and damages; provided further, that
if this Agreement is terminated pursuant to the provisions of Section 17.1,
Holdings shall maintain in confidence any Confidential Information which it
acquired pursuant to the Due Diligence Investigation except as otherwise
required by law or to the extent required in order for Holdings to enforce its
rights under this Agreement. In connection with the necessary use of any
Confidential Information by Holdings in order to enforce its rights under this
Agreement pursuant to the preceding sentence, Holdings agrees to request the
court or other adjudicating authority to keep all Confidential Information
confidential and not available to the public. No party hereto shall have any
liability to any other party in respect of a valid termination of this Agreement
pursuant to Section 17.1, except to the extent set forth above.
ARTICLE 18
GENERAL
18.1. Entire Agreement; Amendments. This Agreement constitutes
the entire understanding among the parties with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended and
supplemented only by a written instrument duly executed by Holdings and each of
the Majority Shareholders, whereupon such amendment or supplement shall be
binding upon and enforceable against all of the parties hereto.
18.2. Headings. The headings in this Agreement are for
convenience of reference only and shall not affect its interpretation.
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18.3. Gender; Number. Words of gender may be read as
masculine, feminine, or neuter, as required by context. Words of number may be
read as singular or plural, as required by context.
18.4. Schedules. Each Schedule referred to herein is
incorporated into this Agreement by such reference.
18.5. Severability. If any provision of this Agreement is held
illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability will not affect any other provision hereof. This Agreement
shall, in such circumstances, be deemed modified to the extent necessary to
render enforceable the provisions hereof.
18.6. Reliance. The Majority Shareholders hereby acknowledge
that Holdings is relying upon the representations and warranties of the Majority
Shareholders and the Management Shareholders set forth in Articles 7 and 8 and
the Schedules applicable thereto in connection with delivering certain
representations and warranties to a commercial lender in order to obtain
financing for the transactions contemplated herein.
18.7. Notices. All notices and other communications hereunder
shall be in writing and shall be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answerback
received) or courier services, charges prepaid, or by telecopier, to such
party's address (or to such party's telex, TWX, telecopier or telephone number).
If the notice is sent by mail, telegraph or courier services, it shall be deemed
to have been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office or courier service for delivery to that
person or, in the case of telex of TWX, when dispatched.
If to Holdings, to:
Kirkland Holdings L.L.C.
Advent International Corporation
101 Federal Street
Boston, MA 02110
Attention: David M. Mussafer
Telecopy No.: 617-951-0566
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Cary S. Levinson, Esq.
Telecopy No.: 215-981-4750
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If to any Management Shareholder or any Company, to:
Kirkland's, Inc.
P.O. Box 7222
Jackson, TN 38303-7222
Telecopy No.: (901) 664-9345
With a copy to:
Baker, Donelson, Bearman & Caldwell
20th Floor
First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: Robert Walker, Esq.
Telecopy No.: (901) 577-2303
If to Robert Kirkland, to:
Robert Kirkland
CBK Ltd.
600 East Sherwood Drive
Union City, TN 38261
Telecopy No.: (901) 885-3857
With a copy to:
Wyatt, Tarrant & Combs
Crescent Center
6075 Poplar Avenue, Suite 650
Memphis, TN 38177
Attention: R. Nash Nayland, Esq.
Telecopy No.: (901) 537-1010
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
18.8. Waiver. The failure of any party to insist upon strict
performance of any of the terms or conditions of this Agreement will not
constitute a waiver of any of its rights hereunder.
18.9. Assignment. None of the Majority Shareholders may assign
any of their rights or delegate any of their obligations hereunder without the
prior written consent of Holdings. Holdings may not assign any of its rights or
delegate any of its obligations hereunder without the prior written consent of
each of the Majority Shareholders, except that Holdings may assign its rights
and delegate its obligations
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hereunder to an Affiliate of Holdings without the consent of any of the Majority
Shareholders.
18.10. Successors and Assigns. This Agreement binds, inures to
the benefit of, and is enforceable by the successors and assigns of the parties,
and does not confer any rights on any other Persons.
18.11. Governing Law. This Agreement shall be construed and
enforced in accordance with Delaware law. The parties hereto agree that any
action to enforce this Agreement may be properly brought in any court within the
State of Delaware or in the United States District Court for the District of
Delaware, and the parties hereto agree that the courts of the State of Delaware
and the United States District Court for the District of Delaware shall have
jurisdiction with respect to the subject matter hereof and the person of the
parties hereto.
18.12. No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement (including, without
limitation, the provisions of Section 18.6 hereof) are for the sole benefit of
the parties hereto and their successors and assigns, and they shall not be
construed as conferring and are not intended to confer any rights on any other
persons.
18.13. Agreement to Vote. Subject to satisfaction of the
conditions set forth in Section 12.1 hereof, each of the Majority Shareholders
agrees to vote all shares of capital stock which he holds in each of the
Companies, and to vote in his capacity as a director of the Companies, to cause
each Company to comply with all of the terms of this Agreement, including,
without limitation, to effect the debt repayment contemplated by Article 2
hereof, the purchase by Holdings of the Purchased Shares, the Redemption, and
the Recapitalization.
18.14. Publicity. Prior to the Closing Date, all notices to
third parties and all other publicity relating to the transactions contemplated
by this Agreement shall be jointly planned, coordinated and agreed to by
Kirkland's and Holdings. Prior to the Closing Date, none of the parties hereto
shall act unilaterally in this regard without the prior approval of the
Management Shareholders and Holdings; provided, however, that such approval
shall not be unreasonably withheld.
18.15. Scope of Representations and Warranties. Each
representation and warranty contained herein or in any Collateral Document shall
be enforceable according to the plain meaning of the provisions thereof, and the
fact that a representation or warranty may deal with a particular matter in a
general manner shall not limit the scope of any representation or warranty which
deals with one aspect of the same matter in a specific manner.
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<PAGE> 95
18.16. Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
18.17. November 30, 1995 Agreement. The Majority Shareholders
are parties to an agreement dated November 30, 1995 (the "11/30/95 Agreement")
that anticipates the negotiation and closing of this Agreement. The Majority
Shareholders by execution of this Agreement confirm: (i) the revised Percentage
Interest of the Shareholders as contained herein, (ii) their approval of this
Agreement in accordance with Paragraph 4 of the 11/30/95 Agreement, (iii) that
at the Closing of this Agreement, Page Newman, Jr. is directed to deliver from
escrow to each respective Majority Shareholder the releases referred to in
Paragraph 6 of the 11/30/95 Agreement, (iv) that Kirkland's is authorized to pay
from the funds received by it pursuant to Section 3.4 hereof to Robert Kirkland
an additional Six Hundred Seventy-Five Thousand Dollars ($675,000), and in a
corresponding manner to reduce the payments to Carl Kirkland, Robert Alderson,
and Bruce Moore by Two Hundred Twenty-Five Thousand Dollars ($225,000) each, in
satisfaction of the payment obligation in Paragraph 7 of the 11/30/95 Agreement,
(v) that Kirkland's is authorized to pay from the funds received by it pursuant
to Section 3.4 hereof to Robert Kirkland the expense reimbursement amounts
provided for in Paragraph 8 of the 11/30/95 Agreement, and to reduce the
payments to each of Carl Kirkland, Robert Kirkland, Robert Alderson and Bruce
Moore by twenty-five percent (25%) of such reimbursement payment, and (vi) the
consummation of the 11/30/95 Agreement as of the Closing of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal on the date first above written.
ATTEST: KIRKLAND HOLDINGS L.L.C.
By: By: /s/ David M. Mussafer
---------------------------- ---------------------------
Title Title:
---------------------
[EXECUTIONS CONTINUED]
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ATTEST: KIRKLAND'S INC.
By:/s/ Robert Alderson By: /s/ Carl Kirkland
------------------- -----------------
Title Title: President
---------
[CORPORATE SEAL]
WITNESS:
By: /s/ Betsy Weiss /s/ Carl Kirkland
----------------------- ------------------------
CARL KIRKLAND
WITNESS:
By: /s/ Sharon Pulley /s/ Robert Kirkland
----------------- -------------------
ROBERT KIRKLAND
WITNESS:
/s/ Barbara Rowan /s/ Bruce Moore
- ----------------------- ---------------
BRUCE MOORE
WITNESS:
/s/ Betsy Weiss /s/ Robert Alderson
- ----------------------- -------------------
ROBERT ALDERSON
Corporate Name
--------------
101 Kirkland's of Carolina, Inc.
102 Kirkland's of Charlotte, Eastland Mall, Inc.
103 Kirkland's of Tennessee, Inc.
104 K. C. Corp. Inc.
107 Kirkland's of Greensboro, Four Seasons Mall, Inc.
109 Kirkland's of Fayetteville, Cross Creek Mall, Inc.
110 Kirkland's of Wilmington, Independence Mall, Inc.
111 Kirkland's III, Jackson-Metro Center, Inc.
114 Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center,
Inc.
115 Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
116 Kirkland's of Knoxville, East Towne Mall, Inc.
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# Corporate Name
- --------------
117 Kirkland's of Huntsville, Madison Square Mall, Inc.
118 Kirkland's of Valley View Mall, Roanoke, VA, Inc.
119 Kirkland's of Nashville, Hickory Hollow Mall, Inc.
120 Kirkland's of Birmingham, Riverchase Galleria, Inc.
122 Kirkland's of BriarCliffe Mall, Myrtle Beach, South Carolina,
Inc.
123 Kirkland's of Pecanland Mall, Monroe, LA, Inc.
125 Kirkland's of Towne Center at Cobb, Atlanta, GA, Inc.
126 Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
127 Kirkland's of Rivergate Mall, Nashville, TN, Inc.
128 Kirkland's of Peachtree Mall, Columbus, GA, Inc.
129 Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
130 Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
131 Kirkland's of Houston Galleria, Houston, TX, Inc.
132 Kirkland's of Mall of Memphis, Memphis, TN, Inc.
134 Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
135 Kirkland's of Dayton Mall, Dayton, OH, Inc.
136 Kirkland's of Oxmoor Center, Louisville, KY, Inc.
137 Kirkland's of South Square Mall, Durham, NC, Inc.
138 Kirkland's of Valley View Center, Dallas, TX, Inc.
139 Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
140 Kirkland's of Park Plaza, Little Rock, AR, Inc.
141 Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
142 Kirkland's of Southlake Mall, Atlanta, GA, Inc.
143 Kirkland's of Southpark Mall, Richmond, VA, Inc.
144 Kirkland's of Eastland Mall, Evansville, IN, Inc.
145 Kirkland's of Fayette Mall, Lexington, KY, Inc.
146 Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
148 Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
149 Kirkland's of McCain Mall, Little Rock, AR, Inc.
150 Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
151 Kirkland's of Bel Air Mall, Mobile, AL, Inc.
152 Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
153 Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
154 Kirkland's of Bellevue Center, Nashville, TN, Inc.
155 Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
156 Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
157 Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
158 Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
159 Kirkland's of Carolina Place, Charlotte, N.C., Inc.
160 Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
161 Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
162 Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
163 Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
164 Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
165 Kirkland's of Regency Mall, Richmond, VA, Inc.
166 Kirkland's of Florence, Florence, KY, Inc.
167 Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
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# Corporate Name
- --------------
168 Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
169 Kirkland's of Belden Village, Canton, OH, Inc.
170 Kirkland's of West Oaks Mall, Houston, TX, Inc.
171 Kirkland's of Charleston Town Center, Charleston, W. VA, Inc.
172 Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
173 Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
174 Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
175 Kirkland's of Baybrook Mall, Houston, TX, Inc.
176 Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
178 Kirkland's of Barton Creek Mall, Austin, TX, Inc.
179 Kirkland's of Highland Mall, Austin, TX, Inc.
180 Kirkland's of Battlefield Mall, Springfield, MO, Inc.
181 Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
182 Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
183 Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
184 Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
185 Kirkland's of Oakwood Center, New Orleans, LA, Inc.
186 Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
187 Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
188 Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
189 Kirkland's of Northpark Mall, Joplin, MO, Inc.
190 Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
191 Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
192 Kirkland's of St. Charles Towne Center, Waldorf, MD Inc.
193 Kirkland's of Regency Mall, Florence, AL, Inc.
194 Kirkland's of South Plains Mall, Lubbock, TX, Inc.
195 Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
196 Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
197 Kirkland's of St. Clair Square, St. Louis, MO, Inc.
198 Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
199 Kirkland's of The Woodlands, Houston, TX, Inc.
200 Kirkland's of Brandon Town Center, Tampa, FL, Inc.
201 Kirkland's of Memorial City Mall, Houston, TX, Inc.
202 Kirkland's of University Mall, Tuscaloosa, AL, Inc.
203 Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
204 Kirkland's of Panama City Mall, Panama City, FL, Inc.
205 Kirkland's of Town East Mall, Mesquite, TX, Inc.
206 Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
207 Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
208 Kirkland's of Oak Hollow Mall, High Point, N.C., Inc.
209 Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
210 Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
211 Kirkland's of Stratford Square, Chicago, IL, Inc.
212 Kirkland's of Orland Square, Chicago, IL, Inc.
214 Kirkland's of Coastland Mall, Naples, FL, Inc.
215 Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
216 Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
217 Kirkland's of Castleton Square, Indianapolis, IN., Inc.
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218 Kirkland's of Cordova Mall, Pensacola, FL, Inc.
219 Kirkland's of University Park, South Bend, IN, Inc.
220 Kirkland's of Westgate Mall, Amarillo, TX, Inc.
221 Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
222 Kirkland's of Meridian Mall, Lansing, MI, Inc.
223 Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
ATTEST:
By:/s/ Robert S. Alderson By: /s/ Carl Kirkland
---------------------- ------------------
Title Title: President
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 2.2
================================================================
CONTRIBUTION, REDEMPTION AND PURCHASE AGREEMENT
AMONG
KIRKLAND'S, INC.,
KIRKLAND HOLDINGS L.L.C.,
MEMBERS OF KIRKLAND HOLDINGS L.L.C.,
THE WARRANTHOLDERS,
THE ALLISON LEIGH ALDERSON TRUST
THE AMY KATHERINE ALDERSON TRUST
THE CARL T. KIRKLAND GRANTOR RETAINED ANNUITY TRUST 97-1
CARL KIRKLAND,
ROBERT KIRKLAND,
AND
ROBERT ALDERSON
DATED AS OF: APRIL 29, 1998
================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1 - CHARTER AMENDMENT AND STOCK SPLIT............................. 4
1.1. Consent and Authorization................................. 4
1.2. Ratification.............................................. 4
1.3. Acknowledgment............................................ 4
1.4. Waiver of Notice.......................................... 4
ARTICLE 2 - CONTRIBUTION OF AFFILIATE SHARES AND EXCHANGE OF
PREFERRED SHARES.............................................. 4
2.1. Contribution and Exchange................................. 4
2.2. Deliveries................................................ 5
ARTICLE 3 - EXERCISE OF WARRANTS AND CONSENT TO AMENDMENTS................ 5
3.1. Warrant Exercise. ....................................... 5
3.2. Exercise Price............................................ 5
3.3. Contribution of Affiliate Warrant Shares.................. 6
3.4. Deliveries................................................ 6
ARTICLE 4 - PURCHASE AND REDEMPTION OF CLASS C PREFERRED SHARES........... 6
4.1. Affiliate Shares Purchase. .............................. 6
4.2. Company Preferred Redemption.............................. 6
4.3. Payment................................................... 6
4.4. Deliveries................................................ 7
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS,
THE MEMBERS AND THE WARRANTHOLDERS............................ 7
5.1. Authority................................................. 7
5.2. Title; Third-Party Options................................ 8
5.3. No View to Distribution or Resale......................... 8
5.4. No Transfer Without Registration or Exemption............. 8
5.5. New Common Shares Are Not Registered...................... 8
5.6. Securities Legend......................................... 9
5.7. Investment Risk........................................... 9
5.8. Review of Company's Business and Records.................. 9
5.9. Opportunity to Question; Full Satisfaction................ 9
-i-
<PAGE> 3
Page
----
5.10. Review of Company's Registration Statement............... 10
5.11. Knowledge and Experience................................. 10
5.12. Accredited and Institutional Investor Status............. 10
5.13. No Reliance.............................................. 10
5.14. Definitions.............................................. 10
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 11
6.1. Organization and Standing................................ 11
6.2. Authority................................................ 11
ARTICLE 7 - ORDER OF TRANSACTIONS........................................ 11
7.1. ......................................................... 11
ARTICLE 8 - MISCELLANEOUS................................................ 12
8.1. Consents................................................. 12
8.2. Failure to Deliver Shares................................ 12
8.3. Assignment and Binding Effect............................ 13
8.4. Waiver................................................... 13
8.5. Notices.................................................. 13
8.6. Delaware Law to Govern................................... 13
8.7. No Benefit to Others..................................... 13
8.8. Contents of Agreement.................................... 13
8.9. Cooperation.............................................. 14
8.10. Severability............................................. 14
EXHIBIT A - Members of Kirkland Holdings L.L.C.
EXHIBIT B - The Warrantholders and Warrantholder Shares
EXHIBIT C - Affiliates of Kirkland's, Inc.
EXHIBIT D - Shareholder Ownership
EXHIBIT E - Company Charter
Schedule 4.12 - "Accredited Investor"
Schedule 6.4 - Notices
-ii-
<PAGE> 4
CONTRIBUTION, REDEMPTION AND PURCHASE AGREEMENT
This CONTRIBUTION, REDEMPTION AND PURCHASE AGREEMENT (the
"Agreement") is dated as of this 29th day of April, 1998 and is by and among the
following parties:
KIRKLAND'S, INC., a Tennessee corporation (the "Company");
KIRKLAND HOLDINGS L.L.C., a Delaware limited liability company
("Holdings"),
The MEMBERS of Holdings (the "Members") identified on Exhibit A
attached hereto, being the holders of one hundred percent
(100%) of the interests in Holdings' capital and profits;
THE WARRANTHOLDERS (the "Warrantholders"), identified on Exhibit B
attached hereto,
THE ALLISON LEIGH ALDERSON TRUST (the "ALA Trust"),
THE AMY KATHERINE ALDERSON TRUST (the "AKA Trust"),
THE CARL T. KIRKLAND GRANTOR RETAINED ANNUITY TRUST 97-1 (the
"Kirkland GRAT"),
CARL KIRKLAND ("CK"),
ROBERT KIRKLAND ("RK"),
AND
ROBERT ALDERSON ("RA," and together with Holdings, the ALA Trust, the
AKA Trust, the Kirkland GRAT, CK, and RK, the "Shareholders")
<PAGE> 5
WHEREAS, the Shareholders own all of the outstanding capital
stock of the Company and the affiliated corporations (the "Affiliates")
identified on Exhibit C hereto, such stock being owned in the amounts set forth
on Exhibit D hereto;
WHEREAS, the Warrantholders own warrants to acquire the amount
of common capital stock of the Company and the Affiliates set forth opposite
their names on Exhibit B hereto;
WHEREAS, the Company and the Affiliates have filed with the
Secretary of the State of Tennessee amendments (the "First Charter Amendment")
to their charters (the "Company Charter" and the "Affiliate Charters,"
respectively) effecting, inter alia, changes in the voting rights, conversion
rights, redemption rights, and liquidation preference, if any, of the Common
Stock, Class A Preferred Stock, Class B Preferred Stock, and Class C Preferred
Stock of the Company and the Affiliates;
WHEREAS, the Company has approved further amendments (the
"Second Charter Amendment") to the Company Charter authorizing blank check
preferred stock, modifying certain corporate governance provisions of the
Company, increasing the authorized Common Stock of the Company and effectuating
a stock split of the Common Stock of the Company (the "Stock Split") pursuant to
which each outstanding share of Common Stock of the Company will be split into a
larger number (the "Split Number") of shares of Common Stock of the Company;
WHEREAS, the Company intends to conduct an initial public
offering of the Common Stock of the Company (the "IPO") on the terms set forth
on a registration statement on Form S-1 (the "Registration Statement") to be
filed with the United States Securities and Exchange Commission (the "SEC") on
or about April 30, 1998, and the time at which such Registration Statement is
declared effective by the SEC is herein referred to as the "Effective Time;"
WHEREAS, effective upon the time (the "Price Determination")
at which the pricing committee of the Company determines the price per share
that the common stock of the Company will be offered to the public (the "IPO
Price"), the parties hereto desire that the following steps be taken to
reorganize the Company:
1. The Shareholders will contribute (the "Affiliate Preferred
Contribution") 68,400 shares of Class A Preferred Stock of each of the
Affiliates (the "Affiliate Class A Contribution Shares") and 23,700
shares of Class B Preferred Stock of each of the Affiliates (the
"Affiliate Class B Contribution Shares"), constituting 100% of each
such class of Preferred Stock in each of the Affiliates (collectively,
the "Affiliate Preferred Shares") in exchange for newly issued shares
of Common Stock of the Company (the "Contributed New Common Shares")
having a value equal to the aggregate stated value of the Affiliate
Preferred Shares plus the accrued dividends thereon;
2. The Company will recapitalize its outstanding shares of Class A and
B Preferred Stock, pursuant to which the Shareholders will exchange
(the "Company Preferred Exchange") 68,400 shares of the Class A
Preferred Stock of the Company (the "Company
-2-
<PAGE> 6
Class A Shares") and 23,700 shares of the Class B Preferred Stock of
the Company (the "Company Class B Shares," and together with the
Company Class A Shares, the "Company Preferred Shares"), constituting
100% of each such class of Preferred Stock of the Company, into newly
issued shares of common stock of the Company (the "Exchanged New Common
Shares") having a value equal to the aggregate stated value of the
Company Class A Shares and Company Class B Shares plus accrued dividend
thereon;
3. The Shareholders will contribute (the "Affiliate Common
Contribution") 92,100 shares of the common stock of each of the
Affiliates (the "Affiliate Common Contribution Shares") to the Company
for which no new shares of the Company's common stock shall be issued
in light of the fact that the Shareholders own 92,100 shares of Common
Stock of the Company in the same proportions as they own the Affiliate
Common Contribution Shares. The Affiliate Preferred Contribution and
the Affiliate Common Contribution are herein referred to collectively
as the "Affiliate Shares Contribution;"
4. The Warrantholders will exercise (the "Warrant Exercise") all of
their warrants and receive a number of shares of Common Stock of the
Affiliates equal to 11,905 multiplied by the Split Number (the
"Affiliate Warrant Shares") and a number of shares of Common Stock of
the Company equal to 11,905 multiplied by the Split Number (the
"Company Warrant Shares"), and the Warrantholders will contribute (the
"Warrant Shares Contribution") their Affiliate Warrant Shares to the
Company for which no new shares of the Company's Common Stock shall be
issued in light of the fact that the Warrantholders own the Company
Warrant Shares in the same proportions as they own the Affiliate
Warrant Shares; and
WHEREAS, effective simultaneously with and conditioned upon
the closing (the "Closing") of the IPO, the parties agree that:
1. The Company will redeem (the "Company Shares Redemption") 17,122
shares of Class C Preferred Stock of the Company (the "Company Class C
Shares"), constituting all of the outstanding shares of the Class C
Preferred Stock of the Company for $524,542.06;
2. For an aggregate sum of $16,597,457.94, which amount represents the
stated value of the shares of Class C Preferred Stock being purchased,
the Company will purchase (the "Affiliate Shares Purchase") from the
CK, RA and RK ("Class C Shareholders"), an aggregate of 17,122 shares
of Class C Preferred Stock of each of the Affiliates having authorized
Class C Preferred Stock (the "Affiliate Class C Shares"), such shares
constituting 100% of the issued and outstanding Affiliate Class C
Shares;
WHEREAS, upon completion of the Affiliate Shares Purchase and
the Affiliate Shares Contribution, all of the outstanding shares of capital
stock of the Affiliates shall be owned by the Company and the Company shall be
the parent corporation of the group of companies comprised of the Company and
the Affiliates.
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<PAGE> 7
NOW, THEREFORE, in consideration of the premises and the
respective covenants, representations and warranties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
CHARTER AMENDMENT AND STOCK SPLIT
1.1. Consent and Authorization. The Shareholders and
Warrantholders hereby consent to and authorize, acknowledge and agree that the
Company shall file the Second Charter Amendment prior to the Price
Determination.
1.2. Ratification. The Shareholders and Warrantholders hereby
ratify, confirm and consent to the First Charter Amendment.
1.3. Acknowledgment. The Warrantholders further acknowledge
and agree that the execution of this Agreement satisfies the prior written
consent requirements set forth in Section 7.02(k) of the Note and Warrant
Purchase Agreement with respect to the First Charter Amendment and Second
Charter Amendment.
1.4. Waiver of Notice. The parties hereto agree and
acknowledge that the execution of this Agreement shall constitute a waiver of
the requirements of giving or receiving any separate written notice under the
terms of the Company Charter with respect to any of the transactions
contemplated hereby.
ARTICLE 2
CONTRIBUTION OF AFFILIATE SHARES AND EXCHANGE OF PREFERRED SHARES
2.1. Contribution and Exchange. Immediately upon the Price
Determination, and without the requirement of any further authorization, the
following transactions will occur:
2.1.1. The Shareholders will contribute to the Company
the Affiliate Class A Contribution Shares in exchange for a number of fully paid
and non-assessable Contributed New Common Shares having a value per share equal
to the IPO Price and having an aggregate value equal to the aggregate stated
value of the Affiliate Class A Contribution Shares plus accrued dividends
thereon.
2.1.2. The Shareholders will contribute to the Company
the Affiliate Class B Contribution Shares in exchange for a number of fully paid
and non-assessable Contributed New Common Shares having a value per share equal
to the IPO Price and having an aggregate value equal to the aggregate stated
value of the Affiliate Class B Contribution Shares plus accrued dividends
thereon.
-4-
<PAGE> 8
2.1.3. The Company will recapitalize the Company Class A
Shares and Company Class B Shares into shares of Common Stock of the Company.
Pursuant to such recapitalization, (i) Holdings will exchange the Company Class
A Shares for a number of fully paid and non-assessable Exchanged New Common
Shares having a value per share equal to the IPO Price and having an aggregate
value equal to the aggregate stated value of the Company Class A Shares
exchanged, plus accrued dividends thereon, and (ii) the Class C Shareholders
will exchange the Company Class B Shares for a number of fully paid and
non-assessable Exchanged New Common Shares having a value per share equal to the
IPO Price and having an aggregate value equal to the aggregate stated value of
the Company Class B Shares exchanged, plus accrued dividends thereon.
2.1.4. The Shareholders will contribute the Affiliate
Common Contribution Shares to the Company as a contribution to the capital to
the Company for which no new shares of Common Stock of the Company will be
issued.
2.2. Deliveries. The Shareholders will deliver to the Company,
and the Company will accept from the Shareholders, the stock certificates
representing the Affiliate Preferred Shares, the Company Preferred Shares and
the Affiliate Common Contribution Shares duly endorsed or accompanied by
appropriate stock powers. The Company will deliver to the Shareholders, and the
Shareholders will accept immediately prior to the Closing, stock certificates
representing Contributed New Common Shares and Exchanged New Common Shares
received upon the Affiliate Preferred Contribution and the Company Preferred
Exchange pursuant to this Article 2.
ARTICLE 3
EXERCISE OF WARRANTS AND CONSENT TO AMENDMENTS
3.1. Warrant Exercise. Immediately following the transactions
set forth in Article 2 hereof and immediately upon the Price Determination, the
Warrantholders will exercise all of the outstanding Common Stock Purchase
Warrants identified on Exhibit B hereto (the "Warrants") to purchase the
Affiliate Warrant Shares and Company Warrant Shares, such aggregate number to be
purchased by the individual Warrantholders in the proportions more particularly
set forth in Exhibit B attached hereto.
3.2. Exercise Price. The Warrantholders hereby authorize and
direct the Company and the Affiliates to apply a portion of the amount payable
by the Company and the Affiliates as of the date of Closing under the Senior
Subordinated Notes (the "Notes"), as described in Section 1.3 of the Warrants,
in payment of the exercise price of the Warrants. The Warrantholders and the
Company agree that the exercise price payable for the Company Warrant Shares
upon exercise of Warrants issued by the Company will be paid through the
surrender of a portion of the amount payable by the Company under the Notes.
3.3. Contribution of Affiliate Warrant Shares. The
Warrantholders will contribute to the Company, simultaneously with the
transactions set forth in Article 2 hereof, and the Company will receive from
the Warrantholders all of the Affiliate Warrant Shares issued upon the exercise
of
-5-
<PAGE> 9
the Warrants as set forth in this Article 3, as a contribution to the capital of
the Company for which no additional shares of Common Stock of the Company will
be issued.
3.4. Deliveries. The Warrantholders will deliver to the
Company, and the Company will accept from the Warrantholders, the stock
certificates representing the Affiliate Warrant Shares, duly endorsed or
accompanied by appropriate stock powers.
ARTICLE 4
PURCHASE AND REDEMPTION OF CLASS C PREFERRED SHARES
4.1. Affiliate Shares Purchase. Effective simultaneously with
and conditioned upon the occurrence of the Closing, the Company will purchase
from the Class C Shareholders, and such Shareholders will sell to the Company,
the Affiliate Class C Shares for the aggregate sum of $16,597,457.94, allocated
among the Affiliates in proportion to the aggregate stated value of the issued
and outstanding shares of Class C Preferred Stock of each Affiliate owned of
record by such Shareholders. No such Shareholder shall be obligated to sell more
Affiliate Class C Shares to the Company pursuant to this Section 4.1 than the
number of such Shares to which such Shareholder has record ownership.
4.2. Company Preferred Redemption. Effective simultaneously
with and conditioned upon the occurrence of the Closing, the Company will redeem
from the Class C Shareholders, all outstanding Company Class C Shares, and each
holder of shares of Company Class C Shares will receive from the proceeds of the
IPO a redemption payment in cash equal to $30.64 per share of Class C Preferred
Stock so redeemed for an aggregate payment to such Shareholders of $524,542.06
pursuant to this Section 4.2.
4.3. Payment. The Company will pay to the Class C Shareholders
at the Closing, the aggregate amount of $16,597,457.94 pursuant to the Affiliate
Shares Purchase set forth in Section 4.1 hereof by wire transfer of immediately
available federal funds to such account or accounts of the Class C Shareholders
as are designated by them prior to the Closing. The Company will pay to the
Class C Shareholders at the Closing, an aggregate amount of $524,542.06 pursuant
to the Company Shares Redemption set forth in Section 4.2 hereof by wire
transfer of immediately available federal funds to such account or accounts of
the Class C Shareholders as are designated by them prior to the Closing. Each
such aggregate payment shall be divided among the Class C Shareholders in
proportion to the number of shares of Class C Preferred Stock owned of record by
each Class C Shareholder.
4.4. Deliveries. Upon confirmation of the transmission of the
wire transfers contemplated by Section 4.3 hereof, the Class C Shareholders will
deliver to the Company, and the Company will accept from the Class C
Shareholders, the stock certificates representing the Affiliate Class C Shares
and the Company Class C Shares, duly endorsed or accompanied by appropriate
stock powers.
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<PAGE> 10
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS, THE MEMBERS
AND THE WARRANTHOLDERS
Each of the Shareholders, the Members and the Warrantholders,
severally and not jointly, hereby represents, warrants, covenants, agrees and
acknowledges to the Company and to each of the other Shareholders, Members, and
Warrantholders the following to be true and correct in all respects as to
himself of itself:
5.1. Authority. The Shareholder, Member or Warrantholder has
full power and authority to execute and deliver this Agreement and the other
instruments to be executed and delivered by it pursuant hereto and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Shareholder, Member or Warrantholder and constitutes the legal,
valid and binding obligations of the Shareholder, Member or Warrantholder
enforceable in accordance with its terms, except as enforcement may be limited
by insolvency, bankruptcy, moratorium or other laws affecting creditors' rights
generally and except as enforcement may be limited by principles of equity. The
execution and delivery by the Shareholder, Member or Warrantholder of this
Agreement and the consummation by the Shareholder, Member or Warrantholder of
the transactions contemplated hereby will not violate any law or any judgment,
decree, award or order of any court or other federal, state or local department,
official, commission, authority, board, bureau, agency or other public body,
domestic or foreign ("Governmental Entity") to which the Shareholder, Member or
Warrantholder is subject. No approval, authorization, consent or other order or
action of or filing with any Governmental Entity or any other individual or
entity is required for the execution and delivery by the Shareholder, Member or
Warrantholder of this Agreement or such other agreements and instruments or the
consummation by Shareholder, Member or Warrantholder of the transactions
contemplated hereby or thereby.
5.2. Title; Third-Party Options. There are no contracts,
options, commitments or rights of any kind, by or through the Shareholder,
Member or Warrantholder, with, to or in any third party to acquire all or any
portion of the Affiliate Preferred Shares, Affiliate Common Contribution Shares,
Affiliate Warrant Shares, Company Preferred Shares, or the Company Warrant
Shares and the Shareholder, Member or Warrantholder has good title to such
shares and owns such shares free and clear of any claim, mortgage, assignment,
conditional sale, lease, easement, consignment, bailment, contingent interest,
pledge, lien, option, charge, security interest, preemptive right, encumbrance
or other restrictions of any kind or nature whatsoever (a "Lien"), but not a
restriction imposed by the Securities Act or any other securities laws other
than restrictions imposed by contracts which, by the terms thereof, will lapse
upon the consummation of the IPO.
5.3. No View to Distribution or Resale. The Shareholder will
acquire the Contributed New Common Shares and the Exchanged New Common Shares
solely for his or its own account without a view to the distribution or resale
thereof, and does not have any contract, undertaking, agreement or arrangement
to sell or otherwise transfer or dispose of any of such shares in any manner to
any person except as contemplated by this Agreement.
-7-
<PAGE> 11
5.4. No Transfer Without Registration or Exemption. The
Shareholder or Warrantholder will not, except as contemplated by this Agreement,
sell, transfer or otherwise dispose of any of its Contributed New Common Shares,
Converted New Common Shares, or its Company Warrant Shares (such shares
collectively, the "New Common Shares") or the Affiliate Warrant Shares,
respectively, in any manner, unless at the time of any such transfer: a
Registration (as hereafter defined) under the Securities Act (as hereafter
defined) and under the Applicable Laws (as hereafter defined) is in effect with
respect to the New Common Shares or Affiliate Warrant Shares to be sold,
transferred or disposed of, and the Shareholder or Warrantholder complies with
all of the requirements of the Securities Act and the Applicable Laws with
respect to the proposed transaction; or the Shareholder has obtained and has
provided to the Company an opinion from counsel satisfactory to the Company (as
to both the counsel rendering such opinion and the substance of the opinion)
that the proposed sale, transfer or disposition does not require Registration
under the Securities Act or the Applicable Laws.
5.5. New Common Shares Are Not Registered. The New Common
Shares issuable by the Company pursuant to this Agreement have not been sold to
the Shareholders or the Warrantholders by the Company pursuant to a Registration
under the Securities Act. Except as may otherwise be provided in the
registration rights agreement dated as of June 12, 1996, (i) any subsequent
Registration under the Applicable Laws will not authorize sales, transfers or
dispositions of any New Common Shares so issued by any Shareholder, and (ii)
neither the Company nor any other person has any obligation or intention to
effect the Registration of the such New Common Shares for sale, transfer or
disposition by the Shareholder, the Member or the Warrantholder under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. The Shareholders and Warrantholders must
therefore hold their New Common Shares indefinitely except as contemplated by
this Agreement, and unless a subsequent Registration or exemption therefrom is
available and is obtained. No federal or state agency has reviewed the
transactions set forth in this Agreement or approved or disapproved the New
Common Shares for investment or any other purpose. All of the New Common Shares
have been issued and sold to the Shareholders or Warrantholders, respectively,
in reliance upon a specific exemption from the Registration requirement of the
Securities Act which depends, in part, upon the accuracy of the representations,
warranties, covenants, acknowledgments and agreements of the Shareholders,
Members and Warrantholders set forth in this Agreement.
5.6. Securities Legend. A legend will be placed on the
certificates evidencing all New Common Shares and stop-transfer instructions
will be issued to any transfer agent with respect to such New Common Shares, to
ensure compliance with the provisions of this Agreement and of the Securities
Act and the Applicable Laws.
5.7. Investment Risk. The Shareholder, the Member or
Warrantholder can bear the economic risk of his or its acquisition and ownership
of their New Common Shares, including the total loss of his or its investment,
has no need for liquidity in this investment and, either individually or with
his or its advisers, has such knowledge and experience in financial and business
matters that
-8-
<PAGE> 12
he or it is capable of evaluating the merits and risks of the Company and the
investment in his or its New Common Shares.
5.8. Review of Company's Business and Records. Prior to the
execution of this Agreement, the Shareholder, Member or Warrantholder and his or
its advisers have been provided with full and free access and opportunity to
inspect, review, examine and inquire about all books, records and information
(financial or otherwise) of the Company its business and affairs, and the
Shareholder, Member or Warrantholder and his or its advisers have made such
inspection, review, examination and inquiry as they have deemed appropriate; and
the Shareholder, Member or Warrantholder and his or its advisers have been
offered the opportunity to ask such questions and obtain such additional
information concerning the Company and its business and affairs as each
Shareholder, Member or Warrantholder and his or its advisers have requested so
as to understand the nature of the investment in the New Common Shares
(including the Company Warrant Shares) and to verify the accuracy of the
information obtained as a result of their investigation.
5.9. Opportunity to Question; Full Satisfaction. The
Shareholder, Member or Warrantholder and their advisers, if any, have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of the Company concerning the New Common Shares and all
such questions have been answered to the full satisfaction of the Shareholder,
Member or Warrantholder and his or its advisers, if any.
5.10. Review of Company's Registration Statement. The
Shareholder, Member or Warrantholder has received a draft of the Company's
Registration Statement on Form S-1 and all other documents requested by the
Shareholder, Member or Warrantholder have been carefully reviewed by him or it
and he or it understands the information contained therein.
5.11. Knowledge and Experience. The Shareholder, Member or
Warrantholder or his or its representatives, as the case may be, together with
his or its advisers, have such knowledge and experience in financial, tax, and
business matters, and, in particular, investments in securities, so as to enable
them to utilize the information made available to them in connection with the
New Common Shares to evaluate the merits and risks of an investment in the New
Common Shares and to make an informed investment decision with respect thereto;
5.12. Accredited and Institutional Investor Status. The
Shareholder, Member or Warrantholder is at least one of the following: (i) an
"accredited investor," as such term is defined under Regulation D under the
Securities Act and as set forth on Schedule 4.12 attached hereto, or (ii) a
"financial institution or institutional investor" or a "financial institution or
institutional buyer" as such terms are used in the state securities law in the
state of organization of such Shareholder, Member or Warrantholder.
5.13. No Reliance. The Shareholder, Member or Warrantholder is
not relying on the Company or any of its employees or agents with respect to the
legal, tax, economic and related considerations of an investment in the New
Common Shares, and the Shareholder, Member or
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<PAGE> 13
Warrantholder has relied on the advice of, or have consulted with, only his or
its own advisers with respect to such matters.
5.14. Definitions. As used herein: the term "Registration"
means registration under the Securities Act and, with respect to the Applicable
Laws, such registration thereunder (or, with respect to any of the Applicable
Laws which do not provide for registration, such compliance therewith which is
similar to registration) which has then resulted in statutory or administration
authorization for the proposed transaction; the term "Securities Act" means the
Securities Act of 1933, as amended, and the rules and regulations thereunder;
and the term "Applicable Laws" means any applicable state securities laws and,
to the extent applicable to offers or sales of securities, the Securities
Exchange Act of 1934, as amended, and the rules and regulations under the
foregoing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Shareholders and
the Members the following to be true and correct in all respects:
6.1. Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Tennessee, with full corporate power and authority to own, lease and operate its
respective properties and assets and to carry on its respective business and
operations.
6.2. Authority. The Company has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate acts and other proceedings
required to be taken by or on the part of the Company to authorize the Company
to execute, deliver and perform this Agreement have been duly and properly
taken. This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of Company, enforceable in
accordance with its terms except as enforcement may be limited by insolvency,
bankruptcy, moratorium or other laws affecting creditors' rights generally and
except as enforcement may be limited by principles of equity. The execution and
delivery by the Company of this Agreement and the consummation by the Company of
the transactions contemplated hereby will not violate any law or any judgment,
decree, award or order of any court or other Governmental Entity to which the
Company is subject, and will not conflict with the Charter or Bylaws of the
Company, nor will it conflict with, or be prohibited, limited or restricted in
any way by the documents executed and delivered by the Company in connection
with the transactions contemplated hereby. No approval, authorization, consent
or other order or action of or filing with any Governmental Entity or any other
individual or entity is required for the execution and delivery by the Company
of this Agreement or such other agreements and instruments or the consummation
by the Company of the transactions contemplated hereby.
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<PAGE> 14
ARTICLE 7
ORDER OF TRANSACTIONS
7.1. The parties agree that for all purposes, the transactions
contemplated by this Agreement shall be deemed to occur in the following order:
(1) the Stock Split in connection with the Second Step Amendments
pursuant to which the Company will make all adjustments to the
price per share and number of shares issuable upon the
exercise of outstanding options and warrants as a result of
the Stock Split;
(2) the Price Determination;
(3) the Affiliate Preferred Contribution as set forth in Section
2.1.1 and Section 2.1.2 hereof;
(4) the Company Preferred Exchange as set forth in Section 2.1.3
hereof;
(5) the Affiliate Common Contribution as set forth in Section
2.1.4 hereof;
(6) the Warrant Exercise as set forth in Section 3.1 hereof;
(7) the Warrant Shares Contribution as set forth in Section 3.3
hereof;
(8) the Effective Time of the Registration Statement;
(9) the Affiliate Shares Purchase as set forth in Section 4.1
hereof; and
(10) the Company Preferred Redemption as set forth in Section 4.3
hereof.
ARTICLE 8
MISCELLANEOUS
8.1. Consents. The execution of this Agreement by the Company,
Shareholders, Members and Warrantholders shall constitute consent of all such
parties to the Affiliate Preferred Contribution, the Company Preferred Exchange,
the Affiliate Common Contribution , the Warrant Exercise, the Warrant Shares
Contribution, Company Shares Redemption and Affiliate Shares Purchase, to the
extent such consent is required under the terms of the Company Charter or any
agreement to which the Company and/or any such Shareholder, Member or
Warrantholder is a party.
8.2. Failure to Deliver Shares. If a Shareholder or
Warrantholder (the "Transferring Holder") becomes obligated to transfer any
Affiliate Class A Contribution Shares, Affiliate Class B Contribution Shares,
Affiliate Common Contribution Shares, Company Class A
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<PAGE> 15
Shares, Company Class B Shares, Warrant Shares, Company Class C Shares or
Affiliate Class C Shares (any or all thereof being referred to in this Section
8.2 as the "Shares") to the Company pursuant to any part of this Agreement and
fails to deliver such Shares in accordance with the terms of this Agreement, the
Company may, at its option, in addition to all other remedies it may have,
either (i) send to the Transferring Holder the purchase price for such Shares or
the stock certificate for Contribution New Common Shares of Exchanged New Common
Shares relating thereto as is herein specified, or (ii) deposit such amount or
the Contribution New Common Shares or Exchanged New Common Shares relating
thereto with a trustee or escrow agent for the benefit of the Transferring
Holder for release upon delivery of such Shares to the trustee or escrow agent
in accordance with the terms of this Agreement. Thereupon, the Company, without
written notice to the Transferring Holder, shall cancel on its books the
certificate or certificates representing the Shares so required to be
transferred by the Transferring Holder. The Transferring Holder failing to
deliver Shares in accordance with this Agreement shall reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with the enforcement of obligations under this Agreement or utilizing the
remedies set forth in this Section 8.2. All of the Transferring Holder's rights
in and to such Shares shall terminate as of the Closing.
8.3. Assignment and Binding Effect. This Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties. Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the parties.
8.4. Waiver. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
8.5. Notices. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally (to the
attention of the person identified) to the address set forth in Schedule 7.4
attached hereto, or sent by telecopy, telegram or by certified mail, postage
prepaid, or to such other address as the addressee may have specified in a
notice duly given to the sender and to counsel as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication will be deemed
to have been given as of the date so delivered or telegraphed or, if mailed,
three business days after the date so mailed.
8.6. Delaware Law to Govern. This Agreement shall be governed
by and interpreted and enforced in accordance with the substantive laws of the
State of Delaware without regard to the conflicts of law doctrine thereof.
8.7. No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and their heirs, executors, legal representatives, successors
and assigns, and they shall not be construed as conferring and are not intended
to confer any rights on any other persons.
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<PAGE> 16
8.8. Contents of Agreement. This Agreement together with any
documents referred to herein set forth the entire agreement of the parties
hereto and supersede any prior agreement or understanding of the parties with
respect to the transactions contemplated hereby. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto, and no
claimed amendment, modification, termination or waiver shall be binding unless
in writing and signed by the party against whom or which such claimed amendment,
modification, termination or waiver is sought to be enforced.
8.9. Cooperation. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
applicable law, both before and after the date hereof, to consummate and make
effective the transactions contemplated by this Agreement.
8.10. Severability. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Contribution Agreement as of the date first written above.
KIRKLAND'S, INC.
By: /s/ Carl Kirkland
------------------------------------
Name: Chief Executive Officer
Title: President
/s/ Carl Kirkland
----------------------------------------
Carl Kirkland
/s/ Robert E. Kirkland
----------------------------------------
Robert E. Kirkland
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<PAGE> 17
/s/ Robert Alderson
----------------------------------
Robert Alderson
AMY KATHERINE ALDERSON TRUST,
by Carl Kirkland, its trustee
/s/ Carl Kirkland
----------------------------------
ALLISON LEIGH ALDERSON TRUST,
by Carl Kirkland, its trustee
/s/ Carl Kirkland
----------------------------------
CARL T. KIRKLAND GRANTOR
RETAINED ANNUITY TRUST 97-1, by
Robert Alderson, its trustee
/s/ Robert Alderson
----------------------------------
KIRKLAND HOLDINGS L.L.C.
By: /s/ David M. Mussafer
------------------------------------
Name: David M. Mussafer
Title:
ADVENT DIRECT INVESTMENT
PROGRAM LIMITED PARTNERSHIP, by
Advent International Corporation, its General
Partner
By: /s/ David M. Mussafer
------------------------------------
Name: David M. Mussafer
Title:
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<PAGE> 18
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP, by Advent International
Corporation, its General Partner
By: /s/ David M. Mussafer
------------------------------------
Name: David M. Mussafer
Title:
ADVENT PARTNERS LIMITED
PARTNERSHIP, by Advent International
Corporation, its General Partner
By: /s/ David M. Mussafer
------------------------------------
Name: David M. Mussafer
Title:
SSM/KIRKLAND EQUITY PARTNERS, L.P.,
by SSM Venture Partners, L.P., by SSM I, L.P.,
its general partner, by SSM Corporation, its
general partner
By: /s/ R. Wilson Orr, III
------------------------------------
Name: R. Wilson Orr, III
Title:
CT/KIRKLAND EQUITY PARTNERS, L.P.,
by Kirk Holdings Ltd., its general partner
By: /s/ John P. Oswald
------------------------------------
Name: John P. Oswald
Title:
TCW/KIRKLAND EQUITY PARTNERS,
L.P., by Crescent/Mach I Partners, L.P., by
TCW Asset Management Company, its
investment manager
By: /s/ Justin Driscoll
------------------------------------
Name: Justin Driscoll
Title:
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<PAGE> 19
MARLBOROUGH/KIRKLAND EQUITY
PARTNERS, L.P., by The Marlborough Capital
Investment Fund, L.P., its general partner, by
Marlborough Capital Management, L.P., its
general partner
By: /s/ Margaret Lanoix
---------------------------------------------
Name: Margaret Lanoix
Title:
R-H CAPITAL PARTNERS, L.P., by
R-H/Travelers, L.P., its general partner, by R-H
Capital, Inc., its general partner
By: /s/ Kenneth Millar
---------------------------------------------
Name: Kenneth Millar
Title:
CAPITAL RESOURCE LENDERS II, L.P., by
Capital Resource Partners II, its general partner
By: /s/ Alexander McGrath
---------------------------------------------
Name: Alexander McGrath
Title:
ALLIED CAPITAL CORPORATION
By: /s/ Gaye Truscott
---------------------------------------------
Name: Gaye Truscott
Title:
THE MARLBOROUGH CAPITAL
INVESTMENT FUND, L.P., by Marlborough
Capital Management L.P., its general partner
By: /s/ Margaret Lanoix
---------------------------------------------
Name: Margaret Lanoix
Title:
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<PAGE> 20
CAPITAL TRUST INVESTMENTS, LTD.,
By: /s/ John P. Oswald
---------------------------------------------
Name: John P. Oswald
Title:
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<PAGE> 21
EXHIBIT A
Members of
Kirkland Holdings L.L.C.
Advent Direct Investment Program Limited Partnership
Global Private Equity II Limited Partnership
Advent Partners Limited Partnership
SSM/Kirkland Equity Partners, L.P.
CT/Kirkland Equity Partners, L.P.
TCW/Kirkland Equity Partners, L.P.
Marlborough/Kirkland Equity Partners, L.P.
R-H Capital Partners, L.P.
A-1
<PAGE> 22
EXHIBIT B
The Warrantholders and Warrantholder Shares
<TABLE>
<CAPTION>
Affiliate Common Stock
Warrant Company Purchase
Warrantholders Shares(1) Warrant Shares(2) Warrant No.
- -------------- --------- ----------------- ------------
<S> <C> <C> <C>
Capital Trust Investments, Ltd. 1,071 1,071 PW-1
The Marlborough Capital 2,262 2,262 PW-2
Investment Fund, L.P.
Allied Capital Corporation(3) 3,810 3,810 PW-3,PW-4
Capital Resource Lenders II, L.P. 4,762 4,762 PW-5
</TABLE>
- -------------------
(1)These number of shares will be increased and the exercise price
adjusted as a result of the Stock Split.
(2)These number of shares will be increased and the exercise price
adjusted as a result of the Stock Split.
(3)Allied Capital Corporation II ("Allied II") has merged into Allied
Capital Corporation ("Allied") and the warrants originally held by Allied II are
now held by Allied in addition to the warrants originally held by Allied.
B-1
<PAGE> 23
EXHIBIT C
Affiliates of Kirkland's, Inc.(4)
[List of the Affiliates: Attach current list of Kirkland's companies]
- -------------------
(4)Any corporations formed after the date of this Agreement to own and
operate a Kirkland's store the shares of which are owned by any of the
Shareholders shall be deemed to be included in this list of Affiliates for all
purposes of this Agreement.
C-1
<PAGE> 24
EXHIBIT D
Shareholder Ownership
Group A and Group B Companies
<TABLE>
<CAPTION>
Class A Class B Class C
Common Preferred Preferred Preferred
Shareholders Stock(5) Stock Stock Stock
- ------------ -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Kirkland Holdings L.L.C. 68,400 68,400 0 0
Carl Kirkland 0 0 7,900 7,917
Robert Kirkland 7,900 0 7,900 7,544
Robert Alderson 5,900 0 7,900 2,878
The Carl T. Kirkland Grantor 7,900 0 0 0
Retained Annuity Trust 97-1,
Robert Alderson, Trustee
The Allison Leigh Alderson Trust, 1,000 0 0 0
Carl Kirkland, Trustee
The Amy Katherine Alderson Trust, 1,000 0 0 0
Carl Kirkland, Trustee
</TABLE>
- --------------
(5)The number of shares of Common Stock will be increased as result of
the Stock Split.
D-1
<PAGE> 25
Group C and Group D Companies
<TABLE>
<CAPTION>
Class A Class B
Shareholders Common Stock(6) Preferred Stock Preferred Stock
- ------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Kirkland Holdings L.L.C. 68,400 68,400 0
Carl Kirkland 0 0 7,900
Robert Kirkland 7,900 0 7,900
Robert Alderson 5,900 0 7,900
The Carl T. Kirkland Grantor 7,900 0 0
Retained Annuity Trust 97-1,
Robert Alderson, Trustee
The Allison Leigh Alderson Trust, 1,000 0 0
Carl Kirkland, Trustee
The Amy Katherine Alderson Trust, 1,000 0 0
Carl Kirkland, Trustee
</TABLE>
Group E Companies
Shareholders Common Stock(7)
- ------------ ---------------
Kirkland Holdings L.L.C. 684
Robert Kirkland 79
Robert Alderson 59
The Carl T. Kirkland Grantor Retained 79
Annuity Trust 97-1, Robert Alderson, Trustee
The Allison Leigh Alderson Trust, Carl 10
Kirkland, Trustee
The Amy Katherine Alderson Trust, Carl 10
Kirkland, Trustee
- ----------------
(6)The number of shares of Common Stock will be increased as a result
of the Stock Split.
(7)The number of shares of Common Stock will be increased as a result
of the Stock Split.
D-2
<PAGE> 26
D-3
<PAGE> 27
EXHIBIT E
Company Charter
E-1
<PAGE> 28
Schedule 4.12
"Accredited Investor"
A Shareholder which meets any one of the following definitions will constitute
an accredited investor as defined in Rule 501(a) of Regulation D adopted under
the Securities Act:
1. Any director or executive officer of the Company;
2. A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
3. A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
4. A bank as defined in Section 3(a)(2) of the Act or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
Section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or,
if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
5. A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
6. An organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
<PAGE> 29
7. A trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered,
whose purchase is directed by a person who has such knowledge and
experience in financial and business matters that he or it is capable
of evaluating the merits and risks of an investment or prospective
investment in the Company; and
8. Any entity in which all of the equity owners are accredited
investors.
<PAGE> 30
Schedule 8.4
Notices
If to the Company, to:
Kirkland's, Inc.
805 North Parkway, P.O. Box 7222
Jackson, TN 38305
Attention: Carl Kirkland
Telecopy No.: (901) 664-9345
With a copy to:
Pepper Hamilton LP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Attention: Julia D. Corelli, Esquire
Telecopy No.: (215) 981-4750
If to Holdings or to the Members, to:
Kirkland Holdings L.L.C.
101 Federal Street
Boston, MA 02110
Attention: David M. Mussafer
Telecopy No.: (617) 951-0566
If to the Warrantholders, care of:
Capital Resource Lenders II, L.P.
85 Merrimac Street
Suite 200
Boston, MA 02114
Attention: Alexander S. McGrath
Telecopy No.: (617) 723-9819
<PAGE> 31
With a copy to:
Testa Hurwitz & Thibeault
125 High Street
Boston, MA 02110
Attention: Kevin Barry, Esquire
Telecopy No.:
If to Carl Kirkland, Robert Alderson, the Allison Leigh Alderson Trust, the Amy
Katherine Alderson Trust, and the Carl T. Kirkland Grantor Retained Annuity
Trust 97-1, care of:
Kirkland's Inc.
805 North Parkway, P.O. Box 7222
Jackson, TN 38305
Attention: Carl Kirkland
Telecopy No.: (901) 664-9345
With a copy to:
Baker, Donelson, Bearman & Caldwell
20th Floor
2000 First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: Robert Walker, Esquire
Telecopy No.: (901) 577-2303
If to Robert Kirkland, to:
CBK, Ltd.
600 East Sherwood
Union City, TN 38261
Attention: Robert Kirkland
Telecopy No.: (901) 885-3857
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CHARTER
OF
KIRKLAND'S, INC.
This Amended and Restated Charter of Kirkland's, Inc., (the
"Corporation") shall be effective as of 12:01 A.M. on April 27, 1998 (the
"Effective Time"). The undersigned corporation hereby adopts the following
amended and restated charter pursuant to Section 48-20-107 of the Tennessee
Business Corporation Act:
1. Name. The name of the Corporation is Kirkland's, Inc.
2. Registered Office and Agent. The Corporation's registered
office is located at 805 North Parkway, Jackson, Madison County, Tennessee
38305. The Corporation's registered agent at that office is Robert E. Alderson.
3. Principal Office. The principal office of the Corporation is
located at 805 North Parkway, Jackson, Madison County, Tennessee 38305.
4. Authorized Shares. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is Six Hundred
Twenty Thousand (620,000), of which Five Hundred Thousand (500,000) shares shall
constitute a separate class of shares known as Common Stock, which shall be
without par value (the "Common Stock"), and the remaining One Hundred Twenty
Thousand (120,000) shares shall constitute a single class of shares known as
Preferred Stock (the "Preferred Stock"). The Corporation is authorized to issue
(i) Five Hundred Thousand (500,000) shares designated as Common Stock, which
shall be without par value (the "Common Stock"), (ii) Sixty-Eight Thousand Four
Hundred (68,400) shares designated as a series of Preferred Stock referred to as
Class A Preferred Stock, which shall be without par value (the "Class A
Preferred Stock"), (iii) Thirty-One Thousand Six Hundred (31,600) shares
designated as a series of Preferred Stock referred to as Class B Preferred
Stock, which shall be without par value (the "Class B Preferred Stock"), and
(iv) Twenty Thousand (20,000) shares designated as a series of Preferred Stock
referred to as Class C Preferred Stock, which shall be without par value (the
"Class C Preferred Stock").
5. Common Stock. The express terms and conditions of the shares
classified and designated as Common Stock are as follows:
5.1. Voting Rights of Common Stock. Each share of Common Stock
shall entitle the holder thereof to one vote, in person or by proxy, upon each
question or matter submitted generally to the holders of the Common Stock of the
Corporation and shall have all voting rights accorded to holders of Common Stock
pursuant to the Tennessee Business Corporation Act.
<PAGE> 2
5.2. Liquidation. On dissolution, liquidation or winding up of
the Corporation, voluntarily or involuntarily (a "Liquidation"), and after
payment to the holders of shares of Preferred Stock as provided below, the
remaining assets and funds of the Corporation, if any, shall be distributed and
paid over to the holders of Common Stock, pro rata according to their respective
shares.
6. Class A Preferred Stock. The express terms and conditions of
the shares classified and designated as Class A Preferred Stock, no par value,
of the Corporation (the "Class A Preferred Stock") are as follows:
6.1. Designation and Number of Shares of Class A Preferred
Stock. The designation of the series of preferred stock in this Section 6 is
Class A Preferred Stock and the number of shares of such series is 68,400 shares
having a stated value per share equal to $13.58859 (the "Class A Preferred Stock
Stated Value"). The Class A Preferred Stock shall rank pari passu with the Class
B Preferred Stock (except as provided in Section 6.3 and Section 7.3) and senior
to all other shares of capital stock of the Corporation except the Class C
Preferred Stock.
6.2. Dividends with Respect to Class A Preferred Stock.
6.2.1. In each year, the holder of each share of Class A
Preferred Stock shall be entitled to receive preferential, cumulative dividends
in cash, which dividends shall be cumulative and shall accrue from the date upon
which the Class A Preferred Stock was issued, in an amount equal to eight
percent (8%) of the Class A Preferred Stock Stated Value per share per year,
provided, however, that upon the later to occur of (i) the consummation of any
of the following:
(A) a sale of all or a majority in value of the
assets of the Corporation and all corporations, which, directly or indirectly,
are controlled by or under common control with any one or more of Kirkland
Holdings, L.L.C., Carl Kirkland, Robert Kirkland or Robert Alderson (the
"Affiliated Corporations"). The term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), shall mean
the possession, directly or indirectly, of the power to elect a majority of the
Board of Directors or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise;
(B) the acquisition of more than fifty percent
(50%) of the outstanding shares of Common Stock of corporations representing a
majority of the total value of the Corporation and the Affiliated Corporations
as a group, by a person or group of persons acting in concert, who are not
shareholders of the Corporation at the Effective Time, other than transfers to
an Affiliate or to a Permitted Transferee (as such terms are defined in the
Shareholders Agreement dated as of June 12, 1996, between the Corporation, the
Affiliated Corporations and the shareholders thereof) if such transfers are
permitted without restriction pursuant to the terms of the Shareholders
Agreement;
-2-
<PAGE> 3
(C) a sale of shares of the common capital stock
of the Corporation or the Affiliated Corporations (or of a successor thereto) in
a registered underwritten public offering resulting in gross proceeds to the
Corporation or one or more Affiliated Corporations (or successors) of at least
Thirty Million Dollars ($30,000,000) in the aggregate (a "Qualified Public
Offering"); or
(D) a refinancing after the Effective Time of the
indebtedness of the Corporation or the Affiliated Corporations for borrowed
money existing as of the Effective Time, in connection with which the
Corporation or Affiliated Corporations repurchase or redeem any capital stock
for value (each of the events listed in subparagraphs (A) through (D) above is
referred to herein as a "Liquidity Event"),
(ii) June 12, 1999 or (iii) the full payment and discharge of the senior
subordinated indebtedness of the Corporation and the Affiliated Corporations (in
the initial principal amount of Twenty Million Dollars ($20,000,000)), dividends
shall accrue in an amount equal to ten (10%) per annum of the Class A Preferred
Stock Stated Value. Dividends shall accrue daily whether or not declared and
whether or not funds are legally available therefor. If such dividends are not
paid within ninety (90) days after the end of the Corporation's fiscal quarter,
such dividends shall accrue additional dividends from the last day of such
fiscal quarter at the same rate per annum. Dividends shall be paid only to the
extent that (i) there shall be sufficient funds of the Corporation legally
available for the payment of such dividends, (ii) the payment of such dividend
would not violate any covenants of the Corporation to any lender to the
Corporation or its subsidiaries and (iii) the payment of such dividend would not
violate the terms of any management or shareholder agreement to which the
Corporation is party.
6.2.2. If, in any dividend period or periods, full
dividends (whether past or current) upon the outstanding Class A Preferred Stock
at the dividend rate set forth herein shall not have been paid, then, unless and
until all dividends accrued and unpaid on the Class A Preferred Stock through
the payment date for such dividends are declared and paid on each share of Class
A Preferred Stock, no dividends shall be declared or paid or set apart for
payment upon any Common Stock or class or series of the Corporation's capital
stock authorized, created or designated after June 12, 1996 nor shall the
Corporation purchase, redeem or otherwise acquire for consideration any such
stock. If, at any time, the Corporation shall pay less than the total amount of
dividends then payable on the then outstanding Class A Preferred Stock, the
aggregate payment to all holders of Class A Preferred Stock shall be distributed
among all such holders so that an amount ratably in proportion to the respective
dividends due thereon shall be paid with respect to each outstanding share of
Class A Preferred Stock.
6.2.3. Holders of the Class A Preferred Stock shall not,
solely as a result of such holders' ownership of such Class A Preferred Stock,
be entitled to participate in any dividends or other distributions (cash, stock
or otherwise) declared or paid on or with respect to any other class of stock or
equity security of the Corporation or any series of any such class.
-3-
<PAGE> 4
6.2.4. No dividend shall be paid upon shares of Class A
Preferred Stock unless like dividends are simultaneously paid on shares of Class
B Preferred Stock.
6.3. Liquidation Preference with Respect to Class A Preferred
Stock.
6.3.1. In the event of a Liquidation, after any
distribution of any of the assets of the Corporation to holders of Class C
Preferred Stock pursuant to Section 8.3, the holders of Class A Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available for distributions to its stockholders, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any (i)
Common Stock, (ii) class or series of the Corporation's capital stock
authorized, created or designated after June 12, 1996 or (iii) Class B Preferred
Stock, an amount per share equal to the sum of the Class A Preferred Stock
Stated Value plus all accrued and unpaid dividends, if any, to the date of
payment, less the Class A Excess Dividend Amount (hereinafter defined) (the
"Class A Liquidation Preference") for each share of Class A Preferred Stock
held. If upon any Liquidation the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders of
shares of Class A Preferred Stock the full amount of the Class A Liquidation
Preference, the holders of shares of Class A Preferred Stock shall share ratably
in any distribution of assets available for distribution to the Class A
Preferred Stock holders after distributions to the holders of the Class C
Preferred Stock pursuant to Section 8.3.
6.3.2. In the event of any Liquidation, after payment of
the Class A Liquidation Preference and the Class B Liquidation Preference
(hereinafter defined), the holders of the Class A Preferred Stock shall be
entitled to receive pari passu with the amounts payable to holders of Class B
Preferred Stock pursuant to Section 7.3.2, an amount equal to all accrued and
unpaid dividends, if any, to the date of payment owing on the Class A Preferred
Stock other than accrued and unpaid dividends that would be owing thereon if all
dividends accrued on the Class A Preferred Stock at the rate of eight percent
(8%) per annum (the "Class A Excess Dividend Amount").
6.3.3. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class A Preferred Stock of the
amounts described in Section 6.3.1 and Section 6.3.2, the holders of shares of
Class A Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation.
6.3.4. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation (or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
6.4. Voting Rights with Respect to Class A Preferred Stock.
The Class A Preferred Stock shall have the right to vote on all matters as to
which holders of the Common Stock shall be entitled to vote (at the rate of one
vote per share), in the same manner and with the same effect as such holders of
the Common Stock, voting together with the holders of Common Stock and Class
-4-
<PAGE> 5
B Preferred Stock as one voting group. Without first obtaining the approval (by
vote or written consent) of at least seventy-five percent (75%) of the
outstanding shares of the Class A Preferred Stock as a separate class, the
Corporation shall not,
6.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class A Preferred Stock or (B) in any manner adversely affects the holders of
the Class A Preferred Stock, or (y) any additional shares of capital stock or
any class or series of any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having optional rights to purchase, any
shares of capital stock having any priority over or parity with or otherwise
adversely affecting the holders of the Class A Preferred Stock;
6.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class A Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class A Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
or Class A Preferred Stock Stated Value of the shares of the Class A Preferred
Stock; or
6.4.3. reclassify the shares of any (a) Common Stock, (b)
class or series of the Corporation's capital stock authorized, created or
designated after the Effective Time or (c) Class B Preferred Stock into shares
of any class or series of capital stock (A) ranking, either as to payment of
dividends, distribution of assets or redemption, prior to or on a parity with
the Class A Preferred Stock or (B) which in any manner adversely affects the
holders of the Class A Preferred Stock.
6.5. Redemptions with Respect to Class A Preferred Stock.
6.5.1. At any time and from time to time after (or
simultaneously with) the completion of the redemption of all of the outstanding
Class C Preferred Stock pursuant to Section 8.5 and after the earlier to occur
of (i) the closing of a Liquidity Event or (ii) June 12, 2004 (the earlier of
such dates being herein the "Redemption Allowance Date"), at the option of the
Corporation and upon the Corporation's delivery of thirty (30) days prior
written notice of such a redemption to be effected on or after the Redemption
Allowance Date, the Corporation may redeem all or any portion of the Class A
Preferred Stock then outstanding; provided, however, that (x) any redemption of
less than all of the shares of Class A Preferred Stock shall be divided ratably
and equally among the then extant holders of Class A Preferred Stock and (y) no
shares of Class A Preferred Stock shall be redeemed pursuant to this Section
6.5.1 unless a pro rata number (based on aggregate stated values) of Class B
Preferred shares shall be redeemed pursuant to Section 7.5.1. For each share of
Class A Preferred Stock which is to be redeemed by the Corporation at any time
in a redemption pursuant to this Section 6.5.1, the Corporation shall be
obligated to pay to the holder thereof (upon surrender by such holder at the
Corporation's principal office of the certificate representing such share duly
endorsed in blank or accompanied by an appropriate form of assignment) an amount
for such share equal to Class A Preferred Stock Stated Value plus all accrued
-5-
<PAGE> 6
and unpaid dividends with respect to such share to the date of payment (the
"Class A Preferred Stock Redemption Price").
6.5.2. After (or simultaneously with) the completion of
the redemption of all of the outstanding Class C Preferred Stock pursuant to
Section 8.5, at any time and from time to time after June 12, 2004, at the
option of a holder of the Class A Preferred Stock and upon thirty (30) days
prior delivery of written notice by the holder to the Corporation of redemption
to be effected on or after such date, such holder may require the Corporation to
redeem all or any portion of the Class A Preferred Stock held by such holder.
For each share of Class A Preferred Stock which is to be redeemed by the
Corporation at any time in a redemption pursuant to this Section 6.5.2, the
Corporation shall be obligated to pay to the holder thereof (upon surrender by
such holder at the Corporation's principal office of the certificate
representing such share duly endorsed in blank or accompanied by an appropriate
form of assignment) an amount for such share equal to the Class A Preferred
Stock Redemption Price.
6.5.3. If the funds of the Corporation legally available
for redemption pursuant to Section 6.5.2 and Section 7.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to Section 6.5.2 and Section 7.5.2, those funds which are available will be used
to redeem the maximum possible number of shares (or fraction thereof) and such
funds shall be distributed ratably among each of the holders of the Class A
Preferred Stock and Class B Preferred Stock, in proportion to the amount that
would have been distributed to each such holder if the funds of the Corporation
would have been sufficient to permit payment of the full amount required to be
paid in respect of such redemption. At any time, and from time to time
thereafter, until all shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation shall be obligated to redeem are so redeemed, when
additional funds of the Corporation are legally available for the redemption of
any of the shares of Class A Preferred Stock and Class B Preferred Stock
(including fractional shares), such funds shall be used immediately to redeem
shares (or fractions thereof) which the Corporation has become obligated to
redeem but which it has not redeemed, such amount to be applied ratably among
each of the holders of shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation is then obligated to redeem in proportion to the
number of shares of Class A Preferred Stock and Class B Preferred Stock which
are held by them and which the Corporation shall then be obligated to redeem.
Notwithstanding the foregoing, in connection with any Liquidation, any
redemption payments owing to holders of Class A Preferred Stock shall be paid in
full (up to the Class A Liquidation Preference) before payments shall be made to
holders of Class B Preferred Stock pursuant to Section 7.5.
6.5.4. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class A Preferred Stock which are the subject of such written notice of
redemption shall continue as if the written notice of redemption had not been
given until the Class A Preferred Stock Redemption Price therefor is paid (such
payment being a continuing obligation of the Corporation).
-6-
<PAGE> 7
6.5.5. Upon payment of the Class A Preferred Stock
Redemption Price by the Corporation with respect to shares of Class A Preferred
Stock being redeemed pursuant to this Section 6.5, such shares of Class A
Preferred Stock shall no longer be deemed to be outstanding, shall be canceled
and shall not be subject to reissuance by the Corporation.
6.6. Conversion Rights. Upon the occurrence of the closing of
a Qualified Public Offering, provided that, prior to such closing: (a) at least
thirty (30) days prior to the date which the Board of Directors estimates in
good faith to be the likely effective date of the registration of a Qualified
Public Offering (the "Anticipated Effective Date"), the Board of Directors shall
have provided to all of the holders of Class A Preferred Stock and Class B
Preferred Stock notice of an anticipated Qualified Public Offering, which notice
shall include the Anticipated Effective Date and the anticipated offering price
per share of Common Stock at which the Common Stock will be first offered to the
public in the Qualified Public Offering and (b) at least twenty (20) days prior
to the Anticipated Effective Date, the holders of the Class A Preferred Stock
and holders of Class B Preferred Stock, together representing at least sixty
percent (60%) of the aggregate outstanding shares of Class A Preferred Stock and
Class B Preferred Stock shall have elected to convert all of the issued and
outstanding shares of Class A Preferred Stock and Class B Preferred Stock (other
than those shares being redeemed pursuant to Section 6.5.1 and Section 7.5.1,
respectively) into shares of Common Stock, then in such event (an "Event of
Conversion") each and every share of Class A Preferred Stock then outstanding
(other than those shares being redeemed pursuant to Section 6.5.1), by virtue
of, and simultaneously with the occurrence of the Event of Conversion and
without any additional action on the part of the holder thereof, be deemed
automatically converted into such number of fully paid and nonassessable shares
of Common Stock as is equal to the quotient obtained by dividing (x) the Class A
Preferred Stock Stated Value by (y) the Conversion Price (as hereinafter
defined). The "Conversion Price" shall be the offering price per share at which
the Common Stock of the Corporation is first offered to the public in the
Qualified Public Offering.
6.6.1. The holder of any shares of Class A Preferred
Stock converted into shares of Common Stock pursuant to Section 6.6 shall remain
entitled to payment of all accrued but unpaid dividends, if any, payable with
respect to such shares of Class A Preferred Stock up to and including the date
upon which the Qualified Public Offering is closed (the "Conversion Date").
6.6.2. Conversion shall be deemed to have been effected
with respect to conversion under Section 6.6 on the Conversion Date.
Simultaneous with the conversion being effected, the shares of Class A Preferred
Stock so converted shall no longer be deemed outstanding, shall be canceled and
shall not be subject to reissuance by the Corporation. As promptly as
practicable thereafter, the Corporation shall issue and deliver to the record
locations of each of the holders (or upon the written order of a holder, at the
place designated by such holder), a certificate or certificates for the number
of full shares of Common Stock to which each respective holder is entitled and a
check or cash in respect of any fractional interest in a share of Common Stock,
as provided in Section 6.6.3, payable with respect to the shares of Class A
Preferred Stock so converted. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the Conversion Date unless the transfer books
-7-
<PAGE> 8
of the Corporation are closed on that date, in which event such holder shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open.
6.6.3. No fractional shares of Common Stock shall be
issued upon conversion of shares of Class A Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Class A Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
Conversion Price of a share of Class A Preferred Stock multiplied by such
fractional interest. Holders of fractional interests shall not be entitled to
dividends in respect of such fractional interests and the holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
6.6.4. The Corporation shall pay all documentary, stamp
or other transaction taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Class A Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Class A Preferred Stock in respect of which such shares are being
issued.
6.6.5. The holders of the Class A Preferred Stock and the
holders of the Class B Preferred Stock, by vote of sixty percent (60%) of the
aggregate outstanding shares of Class A Preferred Stock and Class B Preferred
Stock, voting together as a single voting group, shall have the right to amend
the Corporation's Charter for the sole purpose of authorizing sufficient
additional shares of Common Stock to effect the conversions under this Section
6.6 and Section 7.6. The additional shares, when so authorized, shall be
reserved by the Corporation for the purpose of effecting such conversions and
shall be free of preemptive rights.
6.6.6. All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
7. Class B Preferred Stock. The express terms and conditions of
the shares classified and designated as Class B Preferred Stock, no par value,
of the Corporation are as follows:
7.1. Designation and Number of Shares of Class B Preferred
Stock. The designation of the series of Preferred Stock set forth in this
Section 7 is Class B Preferred Stock and the number of shares of such series is
31,600 shares having a stated value per share equal to $13.58859 (the "Class B
Preferred Stock Stated Value"). The Class B Preferred Stock shall rank pari
passu with the Class A Preferred Stock (except as provided in Section 6.3 and
Section 7.3 hereof) and senior to all other shares of the capital stock of the
Corporation except the Class C Preferred Stock.
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7.2. Dividends with respect to Class B Preferred Stock.
7.2.1. In each year, the holder of each share of Class B
Preferred Stock shall be entitled to receive preferential, cumulative dividends
in cash, which dividends shall be cumulative and shall accrue from the date upon
which the Class B Preferred Stock was issued, in an amount equal to eight
percent (8%) of the Class B Preferred Stock Stated Value per share per year,
provided, however, that upon the later to occur of (i) the consummation of a
Liquidity Event, (ii) June 12, 1999 or (iii) the full payment and discharge of
the senior subordinated indebtedness of the Corporation and the Affiliated
Corporations (in the initial principal amount of Twenty Million Dollars
($20,000,000)), dividends shall accrue in an amount equal to ten percent (10%)
per annum of the Class B Preferred Stock Stated Value. Dividends shall accrue
daily whether or not declared and whether or not funds are legally available
therefor. If such dividends are not paid within ninety (90) days after the end
of each of the Corporation's fiscal quarters, such dividends shall accrue
additional dividends from the last day of such fiscal quarter at the same rate
per annum. Dividends shall be paid only to the extent that (i) there shall be
sufficient funds of the Corporation legally available for the payment of such
dividends, (ii) the payment of such dividend would not violate any covenants of
the Corporation to any lender to the Corporation or its subsidiaries and (iii)
the payment of such dividend would not violate the terms of any management or
shareholder agreement to which the Corporation is party.
7.2.2. If, in any dividend period or periods, full
dividends (whether past or current) upon the outstanding Class B Preferred Stock
at the dividend rate set forth herein shall not have been paid, then, unless and
until all dividends accrued and unpaid on the Class B Preferred Stock through
the payment date for such dividends are declared and paid on each share of Class
B Preferred Stock, no dividends shall be declared or paid or set apart for
payment upon any Common Stock or class or series of the Corporation's capital
stock authorized, created or designated after June 12, 1996 nor shall the
Corporation purchase, redeem or otherwise acquire for consideration any such
stock. If, at any time, the Corporation shall pay less than the total amount of
dividends then payable on the then outstanding Class B Preferred Stock, the
aggregate payment to all holders of Class B Preferred Stock shall be distributed
among all such holders so that an amount ratably in proportion to the respective
dividends due thereon shall be paid with respect to each outstanding share of
Class B Preferred Stock.
7.2.3. Holders of the Class B Preferred Stock shall not,
solely as a result of such holders' ownership of such Class B Preferred Stock,
be entitled to participate in any dividends or other distributions (cash, stock
or otherwise) declared or paid on or with respect to any other class of stock or
equity security of the Corporation or any series of any such class.
7.2.4. No dividend shall be paid upon shares of Class B
Preferred Stock unless like dividends are simultaneously paid on shares of Class
A Preferred Stock.
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7.3. Liquidation Preference with Respect to Class B Preferred
Stock.
7.3.1. In the event of a Liquidation, after any
distribution of any of the assets of the Corporation to holders of Class C
Preferred Stock pursuant to Section 8.3, the holders of Class B Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available for distributions to its stockholders, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any
Common Stock or class or series of the Corporation's capital stock authorized,
created or designated after June 12, 1996, and after payments of the Class A
Liquidation Preference to holders of Class A Preferred Stock under Section 6.3
hereof, an amount per share equal to the sum of the Class B Preferred Stock
Stated Value plus all accrued and unpaid dividends, if any, to the date of
payment, less the Class B Excess Dividend Amount (hereinafter defined) (the
"Class B Liquidation Preference") for each share of Class B Preferred Stock
held. If upon any Liquidation the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders of
shares of Class B Preferred Stock. the full amount of the Class B Liquidation
Preference the holders of shares of Class B Preferred Stock shall share ratably
in any distribution of assets available for distribution to the Class B
Preferred Stock holders after distributions to the holders of the Class C
Preferred Stock pursuant to Section 8.3 and distribution of the Class A
Liquidation Preference to the holders of the Class A Preferred Stock pursuant to
Section 6.3.
7.3.2. In the event of any Liquidation, after payment of
the Class A Liquidation Preference and the Class B Liquidation Preference, the
holders of the Class B Preferred Stock shall be entitled to receive, pari passu
with the amounts payable to holders of Class A Preferred Stock pursuant to
Section 6.3.2, an amount equal to all accrued and unpaid dividends, if any, to
the date of payment owing on the Class B Preferred Stock other than accrued and
unpaid dividends that would be owing thereon if all dividends accrued on the
Class B Preferred Stock at the rate of eight percent (8%) per annum (the "Class
B Excess Dividend Amount").
7.3.3. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class B Preferred Stock of the
amounts described in Section 7.3.1 or Section 7.3.2, the holders of shares of
Class B Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation.
7.3.4. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
7.4. Voting Rights with Respect to Class B Preferred Stock.
The Class B Preferred Stock shall have the right to vote on all matters as to
which holders of the Common Stock shall be entitled to vote (at the rate of one
vote per share), in the same manner and with the same effect as such holders of
the Common Stock, voting together with the holders of Common Stock and Class A
Preferred Stock as one voting group. Without first obtaining the approval (by
vote or written
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consent) of at least seventy-five percent (75%) of the outstanding shares of the
Class B Preferred Stock as a separate class, the Corporation shall not,
7.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class B Preferred Stock or (B) in any manner adversely affects the holders of
the Class B Preferred Stock, or (y) any additional shares of Class A Preferred
Stock, Class C Preferred Stock or any shares of any class or series of any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having optional rights to purchase, any shares having any such priority
or parity with or so adversely affecting the holders of the Class B Preferred
Stock;
7.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class B Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class B Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
or Class B Preferred Stock Stated Value of the shares of the Class B Preferred
Stock; or
7.4.3. reclassify the shares of any (a) Common Stock, (b)
class or series of the Corporation's capital stock authorized, created or
designated after June 12, 1996 or (c) Class A Preferred Stock into shares of any
class or series of capital stock (A) ranking, either as to payment of dividends,
distribution of assets or redemption, prior to or on a parity with the Class B
Preferred Stock or (B) which in any manner adversely affects the holders of the
Class B Preferred Stock.
7.5. Redemptions with Respect to Class B Preferred Stock.
7.5.1. At any time and from time to time after (or
simultaneously with) the completion of the redemption of all of the outstanding
Class C Preferred Stock pursuant to Section 8.5 and after the Redemption
Allowance Date, at the option of the Corporation and upon the Corporation's
delivery of thirty (30) days prior written notice of such a redemption to be
effected on or after the Redemption Allowance Date, the Corporation may redeem
all or any portion of the Class B Preferred Stock then outstanding; provided,
however, that (x) any redemption of less than all of the shares of Class B
Preferred Stock shall be divided ratably and equally among the then extant
holders of Class B Preferred Stock and (y) no shares of Class B Preferred Stock
shall be redeemed pursuant to this Section 7.5.1 unless a pro rata number (based
on aggregate stated values) of Class A Preferred Stock shall be redeemed
pursuant to Section 6.5.1. For each share of Class B Preferred Stock which is to
be redeemed by the Corporation at any time in a redemption pursuant to this
Section 7.5.1, the Corporation shall be obligated to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal office of the
certificate representing such share duly endorsed in blank or accompanied by an
appropriate form of assignment) an amount for such share equal to the Class B
Preferred Stock Stated Value plus all accrued and unpaid dividends with respect
to such share to the date of payment (the "Class B Preferred Stock Redemption
Price").
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7.5.2. After (or simultaneously with) the completion of
the redemption of all of the outstanding Class C Preferred Stock pursuant to
Section 8.5, at any time and from time to time after June 12, 2004, at the
option of a holder of the Class B Preferred Stock and upon thirty (30) days
prior delivery of a written notice by the holder to the Corporation of
redemption to be effected on or after such date, such holder may require the
Corporation to redeem all or any portion of the Class B Preferred Stock held by
such holder. For each share of Class B Preferred Stock which is to be redeemed
by the Corporation at any time in a redemption pursuant, to this Section 7.5.2,
the Corporation shall be obligated to pay to the holder thereof (upon surrender
by such holder at the Corporation's principal office of the certificate
representing such share duly endorsed in blank or accompanied by an appropriate
form of assignment) an amount for such share equal to the Class B Preferred
Stock Redemption Price.
7.5.3. If the funds of the Corporation legally available
for redemption pursuant to Section 7.5.2 and Section 6.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to this Section 7.5.2 and Section 6.5.2, those funds which are available will be
used to redeem the maximum possible number of shares (or fraction thereof) and
such funds shall be distributed ratably among each of the holders of the Class A
Preferred Stock and Class B Preferred Stock in proportion to the amount that
would have been distributed to each such holder if the funds of the Corporation
would have been sufficient to permit payment of the full amount required to be
paid in respect of such redemption. At any time, and from time to the
thereafter, until all shares the Corporation shall be obligated to redeem are so
redeemed, when additional funds of the Corporation are legally available for the
redemption of any of the shares of Class A Preferred Stock and Class B Preferred
Stock (including fractional shares), such funds shall be used immediately to
redeem shares (or fractions thereof), which the Corporation has become obligated
to redeem but which it has not redeemed, such amount to be applied ratably among
each of the holders of shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation is then obligated to redeem in proportion to the
number of shares of Class A Preferred Stock and Class B Preferred Stock which
are held by them and which the Corporation shall then be obligated to redeem.
Notwithstanding the foregoing, in connection with any Liquidation, any
redemption payments owing to holders of Class A Preferred Stock shall be paid in
full (up to the Class A Liquidation Preference) before payments shall be made to
holders of Class B Preferred Stock pursuant to this Section 7.5.
7.5.4. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class B Preferred Stock which are the subject of such written notice of
redemption shall continue as if the written notice of redemption had not been
given until the Class B Preferred Stock Redemption Price therefor is paid (such
payment being a continuing obligation of the Corporation).
7.5.5. Upon payment of the Class B Preferred Stock
Redemption Price by the Corporation with respect to shares of Class B Preferred
Stock being redeemed pursuant to this
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Section 7.5, such shares of Class B Preferred Stock shall no longer be deemed to
be outstanding, shall be canceled and shall not be subject to reissuance by the
Corporation.
7.6. Conversion Rights. Upon the occurrence of an Event of
Conversion, each and every share of Class B Preferred Stock then outstanding
(other than those shares being redeemed pursuant to Section 7.5.1), by virtue
of, and simultaneously with the occurrence of the Event of Conversion and
without any additional action on the part of the holder thereof, be deemed
automatically converted into such number of fully paid and nonassessable shares
of Common Stock as is equal to the quotient obtained by dividing (x) the Class B
Preferred Stock Stated Value by (y) the Conversion Price.
7.6.1. The holder of any shares of Class B Preferred
Stock converted into shares of Common Stock pursuant to Section 7.6 shall remain
entitled to payment of all accrued but unpaid dividends, if any, payable with
respect to such shares of Class B Preferred Stock up to and including the
Conversion Date.
7.6.2. Conversion shall be deemed to have been effected
with respect to conversion under Section 7.6 on the Conversion Date.
Simultaneous with the conversion being effected, the shares of Class B Preferred
Stock so converted shall no longer be deemed outstanding, shall be canceled and
shall not be subject to reissuance by the Corporation. As promptly as
practicable thereafter, the Corporation shall issue and deliver to the record
locations of each of the holders (or upon the written order of a holder, at the
place designated by such holder), a certificate or certificates for the number
of full shares of Common Stock to which each respective holder is entitled and a
check or cash in respect of any fractional interest in a share of Common Stock,
as provided in Section 7.6.3, payable with respect to the shares of Class B
Preferred Stock so converted. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder shall be deemed
to have become a stockholder of record on the next succeeding date on which the
transfer books are open.
7.6.3. No fractional shares of Common Stock shall be
issued upon conversion of shares of Class B Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Class B Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
Conversion Price of a share of Class B Preferred Stock multiplied by such
fractional interest. Holders of fractional interests shall not be entitled to
dividends in respect of such fractional interests, and the holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
7.6.4. The Corporation shall pay all documentary, stamp
or other transaction taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Class B Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery
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of any certificate for such shares in a name other than that of the holder of
the shares of Class B Preferred Stock in respect of which such shares are being
issued.
7.6.5. The holders of the Class A Preferred Stock and the
holders of the Class B Preferred Stock, by vote of sixty percent (60%) of the
aggregate outstanding shares of Class A Preferred Stock and Class B Preferred
Stock, voting together as a single voting group, shall have the right to amend
the Corporation's Charter for the sole purpose of authorizing sufficient
additional shares of Common Stock to effect the conversions under this Section
7.6 and Section 6.6. The additional shares, when so authorized, shall be
reserved by the Corporation for the purpose of effecting such conversions and
shall be free of preemptive rights.
7.6.6. All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
8. Class C Preferred Stock. The express terms and conditions of
the shares classified and designated as Class C Preferred Stock, no par value,
of the Corporation are as follows:
8.1. Designation and Number Preferred Stock. The designation
of the series of preferred stock in this Section 8 is Class C Preferred Stock
(hereinafter called "Class C Preferred Stock") and the number of shares of such
series is 20,000 shares having a stated value per share equal to $30.63556 (the
"Class C Preferred Stock Stated Value"). The Class C Preferred Stock shall rank
senior to all other shares of the capital stock of the Corporation.
8.2. Dividends with Respect Class C Preferred Stored Stock.
Except as provided herein, the holders of shares of Class C Preferred Stock
shall not be entitled to receive dividends with respect to their shares of Class
C Preferred Stock nor shall they be entitled to participate in any dividends
(cash, stock or otherwise) declared or paid on or with respect to any other
class of stock or equity security of the Corporation or any series of any such
class solely as a result of their ownership of such Class C Preferred Stock.
8.3. Liquidation Preference with Respect to Class C Preferred
Stock.
8.3.1. In the event of any Liquidation, the holders of
Class C Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distributions to its stockholders, prior and
in preference to any distribution of any of the assets of the Corporation to the
holders of any other class of stock or equity security of the Corporation or any
series of any such class, an amount per share equal to the sum of the Class C
Preferred Stock Stated Value plus all accrued and unpaid dividends, if any, to
the date of payment (the "Class C Liquidation Preference") for each share of
Class C Preferred Stock held. If upon any Liquidation the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Class C Preferred Stock the full amount of the
Class C Liquidation Preference, the
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holders of shares of Class C Preferred Stock shall share ratably in any
distribution of assets available for distribution to the Class C Preferred Stock
holders.
8.3.2. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class C Preferred Stock of the
amounts described in Section 8.3.1, the holders of shares of Class C Preferred
Stock shall be entitled to no further participation in the distribution of the
assets of the Corporation.
8.3.3. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
8.4. Voting Rights with Respect to Class C Preferred Stock.
The Class C Preferred shall not have any voting rights except as set forth in
this Section 8.4. Without first obtaining the approval (by vote or written
consent) of at least seventy-five percent (75%) of the outstanding shares of the
Class C Preferred Stock as a separate class, the Corporation shall not,
8.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class C Preferred Stock or (B) in any manner adversely affects the holders of
the Class C Preferred Stock, or (y) any shares of any class or series of any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having optional rights to purchase, any shares having any such priority
or parity with or so adversely affecting the holders of the Class C Preferred
Stock;
8.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class C Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class C Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
of the shares of the Class C Preferred Stock; or
8.4.3. reclassify any shares of capital stock of the
Corporation into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distribution of assets or redemption, prior
to or on a parity with the Class C Preferred Stock or (B) which in any manner
adversely affects the holders of the Class C Preferred Stock.
8.5. Redemption with Respect to Class C Preferred Stock.
8.5.1. At any time and from time to time after the
Effective Time, at the option of the Corporation and upon the Corporation's
delivery of thirty (30) days prior written notice, the Corporation may redeem
all or any portion of the Class C Preferred Stock then outstanding;
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provided, however, that any redemption of less than all of the shares of Class C
Preferred Stock shall be divided ratably and equally among the then extant
holders of Class C Preferred Stock.
8.5.2. The Class C Preferred Stock shall be mandatorily
redeemable in whole upon the Redemption Allowance Date (the "Class C Redemption
Event"). In the event that the Corporation is prevented from redeeming the Class
C Preferred Stock when required in accordance with the foregoing sentence,
whether by contract or law, dividends will accrue and cumulate thereon at an
annual rate of nine percent (9%) from the date payment is due as a result of
such Class C Redemption Event pursuant to Section 8.5.3, until the redemption
occurs.
8.5.3. For each share of Class C Preferred Stock which is
to be redeemed by the Corporation at any time in a redemption pursuant to this
Section 8.5, the Corporation shall be obligated to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal office of the
certificate representing such share duly endorsed in blank or accompanied by an
appropriate form of assignment) an amount for such share equal to the Class C
Preferred Stock Stated Value plus all accrued and unpaid dividends, if any, with
respect to such share to the date of payment (the "Class C Preferred Stock
Redemption Price"), on (i) in the case of a redemption at the option of the
Corporation, the last day of any fiscal quarter if, during the quarter then
ending, a written notice of redemption shall have been delivered by the
Corporation to the holder more than thirty (30) days prior to such last day or
thirty (30) or fewer days prior to the end of the immediately preceding fiscal
quarter, or (ii) for purposes of the mandatory redemption described in Section
8.5.2, the earlier to occur of (A) a date set by the Corporation in the
redemption notice which is within thirty (30) days after June 12, 2004 or (B)
upon the closing of a Liquidity Event.
8.5.4. If the funds of the Corporation legally available
for redemption pursuant to Section 8.5.1 or Section 8.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to Section 8.5.1 or Section 8.5.2, those funds which are available will be used
to redeem the maximum possible number of shares (or fraction thereof) and such
funds shall be distributed ratably among each of the holders of the Class C
Preferred Stock in proportion to the amount that would have been distributed to
each such holder if the funds of the Corporation would have been sufficient to
permit payment of the full amount required to be paid in respect of such
redemption. At any time, and from time to time there after, until all shares of
Class C Preferred Stock which the Corporation shall be obligated to redeem are
so redeemed, when additional funds of the Corporation are legally available for
the redemption of any of the shares of Class C Preferred Stock (including
fractional shares), such funds shall be used immediately to redeem shares (or
fractions thereof) which the Corporation has become obligated to redeem but
which it has not redeemed, such amount to be applied ratably among each of the
holders of shares of Class C Preferred Stock which the Corporation is the
obligated to redeem in proportion to the number of shares of Class C Preferred
Stock which are held by them and which the Corporation shall be obligated to
redeem.
8.5.5. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class C Preferred Stock which are the
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subject of such written notice of redemption shall continue as if the written
notice of redemption had not been given until the Class C Preferred Stock
Redemption Price therefor is paid (it being understood that such payment shall
be a continuing obligation of the Corporation).
8.5.6. Once the Class C Preferred Stock Redemption Price
has been paid by the Corporation with respect to shares of Class C Preferred
Stock being redeemed pursuant to this Section 8.5, such shares of Class C
Preferred Stock shall no longer be deemed to be outstanding, shall be canceled
and shall not be subject to reissuance by the Corporation.
9. Limitation of Liability. Directors of the Corporation shall
have no liability to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that this Section 9 shall
not eliminate liability of a director for (i) any breach of the director's duty
of loyalty to the Corporation or its shareholders; (ii) acts or omissions that
are not in good faith or that involve intentional misconduct or a knowing
violation of law; or (iii) unlawful distributions under Section 48-18-304 of the
Tennessee Business Corporation Act. If the Tennessee Business Corporation Act is
amended or other Tennessee law is enacted to permit further elimination or
limitation of the personal liability of directors, then the liability of
directors of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Tennessee Business Corporation Act, as so amended, or by
such other Tennessee law, as so enacted. Any repeal or modification of this
Section 9 or subsequent amendment of the Tennessee Business Corporation Act or
enactment of other applicable Tennessee law shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal, modification, amendment or enactment.
10. Adoption. This amended and restated charter was adopted by
unanimous written consent of the Board of Directors and Shareholders of the
Corporation dated March , 1998. This charter replaces and supersedes the
original charter of the Corporation filed with the Tennessee Secretary of State
and all amendments thereto.
11. Corporation for Profit. The Corporation is for profit.
Dated: April 22, 1998.
KIRKLAND'S, INC.
By: /s/ Carl Kirkland
---------------------------
Title: Chief Executive Officer
-------------------------
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EXHIBIT 3.2
AMENDED AND RESTATED CHARTER
OF
KIRKLAND'S, INC.
This Amended and Restated Charter of Kirkland's, Inc., (the
"Corporation") shall be effective as of 12:01 A.M. on ____________, 1998 (the
"Effective Time"). The undersigned corporation hereby adopts the following
amended and restated charter pursuant to Section 48-20-107 of the Tennessee
Business Corporation Act:
1. Name. The name of the Corporation is Kirkland's, Inc.
2. Registered Office and Agent. The Corporation's registered
office is located at 805 North Parkway, Jackson, Madison County, Tennessee
38305. The Corporation's registered agent at that office is Robert E. Alderson.
3. Principal Office. The principal office of the Corporation is
located at 805 North Parkway, Jackson, Madison County, Tennessee 38305.
4. Authorized Shares. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is Sixty Million
One Hundred Twenty Thousand (60,120,000), of which Fifty Million (50,000,000)
shares shall constitute a separate class of shares known as Common Stock, which
shall be without par value (the "Common Stock"), and the remaining Ten Million
One Hundred Twenty Thousand (10,120,000) shares shall constitute a single class
of shares known as Preferred Stock (the "Preferred Stock"). Of the Preferred
Stock, (i) Sixty-Eight Thousand Four Hundred (68,400) shares shall be designated
as a series referred to as Class A Preferred Stock, which shall be without par
value (the "Class A Preferred Stock"), (ii) Thirty-One Thousand Six Hundred
(31,600) shares shall be designated as a series referred to as Class B Preferred
Stock, which shall be without par value (the "Class B Preferred Stock"), and
(iii) Twenty Thousand (20,000) shares shall be designated as a series of
Preferred Stock referred to as Class C Preferred Stock, which shall be without
par value (the "Class C Preferred Stock").
5. Common Stock. The express terms and conditions of the shares
classified and designated as Common Stock are as follows:
5.1. Voting Rights of Common Stock. Each share of Common Stock
shall entitle the holder thereof to one vote, in person or by proxy, upon each
question or matter submitted generally to the holders of the Common Stock of the
Corporation and shall have all voting rights accorded to holders of Common Stock
pursuant to the Tennessee Business Corporation Act.
5.2. Liquidation. On dissolution, liquidation or winding up of
the Corporation, voluntarily or involuntarily (a "Liquidation"), and after
payment to the holders of shares of Preferred Stock as provided below, the
remaining assets and funds of the Corporation, if any, shall be
<PAGE> 2
distributed and paid over to the holders of Common Stock, pro rata according to
their respective shares.
6. Preferred Stock. The Board of Directors of the Corporation is
authorized to amend this Charter, by adoption of amendments to the Charter
effective without shareholder approval (hereinafter referred to as a "Preferred
Stock Designation"), to provide for the issuance of serial preferred stock in
series and to fix the preferences, limitations and relative rights of each such
series, including, but not limited to, determination of any of the following:
(a) the distinctive designation for each series and the
number of shares constituting such series;
(b) the voting rights, full, conditional or limited, of
shares of such series;
(c) whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the
terms and conditions upon which, such shares may be
redeemed;
(d) the dividend rate or the amount of dividends to be
paid on the shares of such series, whether dividends
shall be cumulative and, if so, from which date(s),
the payment date(s) for dividends, and the
participating or other special rights, if any, with
respect to dividends;
(e) the amount(s) payable upon the shares of such series
in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(f) whether the shares of such series shall be entitled
to the benefit of a sinking or retirement fund to be
applied to the purchase or redemption of such shares,
and if so entitled, the amount of such fund and the
manner of its application, including the price(s) at
which such shares may be redeemed or purchased
through the application of such fund;
(g) whether the shares of such series shall be
convertible into, or exchangeable for, shares of any
other class or classes or of any other series of the
same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable,
the conversion price(s) or the rate(s) of exchange,
and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) the price or other consideration for which the shares
of such series shall be issued;
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<PAGE> 3
(i) whether the shares of such series that are redeemed
or converted shall have the status of authorized but
unissued shares of serial preferred stock and whether
such shares may be reissued as shares of the same or
any other series of serial preferred stock; and
(j) any other designations, preferences, limitations or
rights that are now or hereafter permitted by
applicable law and are not inconsistent with the
provisions of this Charter.
Except as may be provided in this Charter or in a Preferred Stock Designation,
the Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, and holders of Preferred Stock shall not
be entitled to receive notice of any meeting of shareholders at which they are
not entitled to vote.
7. Class A Preferred Stock. The express terms and conditions of
the shares classified and designated as Class A Preferred Stock, no par value,
of the Corporation (the "Class A Preferred Stock") are as follows:
7.1. Designation and Number of Shares of Class A Preferred
Stock. The designation of the series of preferred stock in this Section 7 is
Class A Preferred Stock and the number of shares of such series is 68,400 shares
having a stated value per share equal to $13.58859 (the "Class A Preferred Stock
Stated Value"). The Class A Preferred Stock shall rank pari passu with the Class
B Preferred Stock (except as provided in Section 7.3 and Section 8.3) and senior
to all other shares of capital stock of the Corporation except the Class C
Preferred Stock.
7.2. Dividends with Respect to Class A Preferred Stock.
7.2.1. In each year, the holder of each share of Class A
Preferred Stock shall be entitled to receive preferential, cumulative dividends
in cash, which dividends shall be cumulative and shall accrue from the date upon
which the Class A Preferred Stock was issued, in an amount equal to eight
percent (8%) of the Class A Preferred Stock Stated Value per share per year,
provided, however, that upon the later to occur of (i) the consummation of any
of the following:
(A) a sale of all or a majority in value of the
assets of the Corporation and all corporations, which, directly or indirectly,
are controlled by or under common control with any one or more of Kirkland
Holdings, L.L.C., Carl Kirkland, Robert Kirkland or Robert Alderson (the
"Affiliated Corporations"). The term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), shall mean
the possession, directly or indirectly, of the power to elect a majority of the
Board of Directors or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise;
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<PAGE> 4
(B) the acquisition of more than fifty percent
(50%) of the outstanding shares of Common Stock of corporations representing a
majority of the total value of the Corporation and the Affiliated Corporations
as a group, by a person or group of persons acting in concert, who are not
shareholders of the Corporation at March , 1998, other than transfers to an
Affiliate or to a Permitted Transferee (as such terms are defined in the
Shareholders Agreement dated as of June 12, 1996, between the Corporation, the
Affiliated Corporations and the shareholders thereof) if such transfers are
permitted without restriction pursuant to the terms of the Shareholders
Agreement;
(C) a sale of shares of the common capital stock
of the Corporation or the Affiliated Corporations (or of a successor thereto) in
a registered underwritten public offering resulting in gross proceeds to the
Corporation or one or more Affiliated Corporations (or successors) of at least
Thirty Million Dollars ($30,000,000) in the aggregate (a "Qualified Public
Offering"); or
(D) a refinancing of the indebtedness of the
Corporation or the Affiliated Corporations for borrowed money existing as of
March , 1998, in connection with which the Corporation or Affiliated
Corporations repurchase or redeem any capital stock for value (each of the
events listed in subparagraphs (A) through (D) above is referred to herein as a
"Liquidity Event"),
(ii) June 12, 1999 or (iii) the full payment and discharge of the senior
subordinated indebtedness of the Corporation and the Affiliated Corporations (in
the initial principal amount of Twenty Million Dollars ($20,000,000)), dividends
shall accrue in an amount equal to ten (10%) per annum of the Class A Preferred
Stock Stated Value. Dividends shall accrue daily whether or not declared and
whether or not funds are legally available therefor. If such dividends are not
paid within ninety (90) days after the end of the Corporation's fiscal quarter,
such dividends shall accrue additional dividends from the last day of such
fiscal quarter at the same rate per annum. Dividends shall be paid only to the
extent that (i) there shall be sufficient funds of the Corporation legally
available for the payment of such dividends, (ii) the payment of such dividend
would not violate any covenants of the Corporation to any lender to the
Corporation or its subsidiaries and (iii) the payment of such dividend would not
violate the terms of any management or shareholder agreement to which the
Corporation is party.
7.2.2. If, in any dividend period or periods, full
dividends (whether past or current) upon the outstanding Class A Preferred Stock
at the dividend rate set forth herein shall not have been paid, then, unless and
until all dividends accrued and unpaid on the Class A Preferred Stock through
the payment date for such dividends are declared and paid on each share of Class
A Preferred Stock, no dividends shall be declared or paid or set apart for
payment upon any Common Stock or class or series of the Corporation's capital
stock authorized, created or designated after June 12, 1996 nor shall the
Corporation purchase, redeem or otherwise acquire for consideration any such
stock. If, at any time, the Corporation shall pay less than the total amount of
dividends then payable on the then outstanding Class A Preferred Stock, the
aggregate payment to all holders of Class A Preferred Stock shall be distributed
among all such holders so that an amount ratably in proportion
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<PAGE> 5
to the respective dividends due thereon shall be paid with respect to each
outstanding share of Class A Preferred Stock.
7.2.3. Holders of the Class A Preferred Stock shall not,
solely as a result of such holders' ownership of such Class A Preferred Stock,
be entitled to participate in any dividends or other distributions (cash, stock
or otherwise) declared or paid on or with respect to any other class of stock or
equity security of the Corporation or any series of any such class.
7.2.4. No dividend shall be paid upon shares of Class A
Preferred Stock unless like dividends are simultaneously paid on shares of Class
B Preferred Stock.
7.3. Liquidation Preference with Respect to Class A Preferred
Stock.
7.3.1. In the event of a Liquidation, after any
distribution of any of the assets of the Corporation to holders of Class C
Preferred Stock pursuant to Section 9.3, the holders of Class A Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available for distributions to its stockholders, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any (i)
Common Stock, (ii) class or series of the Corporation's capital stock
authorized, created or designated after June 12, 1996 or (iii) Class B Preferred
Stock, an amount per share equal to the sum of the Class A Preferred Stock
Stated Value plus all accrued and unpaid dividends, if any, to the date of
payment, less the Class A Excess Dividend Amount (hereinafter defined) (the
"Class A Liquidation Preference") for each share of Class A Preferred Stock
held. If upon any Liquidation the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders of
shares of Class A Preferred Stock the full amount of the Class A Liquidation
Preference, the holders of shares of Class A Preferred Stock shall share ratably
in any distribution of assets available for distribution to the Class A
Preferred Stock holders after distributions to the holders of the Class C
Preferred Stock pursuant to Section 9.3.
7.3.2. In the event of any Liquidation, after payment of
the Class A Liquidation Preference and the Class B Liquidation Preference
(hereinafter defined), the holders of the Class A Preferred Stock shall be
entitled to receive pari passu with the amounts payable to holders of Class B
Preferred Stock pursuant to Section 8.3.2, an amount equal to all accrued and
unpaid dividends, if any, to the date of payment owing on the Class A Preferred
Stock other than accrued and unpaid dividends that would be owing thereon if all
dividends accrued on the Class A Preferred Stock at the rate of eight percent
(8%) per annum (the "Class A Excess Dividend Amount").
7.3.3. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class A Preferred Stock of the
amounts described in Section 7.3.1 and Section 7.3.2, the holders of shares of
Class A Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation.
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<PAGE> 6
7.3.4. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation (or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
7.4. Voting Rights with Respect to Class A Preferred Stock.
The Class A Preferred Stock shall have the right to vote on all matters as to
which holders of the Common Stock shall be entitled to vote (at the rate of one
vote per share), in the same manner and with the same effect as such holders of
the Common Stock, voting together with the holders of Common Stock and Class B
Preferred Stock as one voting group. Without first obtaining the approval (by
vote or written consent) of at least seventy-five percent (75%) of the
outstanding shares of the Class A Preferred Stock as a separate class, the
Corporation shall not,
7.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class A Preferred Stock or (B) in any manner adversely affects the holders of
the Class A Preferred Stock, or (y) any additional shares of capital stock or
any class or series of any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having optional rights to purchase, any
shares of capital stock having any priority over or parity with or otherwise
adversely affecting the holders of the Class A Preferred Stock;
7.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class A Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class A Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
or Class A Preferred Stock Stated Value of the shares of the Class A Preferred
Stock; or
7.4.3. reclassify the shares of any (a) Common Stock, (b)
class or series of the Corporation's capital stock authorized, created or
designated after the Effective Time or (c) Class B Preferred Stock into shares
of any class or series of capital stock (A) ranking, either as to payment of
dividends, distribution of assets or redemption, prior to or on a parity with
the Class A Preferred Stock or (B) which in any manner adversely affects the
holders of the Class A Preferred Stock.
7.5. Redemptions with Respect to Class A Preferred Stock.
7.5.1. At any time and from time to time after (or
simultaneously with) the completion of the redemption of all of the outstanding
Class C Preferred Stock pursuant to Section 9.5 and after the earlier to occur
of (i) the closing of a Liquidity Event or (ii) June 12, 2004 (the earlier of
such dates being herein the "Redemption Allowance Date"), at the option of the
Corporation and upon the Corporation's delivery of thirty (30) days prior
written notice of such a redemption to be effected on or after the Redemption
Allowance Date, the Corporation may redeem all or any portion of the Class A
Preferred Stock then outstanding; provided, however, that (x) any redemption of
less than all of the shares of Class A Preferred Stock shall be divided ratably
and
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<PAGE> 7
equally among the then extant holders of Class A Preferred Stock and (y) no
shares of Class A Preferred Stock shall be redeemed pursuant to this Section
7.5.1 unless a pro rata number (based on aggregate stated values) of Class B
Preferred shares shall be redeemed pursuant to Section 8.5.1. For each share of
Class A Preferred Stock which is to be redeemed by the Corporation at any time
in a redemption pursuant to this Section 7.5.1, the Corporation shall be
obligated to pay to the holder thereof (upon surrender by such holder at the
Corporation's principal office of the certificate representing such share duly
endorsed in blank or accompanied by an appropriate form of assignment) an amount
for such share equal to Class A Preferred Stock Stated Value plus all accrued
and unpaid dividends with respect to such share to the date of payment (the
"Class A Preferred Stock Redemption Price").
7.5.2. After (or simultaneously with) the completion of
the redemption of all of the outstanding Class C Preferred Stock pursuant to
Section 9.5, at any time and from time to time after June 12, 2004, at the
option of a holder of the Class A Preferred Stock and upon thirty (30) days
prior delivery of written notice by the holder to the Corporation of redemption
to be effected on or after such date, such holder may require the Corporation to
redeem all or any portion of the Class A Preferred Stock held by such holder.
For each share of Class A Preferred Stock which is to be redeemed by the
Corporation at any time in a redemption pursuant to this Section 7.5.2, the
Corporation shall be obligated to pay to the holder thereof (upon surrender by
such holder at the Corporation's principal office of the certificate
representing such share duly endorsed in blank or accompanied by an appropriate
form of assignment) an amount for such share equal to the Class A Preferred
Stock Redemption Price.
7.5.3. If the funds of the Corporation legally available
for redemption pursuant to Section 7.5.2 and Section 8.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to Section 7.5.2 and Section 8.5.2, those funds which are available will be used
to redeem the maximum possible number of shares (or fraction thereof) and such
funds shall be distributed ratably among each of the holders of the Class A
Preferred Stock and Class B Preferred Stock, in proportion to the amount that
would have been distributed to each such holder if the funds of the Corporation
would have been sufficient to permit payment of the full amount required to be
paid in respect of such redemption. At any time, and from time to time
thereafter, until all shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation shall be obligated to redeem are so redeemed, when
additional funds of the Corporation are legally available for the redemption of
any of the shares of Class A Preferred Stock and Class B Preferred Stock
(including fractional shares), such funds shall be used immediately to redeem
shares (or fractions thereof) which the Corporation has become obligated to
redeem but which it has not redeemed, such amount to be applied ratably among
each of the holders of shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation is then obligated to redeem in proportion to the
number of shares of Class A Preferred Stock and Class B Preferred Stock which
are held by them and which the Corporation shall then be obligated to redeem.
Notwithstanding the foregoing, in connection with any Liquidation, any
redemption payments owing to holders of Class A Preferred Stock shall be paid in
full (up to the Class A Liquidation Preference) before payments shall be made to
holders of Class B Preferred Stock pursuant to Section 8.5.
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<PAGE> 8
7.5.4. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class A Preferred Stock which are the subject of such written notice of
redemption shall continue as if the written notice of redemption had not been
given until the Class A Preferred Stock Redemption Price therefor is paid (such
payment being a continuing obligation of the Corporation).
7.5.5. Upon payment of the Class A Preferred Stock
Redemption Price by the Corporation with respect to shares of Class A Preferred
Stock being redeemed pursuant to this Section 7.5, such shares of Class A
Preferred Stock shall no longer be deemed to be outstanding, shall be canceled
and shall not be subject to reissuance by the Corporation.
7.6. Conversion Rights. Upon the occurrence of the closing of
a Qualified Public Offering, provided that, prior to such closing: (a) at least
thirty (30) days prior to the date which the Board of Directors estimates in
good faith to be the likely effective date of the registration of a Qualified
Public Offering (the "Anticipated Effective Date"), the Board of Directors shall
have provided to all of the holders of Class A Preferred Stock and Class B
Preferred Stock notice of an anticipated Qualified Public Offering, which notice
shall include the Anticipated Effective Date and the anticipated offering price
per share of Common Stock at which the Common Stock will be first offered to the
public in the Qualified Public Offering and (b) at least twenty (20) days prior
to the Anticipated Effective Date, the holders of the Class A Preferred Stock
and holders of Class B Preferred Stock, together representing at least sixty
percent (60%) of the aggregate outstanding shares of Class A Preferred Stock and
Class B Preferred Stock shall have elected to convert all of the issued and
outstanding shares of Class A Preferred Stock and Class B Preferred Stock (other
than those shares being redeemed pursuant to Section 7.5.1 and Section 8.5.1,
respectively) into shares of Common Stock, then in such event (an "Event of
Conversion") each and every share of Class A Preferred Stock then outstanding
(other than those shares being redeemed pursuant to Section 7.5.1), by virtue
of, and simultaneously with the occurrence of the Event of Conversion and
without any additional action on the part of the holder thereof, be deemed
automatically converted into such number of fully paid and nonassessable shares
of Common Stock as is equal to the quotient obtained by dividing (x) the Class A
Preferred Stock Stated Value by (y) the Conversion Price (as hereinafter
defined). The "Conversion Price" shall be the offering price per share at which
the Common Stock of the Corporation is first offered to the public in the
Qualified Public Offering.
7.6.1. The holder of any shares of Class A Preferred
Stock converted into shares of Common Stock pursuant to Section 7.6 shall remain
entitled to payment of all accrued but unpaid dividends, if any, payable with
respect to such shares of Class A Preferred Stock up to and including the date
upon which the Qualified Public Offering is closed (the "Conversion Date").
7.6.2. Conversion shall be deemed to have been effected
with respect to conversion under Section 7.6 on the Conversion Date.
Simultaneous with the conversion being effected, the shares of Class A Preferred
Stock so converted shall no longer be deemed outstanding, shall be canceled and
shall not be subject to reissuance by the Corporation. As promptly as
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<PAGE> 9
practicable thereafter, the Corporation shall issue and deliver to the record
locations of each of the holders (or upon the written order of a holder, at the
place designated by such holder), a certificate or certificates for the number
of full shares of Common Stock to which each respective holder is entitled and a
check or cash in respect of any fractional interest in a share of Common Stock,
as provided in Section 7.6.3, payable with respect to the shares of Class A
Preferred Stock so converted. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder shall be deemed
to have become a stockholder of record on the next succeeding date on which the
transfer books are open.
7.6.3. No fractional shares of Common Stock shall be
issued upon conversion of shares of Class A Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Class A Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
Conversion Price of a share of Class A Preferred Stock multiplied by such
fractional interest. Holders of fractional interests shall not be entitled to
dividends in respect of such fractional interests and the holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
7.6.4. The Corporation shall pay all documentary, stamp
or other transaction taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Class A Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Class A Preferred Stock in respect of which such shares are being
issued.
7.6.5. The holders of the Class A Preferred Stock and the
holders of the Class B Preferred Stock, by vote of sixty percent (60%) of the
aggregate outstanding shares of Class A Preferred Stock and Class B Preferred
Stock, voting together as a single voting group, shall have the right to amend
the Corporation's Charter for the sole purpose of authorizing sufficient
additional shares of Common Stock to effect the conversions under this Section
7.6 and Section 8.6. The additional shares, when so authorized, shall be
reserved by the Corporation for the purpose of effecting such conversions and
shall be free of preemptive rights.
7.6.6. All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
8. Class B Preferred Stock. The express terms and conditions of
the shares classified and designated as Class B Preferred Stock, no par value,
of the Corporation are as follows:
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8.1. Designation and Number of Shares of Class B Preferred
Stock. The designation of the series of Preferred Stock set forth in this
Section 8 is Class B Preferred Stock and the number of shares of such series is
31,600 shares having a stated value per share equal to $13.58859 (the "Class B
Preferred Stock Stated Value"). The Class B Preferred Stock shall rank pari
passu with the Class A Preferred Stock (except as provided in Section 7.3 and
Section 8.3 hereof) and senior to all other shares of the capital stock of the
Corporation except the Class C Preferred Stock.
8.2. Dividends with respect to Class B Preferred Stock.
8.2.1. In each year, the holder of each share of Class B
Preferred Stock shall be entitled to receive preferential, cumulative dividends
in cash, which dividends shall be cumulative and shall accrue from the date upon
which the Class B Preferred Stock was issued, in an amount equal to eight
percent (8%) of the Class B Preferred Stock Stated Value per share per year,
provided, however, that upon the later to occur of (i) the consummation of a
Liquidity Event, (ii) June 12, 1999 or (iii) the full payment and discharge of
the senior subordinated indebtedness of the Corporation and the Affiliated
Corporations (in the initial principal amount of Twenty Million Dollars
($20,000,000)), dividends shall accrue in an amount equal to ten percent (10%)
per annum of the Class B Preferred Stock Stated Value. Dividends shall accrue
daily whether or not declared and whether or not funds are legally available
therefor. If such dividends are not paid within ninety (90) days after the end
of each of the Corporation's fiscal quarters, such dividends shall accrue
additional dividends from the last day of such fiscal quarter at the same rate
per annum. Dividends shall be paid only to the extent that (i) there shall be
sufficient funds of the Corporation legally available for the payment of such
dividends, (ii) the payment of such dividend would not violate any covenants of
the Corporation to any lender to the Corporation or its subsidiaries and (iii)
the payment of such dividend would not violate the terms of any management or
shareholder agreement to which the Corporation is party.
8.2.2. If, in any dividend period or periods, full
dividends (whether past or current) upon the outstanding Class B Preferred Stock
at the dividend rate set forth herein shall not have been paid, then, unless and
until all dividends accrued and unpaid on the Class B Preferred Stock through
the payment date for such dividends are declared and paid on each share of Class
B Preferred Stock, no dividends shall be declared or paid or set apart for
payment upon any Common Stock or class or series of the Corporation's capital
stock authorized, created or designated after June 12, 1996 nor shall the
Corporation purchase, redeem or otherwise acquire for consideration any such
stock. If, at any time, the Corporation shall pay less than the total amount of
dividends then payable on the then outstanding Class B Preferred Stock, the
aggregate payment to all holders of Class B Preferred Stock shall be distributed
among all such holders so that an amount ratably in proportion to the respective
dividends due thereon shall be paid with respect to each outstanding share of
Class B Preferred Stock.
8.2.3. Holders of the Class B Preferred Stock shall not,
solely as a result of such holders' ownership of such Class B Preferred Stock,
be entitled to participate in any dividends
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or other distributions (cash, stock or otherwise) declared or paid on or with
respect to any other class of stock or equity security of the Corporation or any
series of any such class.
8.2.4. No dividend shall be paid upon shares of Class B
Preferred Stock unless like dividends are simultaneously paid on shares of Class
A Preferred Stock.
8.3. Liquidation Preference with Respect to Class B Preferred
Stock.
8.3.1. In the event of a Liquidation, after any
distribution of any of the assets of the Corporation to holders of Class C
Preferred Stock pursuant to Section 9.3, the holders of Class B Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available for distributions to its stockholders, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any
Common Stock or class or series of the Corporation's capital stock authorized,
created or designated after June 12, 1996, and after payments of the Class A
Liquidation Preference to holders of Class A Preferred Stock under Section 7.3
hereof, an amount per share equal to the sum of the Class B Preferred Stock
Stated Value plus all accrued and unpaid dividends, if any, to the date of
payment, less the Class B Excess Dividend Amount (hereinafter defined) (the
"Class B Liquidation Preference") for each share of Class B Preferred Stock
held. If upon any Liquidation the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders of
shares of Class B Preferred Stock. the full amount of the Class B Liquidation
Preference the holders of shares of Class B Preferred Stock shall share ratably
in any distribution of assets available for distribution to the Class B
Preferred Stock holders after distributions to the holders of the Class C
Preferred Stock pursuant to Section 9.3 and distribution of the Class A
Liquidation Preference to the holders of the Class A Preferred Stock pursuant to
Section 7.3.
8.3.2. In the event of any Liquidation, after payment of
the Class A Liquidation Preference and the Class B Liquidation Preference, the
holders of the Class B Preferred Stock shall be entitled to receive, pari passu
with the amounts payable to holders of Class A Preferred Stock pursuant to
Section 7.3.2, an amount equal to all accrued and unpaid dividends, if any, to
the date of payment owing on the Class B Preferred Stock other than accrued and
unpaid dividends that would be owing thereon if all dividends accrued on the
Class B Preferred Stock at the rate of eight percent (8%) per annum (the "Class
B Excess Dividend Amount").
8.3.3. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class B Preferred Stock of the
amounts described in Section 8.3.1 or Section 8.3.2, the holders of shares of
Class B Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation.
8.3.4. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
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8.4. Voting Rights with Respect to Class B Preferred Stock.
The Class B Preferred Stock shall have the right to vote on all matters as to
which holders of the Common Stock shall be entitled to vote (at the rate of one
vote per share), in the same manner and with the same effect as such holders of
the Common Stock, voting together with the holders of Common Stock and Class A
Preferred Stock as one voting group. Without first obtaining the approval (by
vote or written consent) of at least seventy-five percent (75%) of the
outstanding shares of the Class B Preferred Stock as a separate class, the
Corporation shall not,
8.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class B Preferred Stock or (B) in any manner adversely affects the holders of
the Class B Preferred Stock, or (y) any additional shares of Class A Preferred
Stock, Class C Preferred Stock or any shares of any class or series of any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having optional rights to purchase, any shares having any such priority
or parity with or so adversely affecting the holders of the Class B Preferred
Stock;
8.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class B Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class B Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
or Class B Preferred Stock Stated Value of the shares of the Class B Preferred
Stock; or
8.4.3. reclassify the shares of any (a) Common Stock, (b)
class or series of the Corporation's capital stock authorized, created or
designated after June 12, 1996 or (c) Class A Preferred Stock into shares of any
class or series of capital stock (A) ranking, either as to payment of dividends,
distribution of assets or redemption, prior to or on a parity with the Class B
Preferred Stock or (B) which in any manner adversely affects the holders of the
Class B Preferred Stock.
8.5. Redemptions with Respect to Class B Preferred Stock.
8.5.1. At any time and from time to time after (or
simultaneously with) the completion of the redemption of all of the outstanding
Class C Preferred Stock pursuant to Section 9.5 and after the Redemption
Allowance Date, at the option of the Corporation and upon the Corporation's
delivery of thirty (30) days prior written notice of such a redemption to be
effected on or after the Redemption Allowance Date, the Corporation may redeem
all or any portion of the Class B Preferred Stock then outstanding; provided,
however, that (x) any redemption of less than all of the shares of Class B
Preferred Stock shall be divided ratably and equally among the then extant
holders of Class B Preferred Stock and (y) no shares of Class B Preferred Stock
shall be redeemed pursuant to this Section 8.5.1 unless a pro rata number (based
on aggregate stated values) of Class A Preferred Stock shall be redeemed
pursuant to Section 7.5.1. For each share of Class B Preferred Stock which is to
be redeemed by the Corporation at any time in a redemption pursuant to this
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<PAGE> 13
Section 8.5.1, the Corporation shall be obligated to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal office of the
certificate representing such share duly endorsed in blank or accompanied by an
appropriate form of assignment) an amount for such share equal to the Class B
Preferred Stock Stated Value plus all accrued and unpaid dividends with respect
to such share to the date of payment (the "Class B Preferred Stock Redemption
Price").
8.5.2. After (or simultaneously with) the completion of
the redemption of all of the outstanding Class C Preferred Stock pursuant to
Section 9.5, at any time and from time to time after June 12, 2004, at the
option of a holder of the Class B Preferred Stock and upon thirty (30) days
prior delivery of a written notice by the holder to the Corporation of
redemption to be effected on or after such date, such holder may require the
Corporation to redeem all or any portion of the Class B Preferred Stock held by
such holder. For each share of Class B Preferred Stock which is to be redeemed
by the Corporation at any time in a redemption pursuant, to this Section 8.5.2,
the Corporation shall be obligated to pay to the holder thereof (upon surrender
by such holder at the Corporation's principal office of the certificate
representing such share duly endorsed in blank or accompanied by an appropriate
form of assignment) an amount for such share equal to the Class B Preferred
Stock Redemption Price.
8.5.3. If the funds of the Corporation legally available
for redemption pursuant to Section 8.5.2 and Section 7.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to this Section 8.5.2 and Section 7.5.2, those funds which are available will be
used to redeem the maximum possible number of shares (or fraction thereof) and
such funds shall be distributed ratably among each of the holders of the Class A
Preferred Stock and Class B Preferred Stock in proportion to the amount that
would have been distributed to each such holder if the funds of the Corporation
would have been sufficient to permit payment of the full amount required to be
paid in respect of such redemption. At any time, and from time to the
thereafter, until all shares the Corporation shall be obligated to redeem are so
redeemed, when additional funds of the Corporation are legally available for the
redemption of any of the shares of Class A Preferred Stock and Class B Preferred
Stock (including fractional shares), such funds shall be used immediately to
redeem shares (or fractions thereof), which the Corporation has become obligated
to redeem but which it has not redeemed, such amount to be applied ratably among
each of the holders of shares of Class A Preferred Stock and Class B Preferred
Stock which the Corporation is then obligated to redeem in proportion to the
number of shares of Class A Preferred Stock and Class B Preferred Stock which
are held by them and which the Corporation shall then be obligated to redeem.
Notwithstanding the foregoing, in connection with any Liquidation, any
redemption payments owing to holders of Class A Preferred Stock shall be paid in
full (up to the Class A Liquidation Preference) before payments shall be made to
holders of Class B Preferred Stock pursuant to this Section 8.5.
8.5.4. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class B Preferred Stock which are the subject of such written notice of
redemption shall continue as if the written notice of redemption had
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not been given until the Class B Preferred Stock Redemption Price therefor is
paid (such payment being a continuing obligation of the Corporation).
8.5.5. Upon payment of the Class B Preferred Stock
Redemption Price by the Corporation with respect to shares of Class B Preferred
Stock being redeemed pursuant to this Section 8.5, such shares of Class B
Preferred Stock shall no longer be deemed to be outstanding, shall be canceled
and shall not be subject to reissuance by the Corporation.
8.6. Conversion Rights. Upon the occurrence of an Event of
Conversion, each and every share of Class B Preferred Stock then outstanding
(other than those shares being redeemed pursuant to Section 8.5.1), by virtue
of, and simultaneously with the occurrence of the Event of Conversion and
without any additional action on the part of the holder thereof, be deemed
automatically converted into such number of fully paid and nonassessable shares
of Common Stock as is equal to the quotient obtained by dividing (x) the Class B
Preferred Stock Stated Value by (y) the Conversion Price.
8.6.1. The holder of any shares of Class B Preferred
Stock converted into shares of Common Stock pursuant to Section 8.6 shall remain
entitled to payment of all accrued but unpaid dividends, if any, payable with
respect to such shares of Class B Preferred Stock up to and including the
Conversion Date.
8.6.2. Conversion shall be deemed to have been effected
with respect to conversion under Section 8.6 on the Conversion Date.
Simultaneous with the conversion being effected, the shares of Class B Preferred
Stock so converted shall no longer be deemed outstanding, shall be canceled and
shall not be subject to reissuance by the Corporation. As promptly as
practicable thereafter, the Corporation shall issue and deliver to the record
locations of each of the holders (or upon the written order of a holder, at the
place designated by such holder), a certificate or certificates for the number
of full shares of Common Stock to which each respective holder is entitled and a
check or cash in respect of any fractional interest in a share of Common Stock,
as provided in Section 8.6.3, payable with respect to the shares of Class B
Preferred Stock so converted. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder shall be deemed
to have become a stockholder of record on the next succeeding date on which the
transfer books are open.
8.6.3. No fractional shares of Common Stock shall be
issued upon conversion of shares of Class B Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Class B Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
Conversion Price of a share of Class B Preferred Stock multiplied by such
fractional interest. Holders of fractional interests shall not be entitled to
dividends in respect of such fractional interests, and the holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
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8.6.4. The Corporation shall pay all documentary, stamp
or other transaction taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Class B Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Class B Preferred Stock in respect of which such shares are being
issued.
8.6.5. The holders of the Class A Preferred Stock and the
holders of the Class B Preferred Stock, by vote of sixty percent (60%) of the
aggregate outstanding shares of Class A Preferred Stock and Class B Preferred
Stock, voting together as a single voting group, shall have the right to amend
the Corporation's Charter for the sole purpose of authorizing sufficient
additional shares of Common Stock to effect the conversions under this Section
8.6 and Section 7.6. The additional shares, when so authorized, shall be
reserved by the Corporation for the purpose of effecting such conversions and
shall be free of preemptive rights.
8.6.6. All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
9. Class C Preferred Stock. The express terms and conditions of
the shares classified and designated as Class C Preferred Stock, no par value,
of the Corporation are as follows:
9.1. Designation and Number Preferred Stock. The designation
of the series of preferred stock in this Section 9 is Class C Preferred Stock
(hereinafter called "Class C Preferred Stock") and the number of shares of such
series is 20,000 shares having a stated value per share equal to $30.63556 (the
"Class C Preferred Stock Stated Value"). The Class C Preferred Stock shall rank
senior to all other shares of the capital stock of the Corporation.
9.2. Dividends with Respect Class C Preferred Stored Stock.
Except as provided herein, the holders of shares of Class C Preferred Stock
shall not be entitled to receive dividends with respect to their shares of Class
C Preferred Stock nor shall they be entitled to participate in any dividends
(cash, stock or otherwise) declared or paid on or with respect to any other
class of stock or equity security of the Corporation or any series of any such
class solely as a result of their ownership of such Class C Preferred Stock.
9.3. Liquidation Preference with Respect to Class C Preferred
Stock.
9.3.1. In the event of any Liquidation, the holders of
Class C Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distributions to its stockholders, prior and
in preference to any distribution of any of the assets of the Corporation to the
holders of any other class of stock or equity security of the Corporation or any
series of any
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<PAGE> 16
such class, an amount per share equal to the sum of the Class C Preferred Stock
Stated Value plus all accrued and unpaid dividends, if any, to the date of
payment (the "Class C Liquidation Preference") for each share of Class C
Preferred Stock held. If upon any Liquidation the assets of the Corporation
available for distribution to its shareholders shall be insufficient to pay the
holders of shares of Class C Preferred Stock the full amount of the Class C
Liquidation Preference, the holders of shares of Class C Preferred Stock shall
share ratably in any distribution of assets available for distribution to the
Class C Preferred Stock holders.
9.3.2. In the event of any Liquidation, after payment
shall have been made to the holders of shares of Class C Preferred Stock of the
amounts described in Section 9.3.1, the holders of shares of Class C Preferred
Stock shall be entitled to no further participation in the distribution of the
assets of the Corporation.
9.3.3. The sale or other disposition (other than by a
contribution to or merger with another corporation of which more than eighty
percent (80%) of the stock (by vote and value) is owned (directly or indirectly)
by the Corporation or its shareholders) of all or substantially all the assets
of the Corporation shall be deemed to be a Liquidation.
9.4. Voting Rights with Respect to Class C Preferred Stock.
The Class C Preferred shall not have any voting rights except as set forth in
this Section 9.4. Without first obtaining the approval (by vote or written
consent) of at least seventy-five percent (75%) of the outstanding shares of the
Class C Preferred Stock as a separate class, the Corporation shall not,
9.4.1. in any manner authorize, create or issue (x) any
class or series of capital stock which (A) ranks, either as to payment of
dividends, distribution of assets or redemption, prior to or on parity with the
Class C Preferred Stock or (B) in any manner adversely affects the holders of
the Class C Preferred Stock, or (y) any shares of any class or series of any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having optional rights to purchase, any shares having any such priority
or parity with or so adversely affecting the holders of the Class C Preferred
Stock;
9.4.2. in any manner alter or change the designations or
the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Class C Preferred Stock, including without limitation, by
increasing or decreasing the number of shares of the Class C Preferred Stock
authorized for issuance hereunder, or by increasing or decreasing the par value
of the shares of the Class C Preferred Stock; or
9.4.3. reclassify any shares of capital stock of the
Corporation into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distribution of assets or redemption, prior
to or on a parity with the Class C Preferred Stock or (B) which in any manner
adversely affects the holders of the Class C Preferred Stock.
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<PAGE> 17
9.5. Redemption with Respect to Class C Preferred Stock.
9.5.1. At any time and from time to time after March ,
1998, at the option of the Corporation and upon the Corporation's delivery of
thirty (30) days prior written notice, the Corporation may redeem all or any
portion of the Class C Preferred Stock then outstanding; provided, however, that
any redemption of less than all of the shares of Class C Preferred Stock shall
be divided ratably and equally among the then extant holders of Class C
Preferred Stock.
9.5.2. The Class C Preferred Stock shall be mandatorily
redeemable in whole upon the Redemption Allowance Date. In the event that the
Corporation is prevented from redeeming the Class C Preferred Stock when
required in accordance with the foregoing sentence, whether by contract or law,
dividends will accrue and cumulate thereon at an annual rate of nine percent
(9%) from the date payment is due as a result of such Class C Redemption Event
pursuant to Section 9.5.3, until the redemption occurs.
9.5.3. For each share of Class C Preferred Stock which is
to be redeemed by the Corporation at any time in a redemption pursuant to this
Section 9.5, the Corporation shall be obligated to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal office of the
certificate representing such share duly endorsed in blank or accompanied by an
appropriate form of assignment) an amount for such share equal to the Class C
Preferred Stock Stated Value plus all accrued and unpaid dividends, if any, with
respect to such share to the date of payment (the "Class C Preferred Stock
Redemption Price"), on (i) in the case of a redemption at the option of the
Corporation, the last day of any fiscal quarter if, during the quarter then
ending, a written notice of redemption shall have been delivered by the
Corporation to the holder more than thirty (30) days prior to such last day or
thirty (30) or fewer days prior to the end of the immediately preceding fiscal
quarter or (ii) for purposes of the mandatory redemption described in Section
9.5.2, the earlier to occur of (A) a date set by the Corporation in the
redemption notice which is within thirty (30) days after June 12, 2004, or (B)
upon the closing of a Liquidity Event.
9.5.4. If the funds of the Corporation legally available
for redemption pursuant to Section 9.5.1 or Section 9.5.2 are insufficient to
redeem the number of shares which the Corporation is required to redeem pursuant
to Section 9.5.1 or Section 9.5.2, those funds which are available will be used
to redeem the maximum possible number of shares (or fraction thereof) and such
funds shall be distributed ratably among each of the holders of the Class C
Preferred Stock in proportion to the amount that would have been distributed to
each such holder if the funds of the Corporation would have been sufficient to
permit payment of the full amount required to be paid in respect of such
redemption. At any time, and from time to time there after, until all shares of
Class C Preferred Stock which the Corporation shall be obligated to redeem are
so redeemed, when additional funds of the Corporation are legally available for
the redemption of any of the shares of Class C Preferred Stock (including
fractional shares), such funds shall be used immediately to redeem shares (or
fractions thereof) which the Corporation has become obligated to redeem but
which it has not redeemed, such amount to be applied ratably among each of the
holders of shares of Class C Preferred Stock which the Corporation is the
obligated to redeem in proportion to the
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number of shares of Class C Preferred Stock which are held by them and which the
Corporation shall be obligated to redeem.
9.5.5. Notwithstanding the fact that a written notice of
redemption is given, all rights of the redeeming holder with respect to shares
of Class C Preferred Stock which are the subject of such written notice of
redemption shall continue as if the written notice of redemption had not been
given until the Class C Preferred Stock Redemption Price therefor is paid (it
being understood that such payment shall be a continuing obligation of the
Corporation).
9.5.6. Once the Class C Preferred Stock Redemption Price
has been paid by the Corporation with respect to shares of Class C Preferred
Stock being redeemed pursuant to this Section 8.5, such shares of Class C
Preferred Stock shall no longer be deemed to be outstanding, shall be canceled
and shall not be subject to reissuance by the Corporation.
10. Special Shareholder Meetings. Special meetings of
shareholders may be called at any time, but only by the Chairman of the Board of
Directors, the President of the Company, or upon a resolution adopted by or
affirmative vote of a majority of the Board of Directors, and not by the
shareholders.
11. Directors.
11.1. Number. The number of directors of the Corporation shall
be such number, neither fewer than three nor more than fifteen (exclusive of
directors, if any, to be elected by holders of preferred stock of the
Corporation, voting separately as a class), as determined by a majority vote of
the Board of Directors. The Board of Directors has the power to fix or change
the number of directors, including an increase or decrease in the number of
directors from time to time as established by a majority vote of the Board of
Directors. A director need not be a shareholder or a resident of the state of
Tennessee.
11.2. Classes.
11.2.1. Number of Classes. The Board of Directors of the
Corporation shall be divided into three classes as nearly equal in number as the
then total number of directors constituting the entire Board of Directors shall
permit, which classes shall be designated Class I, Class II and Class III.
11.2.2. Term. Directors assigned to be the initial Class
I directors shall be elected to hold office for a term expiring at the annual
meeting of shareholders to be held in 1999; directors assigned to be the initial
Class II directors shall be elected to hold office for a term expiring at the
annual meeting of shareholders to be held in 2000; and, directors assigned to be
the initial Class III directors shall be elected to hold office for a term
expiring at the annual meeting of shareholders to be held in 2001. Thereafter,
at each annual meeting of shareholders of the Corporation, directors of classes
the terms of which expire at such annual meeting shall be elected
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for terms of three years by a plurality vote of all votes cast at such meeting.
Notwithstanding the foregoing, a director whose term shall expire at any annual
meeting shall continue to serve until such time as his successor shall have been
duly elected and shall have qualified unless his position on the Board of
Directors shall have been abolished by action taken to reduce the size of the
Board of Directors prior to said meeting.
11.2.3. Increase or Decrease in Number. Should the
number of directors of the Corporation be reduced, the directorship(s)
eliminated shall be allocated among classes as appropriate so that the number of
directors in each class is as specified in Section 11.2.1 herein. The Board of
Directors shall designate, by the name of the incumbent(s), the position(s) to
be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the Corporation be increased, the
additional directorships shall be allocated among classes as appropriate so that
the number of directors in each class is as specified in paragraph Section
11.2.1.
11.3. Removal. No director of the Corporation (including those
directors, if any, elected by holders of any series of preferred stock) may be
removed at any time unless for cause. Upon finding of cause as determined by a
majority of the Board of Directors (excluding the director which is the subject
of removal), the director may be removed only upon the affirmative vote of the
holders of at least 80% of outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Power"), considered for this purpose as one class, except as otherwise required
by law.
11.4. Vacancies and Newly Created Directorships. Unless the
Board of Directors otherwise determines, and subject to the rights of the
holders of any series of preferred stock, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office, though less than a quorum, and
shall not be filled by the shareholders. Any director chosen to fill a vacancy
(a "vacancy director") shall be a director of the same class as the director
whose vacancy he or she fills. Any director chosen to fill a vacancy or a newly
created directorship (collectively, a "vacancy director") shall hold office
until the next annual meeting of shareholders and until his or her successor
shall have been elected and qualified. The shareholders shall thereupon elect a
director to fill the vacancy or newly created directorship having been
temporarily filled by the vacancy director, which individual may include the
incumbent vacancy director. The director so elected shall be a director of the
same class as the vacancy director and shall serve until the annual meeting of
shareholders at which the term of office of such class expires and until such
director's successor shall have been duly elected and qualified.
12. Limitation of Liability. Directors of the Corporation shall
have no liability to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that this Section 12 shall
not eliminate liability of a director for (i) any breach of the director's duty
of loyalty to the Corporation or its shareholders; (ii) acts or omissions not in
good
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faith or which involve intentional misconduct or a knowing violation of law; or
(iii) unlawful distributions under Section 48-18-304 of the Tennessee Business
Corporation Act. If the Tennessee Business Corporation Act is amended or other
Tennessee law is enacted to permit further elimination or limitation of the
personal liability of directors, then the liability of directors of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Tennessee Business Corporation Act, as so amended, or by such other
Tennessee law, as so enacted. Any repeal or modification of this Section 12 or
subsequent amendment of the Tennessee Business Corporation Act or enactment of
other applicable Tennessee law shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal,
modification, amendment or enactment.
13. Amendment of Bylaws. To the extent permitted by the Tennessee
Business Corporation Act, the Board of Directors of the Corporation is expressly
authorized to repeal, alter, amend or rescind the Bylaws of the Corporation by
vote of a majority of the Board of Directors at a legal meeting held in
accordance with the Bylaws. The shareholders may adopt or amend a bylaw that
fixes a greater quorum or voting requirement for shareholders (or voting group
of shareholders) than is required by the Tennessee Business Corporation Act, to
the extent such bylaw does not conflict with the provisions of this Charter. The
adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum
or voting requirement for shareholders must meet the same quorum requirement and
be adopted by the same vote and voting groups required to take action under the
quorum and voting requirement then in effect or proposed to be adopted,
whichever is greater.
14. Amendment of Charter. The Corporation reserves the right to repeal,
alter, amend or rescind any provision contained in this Charter in the manner
now or hereafter prescribed by law, and all rights conferred on shareholders
herein are granted subject to this reservation. Notwithstanding the foregoing,
the provisions in Sections 10, 11, 12, 13 and this Section 14 of this Charter
may not be repealed, altered, amended or rescinded in any respect nor may
provisions be adopted inconsistent with Sections 10, 11, 12, 13 and this Section
14 unless the same is approved by the affirmative vote of the holders at least
80% of the Voting Power, considered for this purpose as a single class; except
that such repeal, alteration, amendment, rescission or adoption may be made by
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as a single class) if the same is first
approved by a majority of the Board of Directors.
15. Adoption. This amended and restated charter was adopted by
unanimous written consent of the Board of Directors and Shareholders of the
Corporation dated March , 1998. This charter replaces and supersedes the
original charter of the Corporation filed with the Tennessee Secretary of State
and all amendments thereto.
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16. Corporation for Profit. The Corporation is for profit.
Dated: ______________________, 1998.
KIRKLAND'S, INC.
By: ______________________________
Title: ______________________________
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EXHIBIT 3.3
BYLAWS OF
KIRKLAND'S INC.
ARTICLE I.
OFFICES
Section 1. The principal office of Kirkland's, Inc. (the
"Corporation"), is 805 North Parkway, Jackson, Tennessee 38305. The principal
office may be changed at any time by appropriate resolution of the Board of
Directors. The Corporation may have offices and places of business at such other
places within or without the State of Tennessee as shall be determined by the
Board of Directors.
Section 2. The registered office of the Corporation for any
particular state may be, but need not be, identical with the principal office of
the Corporation in that state, and the address of the registered office may be
changed from time to time by appropriate resolution of the Board of Directors.
ARTICLE II.
SHAREHOLDERS
Section 1. Meetings. All meetings of shareholders shall be
held either in the principal office of the Corporation or at any other place
within or without the City of Jackson, Tennessee, as designated by the Board of
Directors.
Section 2. Annual Meeting. The annual meeting of the
shareholders shall be held on the second Tuesday in May of each year or such
other date, in any particular year, designated by the Board of Directors, for
the purpose of electing directors and for the transaction of any other business
authorized to be transacted by the shareholders. If the appointed day is a legal
holiday the meeting shall be held at the same time on the next succeeding day
not a holiday. In the event that the annual meeting is committed by oversight or
otherwise on the date herein provided for, the directors shall cause a meeting
in lieu thereof to be held as soon thereafter as conveniently may be, and any
business transacted or elections held at such meeting shall be as valid as if
transacted or held at the annual meeting. Such subsequent meeting shall be
called in the same manner as provided for the annual shareholders meeting.
Section 3. Special Meetings.
(a) The holders of a majority of the Class A Preferred
Stock of the Corporation shall have the right at any time to call a special
meeting of the shareholders of the Corporation in order for the shareholders to
vote on a proposal to engage in a business combination transaction with one or
more other businesses, whether by purchase, sale of substantially all assets,
merger, consolidation or otherwise.
<PAGE> 2
(b) At any time following the earlier to occur of: (i)
such time as it shall be possible for the Corporation to do so without resulting
in a breach of any agreement to which the Corporation is a party or any event,
which with or without the giving of notice or the passage of time, would result
in such a breach, or (ii) June 5, 1997, the holders of a majority of the Class A
Preferred Stock of the Corporation shall have the right to call a special
meeting of the shareholders of the Corporation in order for the shareholders to
vote on a proposal to amend the Corporation's Charter and Bylaws as set forth in
this paragraph. Such amendment shall eliminate all special voting rights and
restrictions on-the Class A Preferred Stock and Class C Preferred Stock such
that the Class A Preferred Stock and Class C Preferred Stock shall have no
voting rights except as provided by applicable law. Such amendment shall
eliminate any reference to the special voting rights and restrictions of the
common stock and shall provide for the conversion of all Non-Voting Common Stock
into Voting Common Stock. Such amendment shall delete from the Bylaws the
special approval provisions set forth in Article III, Section 14 hereof.
Section 4. Notice Of Meetings. Notice of all shareholders'
meetings stating the time, place and the objects for which such meetings are
called shall be given by the President or the Vice-President or the Secretary or
an Assistant Secretary to each shareholder of record entitled to vote at such
meeting not less than ten (10) days or more than two (2) months prior to the
date of the meeting by written notice delivered personally, mailed or delivered
via overnight courier to each shareholder. If delivered personally, such notice
shall be deemed to be delivered when received. If mailed or delivered via
overnight courier service, such notice shall be deemed to be delivered when
deposited in the United States Mail in a sealed envelope with postage thereon
prepaid, or deposited with the overnight courier service, as the case may be,
addressed to the shareholder at his address as it appears on the stock record
books of the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notice intended for him be mailed to some
other address, in which case it shall be mailed to the address designated in
such request.
Any meeting at which all shareholders entitled to vote have
waived or at any time shall waive notice shall be a legal meeting for the
transaction of business, notwithstanding that notice has not been given as
herein before provided. The waiver must be in writing, signed by the shareholder
entitled to the notice, and be delivered to the Corporation for inclusion in the
minutes or filing with the corporate records.
Section 5. Notice of Right to Dissent. If shareholders are to
vote at a meeting on a corporate action which would give rise to a dissenter's
right to payment for his shares in accordance with the Tennessee Business
Corporation Act, notice of such meeting shall be given to every shareholder who
will be entitled to dissent from such action and to receive payment for his
shares whether or not entitled to vote thereon. Such notice shall be given in
accordance with the provisions of Section 4 of this Article and shall also
contain a statement, displayed with reasonable prominence, that upon compliance
with the Tennessee Business Corporation Act, dissenting shareholders are
entitled to be paid the fair value of their shares as provided in said
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Act, and shall be accompanied by a copy of chapter 23 of the Tennessee Business
Corporation Act.
Section 6. Closing of Transfer Books or Fixing of Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer book shall be closed for a
stated period not to exceed in any case thirty days. If the stock transfer book
shall be closed for the purpose of determining shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than thirty (30) days and in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof.
Section 7. Voting Lists. The officer or agent having charge of
the stock transfer books for common shares of the Corporation shall make
available, within two (2) business days after notice of a meeting is given, a
complete list of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each shareholder, which list, for a period beginning
within two (2) business days after notice of such meeting is given shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall be kept open at the time and place of the meeting and be subject to the
inspection of any shareholder during the entire time of the meeting. In the
event of any challenge to the right of any person to vote at the meeting, the
presiding officer at such meeting may rely on said list as proper evidence of
the right of parties to vote at such meeting.
Section 8. Quorum. Except as may be otherwise provided by law,
a majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. In the event that a majority of the outstanding shares are
represented at any meeting, action on a matter is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless the
question is one upon which by express provision of law or of the Charter or of
these bylaws a larger or different vote is required, in which case such express
provision shall govern and control the decision of each question.
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Section 9. Proxies. Shareholders of record who are entitled to
vote may vote at any meeting either in person or by written proxy, which shall
be filed with the secretary of the meeting before being voted. Such proxy shall
entitle the holders thereof to vote at any adjournment of such meeting, but
shall not be valid after the final adjournment thereof. No proxy shall be valid
after the expiration of eleven months from the date of its execution unless the
shareholder executing it shall have specified therein the length of time it is
to continue in force, which shall be for some limited period.
Section 10. Voting of Shares. Except as otherwise provided in
the charter or these bylaws, each share of common stock shall have all voting
rights accorded to holders of common stock pursuant to the corporate law of the
state of incorporation, at the rate of one vote per share, except with respect
to the election of directors. With respect to the election of directors of the
Corporation, the holders of the common stock, voting as a separate voting group,
shall have the special and exclusive right at all times to elect four (4)
directors to the Board of Directors of the Corporation. The Class A Preferred
Stock shall not have any voting rights except as set forth in this Section. At
any shareholders meeting called pursuant to Article II, Section 3(a) or Section
3(b) above, each share of Class A Preferred Stock shall entitle the holder
thereof to one vote on the proposal being voted upon, voting together with the
holders of the voting common stock and Class C Preferred Stock as one voting
group. If the shareholders approve such proposal by a majority vote, the matter
shall be submitted to the vote of the Board of Directors of the Corporation. If
the Board of Directors of the Corporation shall not approve the proposal within
five days after the date of the shareholders meeting (a "Board Expansion
Event"), then the holders of the Class A Preferred Stock, voting as a separate
voting group, shall thereafter have the special and exclusive right at all times
to elect two (2) directors to the Board of Directors of the Corporation. The
Class B Preferred Stock shall not have any voting rights. The Class C Preferred
Stock shall not have any voting rights except as set forth in this Section.
Except with respect to the election of directors, the holders of the Class C
Preferred Stock shall have the right to vote on all matters as to which holders
of the common stock shall be entitled to vote (at the rate of one vote per
share), in the same market and with the same effect as such holders of common
stock, voting together with the holders of common stock as one voting group.
With respect to the election of directors for the Corporation, the holders of
the Class C Preferred Stock, voting as a separate voting group, shall have the
special and exclusive right at all times to elect five (5) directors to the
Board of Directors of the Corporation.
Section 11. Informal Action by Shareholders. Any action
required to be taken at a meeting of the shareholders, or any other action which
may be taken at a meeting of the shareholders, may be taken without a meeting if
all shareholders entitled to vote on the action consent to taking such action
without a meeting. If all shareholders entitled to vote on the action consent to
taking such action without a meeting, then the affirmative vote of the number of
shares necessary to authorize such action at a meeting is the act of the
shareholders.
The action must be evidenced by one or more written consents
describing the action taken, signed by each shareholder entitled to vote on the
action, indicating each signing
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shareholder's vote or abstention on the action, and delivered to the Corporation
for inclusion in the minutes or filing with the corporate records.
Section 12. Meetings by any Form of Communication. The
Corporation shall have the power to permit any or all shareholders to
participate in an annual or special meeting by, or conduct the meeting through
the use of, any means of communication by which all shareholders participating
may simultaneously hear each other during the meeting; provided, however, that
the Corporation may permit such shareholder participation only so long as total
number of shareholders of the Corporation is less than fifteen (15)
shareholders. A shareholder who participates in a meeting by this means is
deemed to be present in person at the meeting.
ARTICLE III.
BOARD OF DIRECTORS
Section 1. Number, Tenure and Qualifications. The number of
Directors of the Corporation shall be nine (9) unless and until a Board
Expansion Event occurs, in which case the number of Directors shall be eleven
(11).
Section 2. Powers of Directors. The Board of Directors shall
have the entire management of the business of the Corporation. In the management
and control of the property, business and affairs of the Corporation, the Board
of Directors is hereby vested with all the powers possessed by the Corporation
itself, so far as this delegation of authority is not inconsistent with the laws
of the State of Tennessee, with the Charter of the Corporation, or with these
bylaws. The Board of Directors shall have the power to determine what
constitutes net earnings, profits, and surplus, respectively, what amount shall
be reserved for working capital and to establish reserves for any other proper
purpose, and what amount shall be declared as dividends, and such determination
by the Board of Directors shall be final and conclusive. The Board of Directors
shall have the power to declare dividends for and on behalf of the Corporation,
which dividends may include or consist of stock dividends. A majority of the
directors elected by the holders of the common stock shall have the right to
make all determinations concerning the taking of action by the Corporation to
enforce its rights under the Recapitalization Agreement dated April 26, 1996.
Section 3. Regular Meetings of the Board. Immediately after
the annual election of directors, the newly elected directors may meet at the
same place for the purpose of organization, the election of corporate officers
and the transaction of other business; if a quorum of the directors be then
present no prior notice of such meeting shall be required. Other regular
meetings of the Board shall be held at such times and places as the Board by
resolution may determine and specify, and if so determined no notice thereof
need be given, provided that, unless all the directors are present at the
meeting at which said resolution is passed, the first meeting held pursuant to
said resolution shall not be held for at least five (5) days following the date
on which the resolution is passed.
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Section 4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place whenever called by the President, or
the Vice-President or the Secretary, or by written request of at least two
directors, notice thereof being given to each director by the Secretary or other
officer calling the meeting, or they may be held at any time without formal
notice provided all of the directors are present or those not present shall at
any time waive or have waived notice thereof.
Section 5. Notice. Notice of any special meetings shall be
given at least two (2) days previously thereto by written notice delivered
personally, by mail, by telegram, by overnight courier service, or by facsimile.
If mailed, such notice shall be mailed to each director at his business address
no less than five (5) days previously thereto, and shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. If notice
be delivered via overnight courier service, such notice shall be deemed to be
delivered when deposited with the overnight courier service. If notice be given
by facsimile, such notice shall be deemed to be delivered when information of
the transmission is received.
Section 6. Meetings by any Form of Communication. The Board of
Directors shall have the power to permit any and all directors to participate in
a regular or special meeting by, or conduct the meeting through the use of any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
this means is deemed to be present in person at the meeting.
Section 7. Quorum. A majority of the members of the Board of
Directors, as constituted for the time being, shall constitute a quorum for the
transaction of business, but a lesser number may adjourn any meeting and the
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, a majority of the members present thereat shall decide
any question brought before such meeting, except as otherwise provided by law or
by these bylaws. The fact that a director has an interest in a matter to be
voted on by the meeting shall not prevent his being counted for purposes of a
quorum.
Section 8. Vacancies. Any vacancy occurring in the Board of
Directors, including vacancies by virtue of removal for cause, may be filled
only by the vote of a majority of the voting group which elected the director.
Section 9. Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors, and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as a
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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Section 10. Removal. Any director elected by the holders of
the common stock shall not be subject to removal, other than for cause, unless
such removal is approved by a majority of all the votes entitled to be cast by
the holders of the common stock. Any director elected by the holders of the
Class C Preferred Stock shall not be subject to removal, other than for cause,
unless such removal is approved by a majority of all votes entitled to be cast
by the holders of the Class C Preferred Stock. Following a Board Expansion
Event, any director elected by the holders of the Class A Preferred Stock shall
not be subject to removal, other than for cause, unless such removal is approved
by a majority of all votes entitled to be cast by the holders of the Class A
Preferred Stock. Cause shall be defined as the final conviction of a felony,
declaration of unsound mind by court order, or nonacceptance of office.
Section 11. Committees. The majority of the Board of Directors
may appoint an executive committee or such other committees as it may deem
advisable, composed of one (1) or more directors, and may delegate authority to
such committees as is not inconsistent with the Tennessee Business Corporation
Act. The members of such committee shall serve at the pleasure of the Board of
Directors.
Section 12. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 13. Informal Action by Directors. Any action required
to be taken at a meeting of the Board of Directors, or any other action which
may be taken at a meeting of the Board of Directors, may be taken without a
meeting if all directors consent to taking such action without a meeting. If all
directors consent to taking such action without a meeting, the affirmative vote
of the majority of the directors is the act of the Board of Directors. The
action must be evidenced by one or more written consents describing the action
taken, signed by each director, indicating each signing directors vote or
abstention on the action, and shall be included in the minutes or filed with the
corporate records reflecting the action taken.
Section 14. Approval Regarding Certain Actions. In order for
the Corporation to take any of the following actions, the approval of at least
one of the directors elected by the holders of the common stock shall be
required:
(i) Any sale, lease or assignment of the
Corporation's interest in any assets outside the ordinary course of business.
(ii) Any borrowings or incurrence of
indebtedness (or series of borrowings or incurrences of indebtedness) within any
12-month period, or any commitment for
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any of the foregoing, in an amount exceeding $300,000 by the Corporation or $5
million by the Corporation and its affiliated corporations.
(iii) Any capital expenditures within any
12-month period in excess of $50,000 by the Corporation or $1 million by the
Corporation and its affiliated corporations, in the aggregate.
(iv) Any sale or other issuance, or any purchase
or redemption, of any securities of the Corporation or its affiliated
corporations, as the case may be, by the Corporation.
(v) Any merger or consolidation by the
Corporation with any other entity or corporation or any liquidation or
dissolution.
(vi) Any amendment to the Corporation's Charter
or Bylaws.
(vii) The removal or election of any corporate
officer, or the termination of employment of or hiring of any employee earning
annualized compensation of more than $100,000.
(viii) Any contract with Carl Kirkland, Robert
Kirkland, Bruce Moore, Robert Anderson or any Affiliate of any such individuals
not in the ordinary course of business. An Affiliate shall mean any sole
proprietorship, corporation, partnership, joint venture, association, or any
other entity or organization (a "Person"), which, directly or indirectly, is
controlled by or is under common control with Carl Kirkland, Robert Kirkland,
Bruce Moore or Robert Anderson. The term "control" (including, with correlative
meaning, the terms "controlled by and under common control with"), shall mean
the possession, directly or indirectly, of the power to elect a majority of the
Board of Directors or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
ARTICLE IV.
WAIVER OF NOTICE
Whenever any notice is required to be given by these bylaws,
or the Charter of the Corporation, or any other laws of the State of Tennessee,
a waiver thereof in writing signed by the person or persons entitled to such
notice and filed with the minutes or corporate records, whether before or after
the time stated therein, shall be deemed equivalent thereto. Where the person or
persons entitled to such notice sign the minutes of any shareholder's or
directors meeting, which minutes contain the statement that said person or
persons have waived notice of the meeting, then such person or persons are
deemed to have waived notice in writing.
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ARTICLE V.
OFFICERS
Section 1. Number. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), and a Secretary, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held in such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor is duly
elected and is qualified or until his death or until he resigns or is removed in
the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. President. The President shall be the principal
executive officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside at all meetings of
the shareholders and of the Board of Directors. He may sign, either alone or
with the Secretary, an Assistant Secretary or any other proper officer of the
Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, any deed, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed, and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
Section 6. The Vice-Presidents. In the absence of the
President or in the event of his death, inability or refusal to act, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated at the time of their election, or in the
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absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice-President
may sign, either alone or with the Secretary or an Assistant Secretary,
certificates for shares of the Corporation any deed, mortgages, bonds, contracts
or other instruments which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise signed or
executed, and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the
minutes of the shareholders' and of the Board of Directors' meetings in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of the seal (if any) of the Corporation
and see that said seal is affixed to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized; (d) keep a register
of the post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice-President,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general perform all
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
Section 8. Assistant Secretaries. The Assistant Secretaries,
when authorized by the Board of Directors, may sign with the President or a
Vice-President certificates for shares of the Corporation the issuance of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Secretary, or by the President or the Board of
Directors.
Section 9. Registered Agent. The Board of Directors shall
appoint a Registered Agent for the Corporation in accordance with the Tennessee
Business Corporation Act and may pay the agent such compensation from time to
time as it may deem appropriate.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority may
be general or confined to specific instances.
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Notwithstanding the foregoing, the Corporation shall not make any loan other
than a sale on credit in the ordinary course of business or a life insurance
policy loan, either directly or indirectly, to any director or officer of the
Corporation except with the consent of the holders of a majority of all the
outstanding shares owned or controlled by shareholders other than a shareholder
for whose benefit such action is being taken, or if the Board of Directors
determines that the loan benefits the Corporation and approves the transaction.
Section 3. Checks, Drafts, etc. All checks, drafts, or other
orders for the pavement of money, notes or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall from
time to time be determined by resolution of the, Board of Directors.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may select.
ARTICLE VII.
SHARES OF STOCK
Section 1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or
Vice-President and by the Secretary or an Assistant Secretary. The use of
facsimile signatures on any stock certificate of the Corporation is authorized.
All such certificates shall state the name of the Corporation, that it is
organized under the laws of the State of Tennessee, the name of the person to
whom issued, and the number of shares and class of shares that the certificate
represents. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a number of
shares shall have been surrendered and cancelled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Shares of stock may be
transferred by delivery of the certificate accompanied either by an assignment
in writing on the back of the certificate or by a written power of attorney to
sell, assign and transfer the same on the books of the Corporation, signed by
the person appearing on the certificate to be the owner of the shares
represented thereby, and shall be transferable on the books of the Corporation
upon surrender thereof so assigned or endorsed. The person registered on the
books of the Corporation as the owner of any shares of stock shall be entitled
to all the rights of ownership with respect to such shares. It shall be the duty
of every shareholder to notify the Corporation of his post office address.
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ARTICLE VIII.
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by the Tennessee Business Corporation Act and
by its articles of incorporation.
ARTICLE IX.
FISCAL YEAR
The books of the Corporation shall be on a calendar year basis
and shall begin on the lst day of January and end on the 31st day of December of
each year.
ARTICLE X.
SEAL
This Corporation may or may not have a seal and in any event
the failure to affix a corporate seal to any instrument executed by the
Corporation shall not affect the validity thereof. If a seal is adopted, the
seal of this Corporation shall include the following letters cut or engraved
thereon:
KIRKLAND'S INC.
ARTICLE XI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Civil Proceedings. The Corporation shall indemnify
an individual made a party to a proceeding because he is or was a director or
officer of the Corporation against liability incurred in any civil proceeding if
he conducted himself in good faith and, in the case of conduct, in his official
capacity with the Corporation, he reasonably believed that his conduct was in
the best interest of the Corporation, or in all other cases he reasonably
believed that his conduct was at least not opposed to the best interest of the
Corporation.
Section 2. Criminal Proceedings. The Corporation shall
indemnify any individual made a party to a criminal proceeding because he is or
was a director or officer of the Corporation against any liability incurred in
any criminal proceeding if he had no reasonable cause to believe his conduct was
unlawful.
Section 3. Employee Benefit Plan. The Corporation shall
indemnify any individual made a party to any proceeding because he is or was a
director or officer of the Corporation against any liability incurred in any
proceeding relating to any employee benefit plan maintained by the Corporation
if his conduct with respect to said employee benefit plan was for a
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purpose he reasonably believed to be in the interests of the participants and
the beneficiaries of the plan and his conduct was not opposed to the best
interests of the Corporation.
Section 4. Limitations. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent is not, of itself, determinative that the director or officer did
not meet the standard of conduct required in this Article. However, the
Corporation will not indemnify a director or officer if in connection with a
proceeding by or in the right of the Corporation in which the director was
adjudged liable to the Corporation, or in connection with any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him. The Corporation will indemnify
a director or officer who is wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he is a party because he is or was a
director or officer of the Corporation against reasonable expenses incurred by
him in connection with the proceeding.
Section 5. Advance for Expenses. The Corporation shall pay for
or reimburse the reasonable expenses incurred by a director or officer who is a
party to a proceeding in advance of final disposition of the proceeding if the
director or officer furnishes the Corporation a written affirmation of his good
faith belief that he has met the standard of conduct required in this Article,
furnishes the Corporation a written undertaking, executed personally or on his
behalf, secured or unsecured, to repay the advance if it is ultimately
determined that he did not meet the required standard of conduct, and a
determination is made that the facts then known to those making the
determination would not preclude indemnification of said director or officer.
Section 6. Authorization. A majority vote of the Board of
Directors shall determine whether or not indemnification of a director or
officer is permissible under the circumstances because he has met the required
standard of conduct. Alternatively, a majority vote of the Board of Directors
may appoint an independent special legal counsel to determine whether or not
indemnification of a director or officer is permissible under the circumstances
because he has met the required standard of conduct.
Section 7. Insurance. The Corporation may purchase and
maintain insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation, or who, while a director, officer,
employee, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by him in that capacity or arising from his status as a director,
officer, employee, or agent, whether or not the Corporation would have power to
indemnify him against the same liability under applicable state law.
Section 8. Interpretation. This Article shall be interpreted
to allow indemnification of directors and officers to the fullest extent
allowable under Title 48 of the Tennessee Code Annotated as amended from time to
time.
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ARTICLE XII.
AMENDMENTS
Subject to Article III, Section 14 hereof, the bylaws of the
corporation may be altered, amended or repealed and new bylaws may be adopted at
any meeting of the Board of Directors of the Corporation by a majority vote of
the directors present at the meeting or at any meeting of the shareholders if
the votes cast favoring the amendment exceed the votes cast opposing the
amendment.
ATTEST:
/s/ Robert Alderson
-------------------
Secretary
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EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS OF
KIRKLAND'S INC.
ARTICLE I
OFFICES
Section 1. The principal office of Kirkland's, Inc. (the
"Corporation"), is 805 North Parkway, Jackson, Tennessee 38305. The principal
office may be changed at any time upon a resolution adopted by the Board of
Directors of the Corporation (the "Board of Directors"). The Corporation may
have offices and places of business at such other places within or without the
State of Tennessee as shall be determined by the Board of Directors.
Section 2. The registered office of the Corporation for any
particular state may be, but need not be, identical with the principal office of
the Corporation in that state, and the address of the registered office may be
changed from time to time by appropriate resolution of the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. Meetings. All meetings of shareholders shall be
held either in the principal office of the Corporation or at any other place
within or without the City of Jackson, Tennessee, as designated by the Board of
Directors.
Section 2. Annual Meeting. The annual meeting of the
shareholders shall be held on the second Tuesday in May of each year or such
other date, in any particular year, designated by the Board of Directors, for
the purpose of electing directors and for the transaction of any other business
authorized to be transacted by the shareholders. If the appointed day is a legal
holiday the meeting shall be held at the same time on the next succeeding day
not a holiday. In the event that the annual meeting is committed by oversight or
otherwise on the date herein provided for, the Board of Directors shall cause a
meeting in lieu thereof to be held as soon thereafter as conveniently may be,
and any business transacted or elections held at such meeting shall be as valid
as if transacted or held at the annual meeting. Such subsequent meeting shall be
called in the same manner as provided for the annual shareholders meeting.
Section 3. Special Meetings. Special meetings of shareholders
may be called at any time, but only by the chairman of the Board of Directors
(the "Chairman of the Board"), the president of the Corporation (the
"President"), or upon a resolution adopted by or affirmative vote of a majority
of the Board of Directors, and not by the shareholders.
Section 4. Notice Of Meetings. Notice of all shareholders'
meetings stating the time, place and the objects for which such meetings are
called shall be given by the Chairman of the Board, the President or any
vice-president (a "Vice-President") or the Secretary (the
<PAGE> 2
"Secretary") or any assistant secretary (an "Assistant Secretary") of the
Corporation to each shareholder of record entitled to vote at such meeting not
less than ten (10) days or more than two (2) months prior to the date of the
meeting by written notice delivered personally, mailed or delivered via
overnight courier to each shareholder. If delivered personally, such notice
shall be deemed to be delivered when received. If mailed or delivered via
overnight courier service, such notice shall be deemed to be delivered when
deposited in the United States Mail in a sealed envelope with postage thereon
prepaid, or deposited with the overnight courier service, as the case may be,
addressed to the shareholder at his address as it appears on the stock record
books of the Corporation, unless he shall have filed with the Secretary a
written request that notice intended for him be mailed to some other address, in
which case it shall be mailed to the address designated in such request.
Any meeting at which all shareholders entitled to vote have
waived or at any time shall waive notice shall be a legal meeting for the
transaction of business, notwithstanding that notice has not been given as
herein before provided. The waiver must be in writing, signed by the shareholder
entitled to the notice, and be delivered to the Corporation for inclusion in the
minutes or filing with the corporate records.
Section 5. Notice for Nominations and Proposals.
5.1. Annual Meetings. Nominations for the election of
directors and proposals for any new business to be taken up at any annual
meeting of shareholders may be made by the Board of Directors or, as provided in
this bylaw, by any shareholder of the Corporation entitled to vote generally in
the election of directors, subject to the rights of the holders of preferred
stock, if applicable. In order for a shareholder of the Corporation to make any
such nominations and/or proposals, he shall give notice thereof in writing,
delivered or mailed by first class United States mail, postage prepaid, to the
Secretary so that it is received at least 120 calendar days in advance of the
month and day the Corporation's proxy statement to shareholders was mailed to
shareholders the preceding year, or, if the Corporation's common stock is not
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), not
fewer than 90 days nor more than 120 days prior to any such meeting; provided,
however, that if notice or public disclosure of the meeting is effected fewer
than 40 calendar days before the meeting, such written notice from the
shareholder shall be delivered or mailed, as prescribed, to the Secretary not
later than the close of the 10th calendar day following the day on which notice
of the meeting was mailed to shareholders. Each such notice given by a
shareholder with respect to nominations for the election of directors shall set
forth (i) the name, age, business address and, if known, residence address of
each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, and (iii) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee. As to any other
business that the shareholder proposes to bring before the meeting, such notice
shall set forth (i) a brief description of the business desired to be brought
before the meeting, (ii) the reasons for conducting such business at the meeting
and any material interest in such business of such shareholder and (iii) the
beneficial owner, if any, on whose behalf the proposal is made. As to
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the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, such notice shall set forth (i) the
name and address of such shareholder, as it appears on the Corporation's books,
and of such beneficial owner and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such shareholder and
such beneficial owner.
5.2. Special Meetings. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this bylaw. In the event the
Corporation calls a special meeting of shareholders for the purpose of electing
one or more directors to the Board of Directors, any such shareholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting for inclusion in
the shareholder's notice required by Section 5.1 of these Bylaws if such
nomination shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
shareholder's notice as described above.
5.3. General. Only such persons who are nominated by a
shareholder in accordance with the procedures set forth in this bylaw shall be
eligible to serve as directors and only such business shall be conducted at a
meeting of shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this bylaw. Except as otherwise
provided by law, the charter of the Corporation (the "Charter") or these Bylaws,
the Chairman of the Board shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this bylaw and, if any proposed nomination or business is not in compliance with
this bylaw, to declare that such defective proposal or nomination shall be
disregarded.
5.4. Public Announcement. For purposes of this bylaw,
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
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5.5. Non-Exclusivity. Notwithstanding the foregoing
provisions of this Section 5, in the event the Common Stock of the Corporation
is registered under the Exchange Act, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this bylaw. Nothing in this
Section 5 shall be deemed to affect any rights (i) of shareholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
Section 6. Quorum. Except as may be otherwise provided by law,
a majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. In the event that a majority of the outstanding shares are
represented at any meeting, action on a matter is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless the
question is one upon which by express provision of law or of the Charter or of
these Bylaws a larger or different vote is required, in which case such express
provision shall govern and control the decision of each question. If a quorum of
the shares entitled to vote shall fail to be obtained at any meeting, or in the
event of any other proper business purpose, the chair of the meeting or the
holders of a majority of the shares present, in person or by proxy, may adjourn
the meeting to another place, date or time by announcement to shareholders
present in person at the meeting and no other notice of such place, date or time
need be given.
Section 7. Organization. At every meeting of the shareholders
the Chairman of the Board, or, in his absence, the President, or in the absence
of the Chairman of the Board and the President, a director or an officer of the
Corporation designated by the Board shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary, shall act as secretary at all meetings of
the shareholders. In the absence from any such meeting of the Secretary and any
Assistant Secretary, the chairman may appoint any person to act as secretary of
the meeting.
Section 8. Closing of Transfer Books or Fixing of Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer book shall be closed for a stated period not to exceed
in any case thirty days. If the stock transfer book shall be closed for the
purpose of determining shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than thirty (30) days and not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend,
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the date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof.
Section 9. Voting Lists. The officer or agent having charge of
the stock transfer books for common shares of the Corporation shall make
available, within two (2) business days after notice of a meeting is given, a
complete list of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each shareholder, which list, for a period beginning
within two (2) business days after notice of such meeting is given, shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall be kept open at the time and place of the meeting and be subject to the
inspection of any shareholder during the entire time of the meeting. In the
event of any challenge to the right of any person to vote at the meeting, the
presiding officer at such meeting may rely on said list as proper evidence of
the right of parties to vote at such meeting.
Section 10. Proxies. Shareholders of record who are entitled
to vote may vote at any meeting either in person or by written proxy, which
shall be filed with the secretary of the meeting before being voted. Such proxy
shall entitle the holders thereof to vote at any adjournment of such meeting,
but shall not be valid after the final adjournment thereof. No proxy shall be
valid after the expiration of eleven months from the date of its execution
unless the shareholder executing it shall have specified therein the length of
time it is to continue in force, which shall be for some limited period. A proxy
is revocable by the shareholder unless it conspicuously states that it is
irrevocable and the appointment of the proxy is coupled with an interest.
Section 11. Voting of Shares. Except as otherwise provided in
the Charter or these Bylaws, each share of Common Stock shall have all voting
rights accorded to holders of Common Stock pursuant to the Tennessee Business
Corporation Act, at the rate of one vote per share.
Section 12. Informal Action by Shareholders. Any action
required to be taken at a meeting of the shareholders, or any other action which
may be taken at a meeting of the shareholders, may be taken without a meeting if
all shareholders entitled to vote on the action consent to taking such action
without a meeting. If all shareholders entitled to vote on the action consent to
taking such action without a meeting, then the affirmative vote of the number of
shares that would be necessary to authorize such action at a meeting is the act
of the shareholders.
The action must be evidenced by one or more written consents
describing the action taken, signed by each shareholder entitled to vote on the
action, indicating each signing
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shareholder's vote or abstention on the action, and delivered to the Corporation
for inclusion in the minutes or filing with the corporate records.
Section 13. Business and Order of Business. At each meeting of
the shareholders such business may be transacted as may properly be brought
before such meeting, except as otherwise provided by law or in these Bylaws. The
order of business at all meetings of the shareholders shall be as determined by
the Chairman, unless otherwise determined by a majority in interest of the
shareholders present in person or by proxy at such meeting and entitled to vote
thereat.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number. The number of directors of the Corporation
shall be such number, neither fewer than three nor more than fifteen (exclusive
of directors, if any, to be elected by holders of Preferred Stock of the
Corporation, voting separately as a class), as determined by a majority vote of
the Board of Directors. The Board of Directors has the power to fix or change
the number of directors, including an increase or decrease in the number of
directors, from time to time as established by a majority vote of the Board of
Directors. A director need not be a shareholder or a resident of the state of
Tennessee.
Section 2. Powers of Directors. The Board of Directors shall
have the entire management of the business of the Corporation. In the management
and control of the property, business and affairs of the Corporation, the Board
of Directors is hereby vested with all the powers possessed by the Corporation
itself, so far as this delegation of authority is not inconsistent with the laws
of the State of Tennessee, with the Charter, or with these Bylaws. The Board of
Directors shall have the power to determine what constitutes net earnings,
profits, and surplus, respectively, what amount shall be reserved for working
capital and to establish reserves for any other proper purpose, and what amount
shall be declared as dividends, and such determination by the Board of Directors
shall be final and conclusive. The Board of Directors shall have the power to
declare dividends for and on behalf of the Corporation, which dividends may
include or consist of stock dividends.
Section 3. Regular Meetings of the Board. Immediately after
the annual election of directors, the newly elected directors may meet at the
same place for the purpose of organization, the election of corporate officers
and the transaction of other business; if a quorum of the directors be then
present no prior notice of such meeting shall be required. Other regular
meetings of the Board of Directors shall be held at such times and places as the
Board of Directors by resolution may determine and specify, and if so determined
no notice thereof need be given, provided that, unless all the directors are
present at the meeting at which said resolution is passed, the first meeting
held pursuant to said resolution shall not be held for at least five (5) days
following the date on which the resolution is passed.
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Section 4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place whenever called by the Chairman of
the Board, the President, or any Vice-President or the Secretary, or by written
request of at least two directors, notice thereof being given to each director
by the Secretary or other officer calling the meeting, or they may be held at
any time without formal notice provided all of the directors are present or
those not present shall at any time waive or have waived notice thereof.
Section 5. Notice. Notice of any special meetings shall be
given at least two (2) days previously thereto by written notice delivered
personally, by mail, by telegram, by overnight courier service, or by facsimile.
If mailed, such notice shall be mailed to each director at his business address
no less than five (5) days previously thereto, and shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. If notice
be delivered via overnight courier service, such notice shall be deemed to be
delivered when deposited with the overnight courier service. If notice be given
by facsimile, such notice shall be deemed to be delivered when information of
the transmission is received.
Section 6. Quorum. A majority of the members of the Board of
Directors, as constituted for the time being, shall constitute a quorum for the
transaction of business, but a lesser number may adjourn any meeting and the
meeting may be held as adjourned without further notice. If a quorum is present
when a vote is taken, the affirmative vote of a majority of the directors
present is the act of the Board of Directors, except as otherwise provided by
law or by these Bylaws. The fact that a director has an interest in a matter to
be voted on by the meeting shall not prevent his being counted for purposes of a
quorum.
Section 7. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 8. Informal Action by Directors. Any action required
to be taken at a meeting of the Board of Directors, or any other action which
may be taken at a meeting of the Board of Directors, may be taken without a
meeting if all directors consent to taking such action without a meeting. If all
directors consent to taking such action without a meeting, the affirmative vote
of the [majority of the directors] [the number of directors that would be
necessary to authorize or take such action at a meeting] is the act of the Board
of Directors. The action must be evidenced by one or more written consents
describing the action taken, signed by each director, indicating each signing
director's vote or abstention on the action, and shall be included in the
minutes or filed with the corporate records reflecting the action taken.
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Section 9. Meetings by any Form of Communication. The Board of
Directors shall have the power to permit any and all directors to participate in
a regular or special meeting by, or conduct the meeting through the use of any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
Section 10. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, or, in his absence, the Chief Executive
Officer of the Corporation (the "Chief Executive Officer'), or, in the absence
of the Chairman of the Board and the Chief Executive Officer, the President, or
in the absence of the Chairman of the Board, the Chief Executive Officer and the
President, a director or an officer of the Corporation designated by the Board
of Directors shall act as chairman. The Secretary, or, in the Secretary's
absence, any person appointed by the chairman, shall act as secretary of the
meeting.
Section 11. Removal. No director of the Corporation may be
removed at any time unless for cause. Upon finding of cause as determined by a
majority of the Board of Directors (excluding the director which is the subject
of removal), the director may be removed only upon the affirmative vote of the
holders of at least 80% of outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Power"), considered for this purpose as one class, except as otherwise required
by law.
Section 12. Vacancy. Unless the Board of Directors otherwise
determines, and subject to the rights of the holders of any series of Preferred
Stock, newly created directorships resulting from any increase in the authorized
number of directors or any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause may be filled only by a majority vote of the directors then in office,
though less than a quorum, and shall not be filled by the shareholders unless
there are no directors remaining on the Board of Directors. Any director so
chosen (a "vacancy director") shall be a director of the same class as the
director whose vacancy he or she fills. Such vacancy director shall hold office
until the next annual meeting of shareholders and until his or her successor
shall have been elected and qualified. The shareholders shall thereupon elect a
director to fill the vacancy having been temporarily filled by the vacancy
director, which individual may include the incumbent vacancy director. The
director so elected shall be a director of the same class as the vacancy
director and shall serve until the annual meeting of shareholders at which the
term of office of such class expires and until such director's successor shall
have been duly elected and qualified.
Section 13. Resignations. A director may resign at any time by
delivering written notice to the Board of Directors, the Chairman of the Board
or the President. Resignation is effective when the notice is delivered, unless
the notice specifies a later effective date.
Section 14. Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors. No
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such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES.
Section 1. Appointment and Powers. The Board of Directors may,
by resolution passed by a majority of the whole Board of Directors, create one
or more committees, each committee to consist of two or more directors of the
Corporation, which, to the extent provided in said resolution or in these Bylaws
and not inconsistent with Section 48-18-206 of the Tennessee Business
Corporation Act, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, abolish any such committee.
Section 2. Term of Office and Vacancies. Each member of a
committee shall continue in office until a director to succeed him shall have
been elected and shall have qualified, or until he ceases to be a director or
until he shall have resigned or shall have been removed in the manner
hereinafter provided. Any vacancy in a committee shall be filled by the vote of
a majority of the whole Board of Directors at any regular or special meeting
thereof.
Section 3. Organization. Unless otherwise provided by the
Board of Directors, each committee shall appoint a chairman. Each committee
shall keep a record of its acts and proceedings and report the same from time to
time to the Board of Directors as the Board of Directors may require.
Section 4. Resignations. Any member of a committee may resign
from the committee at any time by giving written notice to the Chairman of the
Board, the President or the Secretary. Such resignation shall take effect at the
time of the receipt of such notice or at any later time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal. Any member of a committee may be removed
from the committee with or without cause at any time by resolution passed by a
majority of the whole Board of Directors at any regular or special meeting.
Section 6. Meetings. Regular meetings of each committee, of
which no notice shall be required, shall be held on such days and at such places
as the chairman of the committee shall determine or as shall be fixed by a
resolution passed by a majority of all the members of such committee. Special
meetings of each committee will be called by the Secretary at the request of any
two members of such committee, or in such other manner as may be determined
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by the committee. Notice of each special meeting of a committee shall be mailed
to each member thereof at least two days before the meeting or shall be given
personally or by telephone or other electronic transmission at least one day
before the meeting. Every such notice shall state the date, time and place of
the meeting, but need not state the purposes of the meeting. No notice of any
meeting of a committee shall be required to be given to any alternate.
Section 7. Quorum and Manner of Acting. Unless otherwise
provided by resolution of the Board of Directors, a majority of a committee
shall constitute a quorum for the transaction of business and the act of a
majority of those present at a meeting at which a quorum is present shall be the
act of such committee. The members of each committee shall act only as a
committee and the individual members shall have no power as such. Actions taken
at a meeting of any committee shall be reported to the Board of Directors at its
next meeting following such committee meeting; provided that, when the meeting
of the Board of Directors is held within two (2) days after the committee
meeting, such report may be made to the Board of Directors at its second meeting
following such committee meeting.
Section 8. Compensation. Each member of a committee shall be
paid such compensation, if any, as shall be fixed by the Board of Directors.
ARTICLE V
WAIVER OF NOTICE
Whenever any notice is required to be given by these Bylaws,
or the Charter, or any other laws of the State of Tennessee, a waiver thereof in
writing signed by the person or persons entitled to such notice and filed with
the minutes or corporate records, whether before or after the time stated
therein, shall be deemed equivalent thereto. Where the person or persons
entitled to such notice sign the minutes of any shareholders' or directors'
meeting, which minutes contain the statement that said person or persons have
waived notice of the meeting, then such person or persons are deemed to have
waived notice in writing. [A shareholder's attendance at a meeting waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting (or promptly upon the shareholder's
arrival) objects to holding the meeting or transacting business at the meeting,
and also waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is presented. A
director's attendance at or participation in a meeting waives any required
notice to the director of the meeting unless the director at the beginning of
the meeting (or promptly upon the director's arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.]
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ARTICLE VI
OFFICERS
Section 1. Number. The officers of the Corporation shall be a
Chairman of the Board, Chief Executive Officer, President, Chief Financial
Officer, Chief Operating Officer, one or more Vice Presidents (the number
thereof to be determined by the Board of Directors), and a Secretary, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person,
except the offices of President and Secretary.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held in such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor is duly
elected and is qualified or until his death or until he resigns or is removed in
the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the shareholders and the directors. The
Chairman of the Board shall represent the Corporation in all matters involving
the shareholders of the Corporation. He shall also perform such other duties the
Board of Directors may assign to him from time to time.
Section 6. Chief Executive Officer. The Chief Executive
Officer shall in general supervise and control all of the business and affairs
of the Corporation. He shall, in the absence of the Chairman of the Board,
preside at all meetings of the shareholders and of the Board of Directors and
shall enforce the observance of the Bylaws of the Corporation and the rules of
order for the meetings of the Board of Directors and the shareholders. He shall
keep the Board of Directors appropriately informed on the business and affairs
of the Corporation. He may sign, either alone or with the Secretary, an
Assistant Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, any deed, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof
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shall be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the Corporation, or shall be required by law to
be otherwise signed or executed, and in general shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
Section 7. President. The President shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He
shall, in the absence of the Chairman of the Board and the Chief Executive
Officer, preside at all meetings of the shareholders and of the Board of
Directors. He may sign, either alone or with any other proper officer, as
necessary, certificates for shares of the Corporation, any deed, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed, and in general shall perform all
duties incident to the office of Chief Executive Officer and such other duties
as may be prescribed by the Board of Directors from time to time.
Section 8. Chief Financial Officer. The Chief Financial
Officer shall arrange for the keeping of adequate records of all assets,
liabilities and transactions of the corporation. He shall provide for the
establishment of internal controls and see that adequate audits are currently
and regularly made. He shall submit to the President, the Chairman of the Board
and the Board of Directors timely statements of the accounts of the corporation
and the financial results of the operations thereof.
Section 9. Chief Operating Officer. The Chief Operating
Officer shall supervise the operation of the Corporation, subject to the
policies and directions of the Board of Directors. He shall provide for the
proper operation of the Corporation and oversee the internal interrelationship
amongst any and all departments of the Corporation. He shall submit to the
President and the Board of Directors timely reports on the operations of the
Corporation.
Section 10. The Vice-Presidents. In the absence of the
President or in the event of his death, inability or refusal to act, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated at the time of their election, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President . Any Vice-President
may sign, either alone or with the Secretary or an Assistant Secretary,
certificates for shares of the Corporation any deed, mortgages, bonds, contracts
or other instruments which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise signed or
executed, and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
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Section 11. The Secretary. The Secretary shall: (a) prepare
and keep the minutes of the shareholders' and of the Board of Directors'
meetings in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these bylaws or as
required by law; (c) be custodian of the corporate records and of the seal (if
any) of the Corporation and see that said seal is affixed to all documents, the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) keep a register of the post office address of each shareholder
which shall be furnished to the Secretary by such shareholder; (e) sign with the
President or a Vice-President certificates for shares of the Corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
Corporation; and (g) in general perform all duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 12. Assistant Secretaries. The Assistant Secretaries,
when authorized by the Board of Directors, may sign with the President or a
Vice-President certificates for shares of the Corporation the issuance of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Secretary, or by the President or the Board of
Directors.
Section 13. Registered Agent. The Board of Directors shall
appoint a Registered Agent for the Corporation in accordance with the Tennessee
Business Corporation Act and may pay the agent such compensation from time to
time as it may deem appropriate.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority may
be general or confined to specific instances. Notwithstanding the foregoing, the
Corporation shall not make any loan other than a sale on credit in the ordinary
course of business or a life insurance policy loan, either directly or
indirectly, to any director or officer of the Corporation except with the
consent of the holders of a majority of all the outstanding shares owned or
controlled by shareholders other than a shareholder for whose benefit such
action is being taken, or if the Board of Directors determines that the loan
benefits the Corporation and approves the transaction.
Section 3. Checks, Drafts, etc. All checks, drafts, or other
orders for the pavement of money, notes or other evidences of indebtedness
issued in the name of the
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Corporation, shall be signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may select.
ARTICLE VIII
SHARES OF STOCK
Section 1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or
Vice-President and by the Secretary or an Assistant Secretary. The use of
facsimile signatures on any stock certificate of the Corporation is authorized.
All such certificates shall state the name of the Corporation, that it is
organized under the laws of the State of Tennessee, the name of the person to
whom issued, and the number of shares and class of shares that the certificate
represents. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
Section 2. Registered Ownership of Shares. The Corporation
shall be entitled to treat the person in whose name any share of its stock is
registered as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such share on the
part of any other person, whether or not the Corporation shall have notice
thereof, except as expressly provided by applicable law.
Section 3. Transfer of Shares. Shares of stock may be
transferred by delivery of the certificate accompanied either by an assignment
in writing on the back of the certificate or by a written power of attorney to
sell, assign and transfer the same on the books of the Corporation, signed by
the person appearing on the certificate to be the owner of the shares
represented thereby, and shall be transferable on the books of the Corporation
upon surrender thereof so assigned or endorsed. The person registered on the
books of the Corporation as the owner of any shares of stock shall be entitled
to all the rights of ownership with respect to such shares. It shall be the duty
of every shareholder to notify the Corporation of his post office address.
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ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by the Tennessee Business Corporation Act and
by its Charter.
ARTICLE X
FISCAL YEAR
The books of the Corporation shall be on a calendar year basis
and shall begin on the lst day of January and end on the 31st day of December of
each year.
ARTICLE XI
SEAL
This Corporation may or may not have a seal and in any event
the failure to affix a corporate seal to any instrument executed by the
Corporation shall not affect the validity thereof. If a seal is adopted, the
seal of this Corporation shall include the following letters cut or engraved
thereon:
KIRKLAND'S INC.
ARTICLE XII
INDEMNIFICATION
Section 1. Definitions. As used in this Article XII:
(a) "Director" shall mean any individual who is or was
a director of the Corporation, or any individual who, [while a director of the
Corporation], is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. A director is considered to be serving an employee benefit plan at
the Corporation's request if the director's duties to the Corporation also
impose duties on or otherwise involves services by the director to the plan or
to participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of the
director;
(b) "Employee or Agent" shall mean any individual who
is or was an employee or agent of the Corporation [other than a director or
officer of the Corporation], or any individual who, is or was serving at the
Corporation's request as an employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise;
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(c) "Expenses" shall include reasonable costs,
disbursements and counsel fees;
(d) "Independent Legal Counsel" means a law firm, or a
member of a law firm, that (i) is experienced in matters of corporation law;
(ii) neither presently is, nor in the past five years has been, retained to
represent the Corporation or the corporate agent claiming indemnification or any
other party to the action, suit, or proceeding giving rise to a claim for
indemnification, in any matter material to the Corporation, the claimant or any
such other party; and (iii) would not, under applicable standards of
professional conduct then prevailing, have a conflict of interest in
representing either the Corporation or such corporate agent in an action to
determine the Corporation's or such person's rights under this Article XII;
(e) "Liability" shall mean any obligation to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan), or reasonable expenses incurred with
respect to a proceeding;
(f) "Officer" shall mean any individual who is or was
an officer of the Corporation, or any individual who is or was serving at the
Corporation's request as an employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(g) "Proceeding" shall mean any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
Section 2. General. Except as provided in Section 4 of this
Article XII, the Corporation shall indemnify any director or officer who is made
a party to any proceeding because the individual is or was a director or officer
against liability incurred in the proceeding if:
(a) the following standards are met:
(i) the individual's conduct was in good faith;
(ii) the individual reasonably believed,
(A) in the case of conduct in the
individual's official capacity with the Corporation, that the individual's
conduct was in the best interest of the Corporation; and
(B) in all other cases, that the
individual's conduct was at least not opposed to the best interests of the
Corporation; and
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(iii) in the case of any criminal proceeding, the
individual had no reasonable cause to believe the individual's conduct was
unlawful;
For purposes of Section 2(a)(ii)(B) hereof, with respect to an employee benefit
plan maintained by the Corporation, the individual shall be deemed to have
reasonably believed that the individual's conduct was not opposed to the best
interests of the Corporation if such conduct was for a purpose the individual
reasonably believed was in the interests of the participants in and
beneficiaries of the plan; and
(b) the individual was wholly successful, on the merits
or otherwise, in the defense of any proceedings to which the individual was a
party because that individual is or was a director or officer of the
Corporation.
Section 3. Termination of Proceedings. The termination of any
action or proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent shall not, of itself, create a presumption
that the director or officer (i) did not act in good faith and in a manner that
the individual reasonably believed to be in, or not opposed to, the best
interests of the Corporation and (ii) with respect to any criminal proceeding,
had reasonable cause to believe that the individual's conduct was unlawful.
Section 4. Limitations. The Corporation shall not indemnify a
director or officer in connection with a proceeding by or in the right of the
Corporation in which such individual was adjudged liable to the Corporation or
in connection with any other proceeding charging improper personal benefit to
the individual, whether or not involving action in the individual's official
capacity, in which the individual was adjudged liable on the basis that personal
benefit was improperly received by such individual.
Section 5. Expenses. The Corporation shall pay for or
reimburse the reasonable expenses incurred by a director or officer who is a
party to a proceeding in advance of final disposition of the proceeding if:
(i) the director or officer furnishes the
Corporation a written affirmation of his good faith belief that he has met the
standard of conduct set forth in Section 2 of this Article XII;
(ii) the director or officer furnishes the
Corporation a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he is not entitled to
indemnification; and
(iii) a determination is made that the facts then
known to those making the determination would not preclude indemnification under
this Article XII.
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Section 6. Determination and Authorization of Indemnification.
The Corporation may not indemnify a director or officer under Section 2 of this
Article XII unless authorized in the specific case after a determination has
been made that indemnification of the director or officer is permissible in the
circumstances because he has met the standard set forth in Section 2 of this
Article XII and is in accordance with the Procedures for Submission and
Determination of Claims for Indemnification set forth in the Appendix to these
Bylaws. The determination shall be made:
(i) By the Board of Directors by majority vote of a
quorum consisting of directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under Section
6(i) of this Article XII, by majority vote of a committee duly designated by the
Board of Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the time parties
to the proceeding;
(iii) By independent legal counsel:
(A) Selected by the Board of Directors or
its committee in the manner prescribed in Section 6(i) or Section 6(ii) of this
Article XII; or
(B) If a quorum of the Board of Directors
cannot be obtained under Section 6(i) and a committee cannot be designated under
Section 6(ii) of this Article XII, selected by majority vote of the full Board
of Directors (in which directors who are parties may participate); or
(iv) By the shareholders, but shares owned by or
voted under the control of directors who are at the time parties to the
proceeding may not be voted on the determination.
Section 7. Determination and Authorization of Expenses
Authorization of indemnification and evaluation that indemnification is
permissible as to reasonableness of expenses under Section 5 of this Article XII
shall be made in the same manner as the determination that indemnification is
permissible, except that, if the determination is made by independent legal
counsel, authorization of indemnification and evaluation as to reasonableness of
expenses shall be made by those entitled under Section 6(iii) of this Article
XII to select counsel.
Section 8. Employees and Agents. The Corporation may indemnify
and advance expenses to an employee or agent of the Corporation to the same
extent as a director or officer under Section 2 of this Article XII, subject to
the determination and authorization of indemnification procedures set forth in
Section 6 of this Article XII and in the Appendix to these Bylaws.
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Section 9. Applicability. The indemnification and advancement
of expenses granted pursuant to this Article XII shall not be deemed exclusive
of any other rights to which a director, officer, employee or agent seeking
indemnification or advancement of expenses may be entitled, whether contained in
the Charter or Bylaws of the Corporation, or authorized in a resolution of
shareholders, a resolution of directors, or an agreement providing for such
indemnification, to the extent permitted by applicable law.
Section 10. Intent and Interpretation. It is the intention of
this Article XII to provide for indemnification of directors and officers to the
fullest extent permitted by the Tennessee Business Corporation Act, and this
Article XII shall be interpreted accordingly. If this Article XII or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director,
officer, employee, and agent of the Corporation as to costs, charges, and
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any proceeding, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article XII that shall not have been invalidated and to the full extent
permitted by applicable law. If the Tennessee Business Corporation Act is
amended or other Tennessee law is enacted to permit further or additional
indemnification of a director, officer, employee or agent of the Corporation
beyond that provided in this Article XII, then the Corporation shall be
permitted to indemnify such director, officer, employee or agent to the fullest
extent permitted by the Tennessee Business Corporation Act, as so amended, or by
such other Tennessee law.
Section 11. Insurance. The Corporation may purchase and
maintain insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation, or who, while a director, officer,
employee, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by the individual in that capacity or arising from the individual's
status as a director, officer, employee, or agent, whether or not the
Corporation would have power to indemnify him against the same liability under
applicable state law.
ARTICLE XIII
AMENDMENTS
The Board of Directors is expressly authorized to repeal,
alter, amend or rescind these Bylaws of the Corporation by vote of a majority of
the Board of Directors at a legal meeting held in accordance with these Bylaws.
Notwithstanding any other provision of the Charter or these Bylaws (and
notwithstanding some lesser percentage may be specified by law), the Bylaws
shall be repealed, altered, amended or rescinded by the shareholders of the
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Corporation only by affirmative vote of at least 80 % of the outstanding shares
of capital stock of the Corporation entitled to vote generally, considered for
this purpose as one class.
ATTEST:
-------------------------------------
Name:
Title:
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<PAGE> 21
APPENDIX
PROCEDURES FOR SUBMISSION AND
DETERMINATION OF CLAIMS FOR INDEMNIFICATION
PURSUANT TO ARTICLE XII OF THE BYLAWS.
Section 1. Purpose. The Procedures for Submission and
Determination of Claims for Indemnification Pursuant to Article XII of the
Bylaws (the "Procedures") are to implement the provisions of Article XII of the
Bylaws of the Corporation (the "Bylaws") in compliance with the requirements of
Section 6 of Article XII.
Section 2. Definitions. For purposes of these Procedures:
(a) All terms that are defined in Section 1 of Article
XII of the Bylaws shall have the meanings ascribed to them therein when used in
these Procedures unless otherwise defined herein.
(b) "Change of control" shall mean:
(i) the acquisition in one or more transactions by
any "Person" (as the term person is used for
purposes of Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the "Exchange
Act")) of "Beneficial ownership" (within the
meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty-five percent (25%) or
more of the combined voting power of the
Corporation's then outstanding voting
securities (the "Voting Securities"), provided
that for purposes of this clause (i) Voting
Securities acquired directly from the
Corporation by any Person shall be excluded
from the determination of such Person's
Beneficial ownership of Voting Securities (but
such Voting Securities shall be included in
the calculation of the total number of Voting
Securities then outstanding); or
(ii) approval by shareholders of the Corporation
of:
(A) a merger, reorganization or consolidation
involving the Corporation if the
shareholders of the Corporation
immediately before such merger,
reorganization or consolidation do not or
will not own directly or indirectly
immediately following such merger,
reorganization or consolidation, more
than fifty percent (50%) of the combined
voting
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power of the outstanding voting
securities of the Corporation resulting
from or surviving such merger,
reorganization or consolidation in
substantially the same proportion as
their ownership of the Voting Securities
outstanding immediately before such
merger, reorganization or consolidation;
or
(B) a complete liquidation or dissolution of
the Corporation; or
(C) an agreement for the sale or other
disposition of all or substantially all
of the assets of the Corporation; or
(iii) acceptance by shareholders of the Corporation
of shares in a share exchange if the
shareholders of the Corporation immediately
before such share exchange do not or will not
own directly or indirectly immediately
following such share exchange more than fifty
percent (50%) of the combined voting power of
the outstanding voting securities of the
entity with which the shareholders effect
such share exchange in substantially the same
proportion as their ownership of the Voting
Securities outstanding immediately before
such share exchange.
Section 3. Submission and Determination of Claims.
(a) To obtain indemnification or advancement of
expenses under [Section 2, Section 5 or Section 8 of] Article XII of the Bylaws,
a corporate agent shall submit to the Secretary of the Corporation a written
request therefor, including therein or therewith such documentation and
information as is reasonably available to the corporate agent and is reasonably
necessary to permit a determination as to whether and what extent the Corporate
agent is entitled to indemnification or advancement of expenses, as the case may
be. The Secretary shall, promptly upon receipt of a request for indemnification,
advise the Board of Directors thereof in writing if a determination in
accordance with Section 6 of Article XII of the Bylaws is required.
(b) Upon written request by an corporate agent for
indemnification pursuant to Section 3(a) hereof, a determination with respect to
the corporate agent's entitlement thereto in the specific case, if required by
the Bylaws, shall be made in accordance with Section 6 of Article XII of the
Bylaws, and, if it is so determined that the corporate agent is entitled to
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indemnification, payment to the corporate agent shall be made within ten days
after such determination. The corporate agent shall cooperate with the person,
persons or entity making such determination, with respect to the corporate
agent's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to the corporate agent and reasonably necessary to
such determination.
(c) If entitlement to indemnification is to be made by
independent legal counsel pursuant to Section 6(iii) of Article XII of the
Bylaws such counsel shall be selected as provided in this Section 3(c). If a
change of control shall not have occurred, the independent legal counsel shall
be selected by the Board of Directors as set forth in Section 6(iii) of Article
XII of the Bylaws, and the Corporation shall give written notice to the
corporate agent advising the corporate agent of the identity of the independent
legal counsel so selected. If a change of control shall have occurred, the
independent legal counsel shall be selected by the corporate agent (unless the
corporate agent shall request that such selection be made by the Board of
Directors, in which event the immediately preceding sentence shall apply), and
the corporate agent shall give written notice to the Corporation advising it of
the identity of the independent legal counsel so selected. In either event, the
corporate agent or the Corporation, as the case may be, may, within seven days
after such written notice of selection shall have been given, deliver to the
Corporation or to the corporate agent, as the case may be, a written objection
to such selection. Such objection may be asserted only on the ground that the
independent legal counsel so selected does not meet the requirements of
"independent legal counsel" as defined in Section 1 of Article XII of the
Bylaws, and the objection shall set forth with particularity the factual basis
of such assertion. If such written objection is made, the independent legal
counsel so selected may not serve as independent legal counsel unless and until
a court has determined that such objection is without merit. If, within twenty
days after the next regularly scheduled Board of Directors meeting following
submission by the corporate agent of a written request for indemnification
pursuant to Section 3(a) hereof, no independent legal counsel shall have been
selected and not objected to, either the Corporation or the corporate agent may
petition the [SPECIFY COURT] Court of the State of Tennessee or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Corporation or the corporate agent to the other's selection of
independent legal counsel and/or for the appointment as independent legal
counsel of a person selected by the Court or by such other person as the Court
shall designate, and the person with respect to whom an objection is favorably
resolved or the person so appointed shall act as independent legal counsel under
Section 6(iii) of Article XII of the Bylaws. The Corporation shall pay any and
all reasonable fees and expenses (including without limitation any advance
retainers reasonably required by counsel) of independent legal counsel incurred
by such independent legal counsel in connection with acting pursuant to Section
6(iii) of Article XII of the Bylaws, and the Corporation shall pay all
reasonable fees and expenses (including without limitation any advance retainers
reasonably required by counsel) incident to the procedures of Section 6(iii) of
Article XII of the Bylaws and this Section 3(c), regardless of the manner in
which independent legal counsel was selected or appointed. Upon the delivery of
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its opinion pursuant to Section 6(iii) of Article XII of the Bylaws or, if
earlier, the due commencement of any judicial proceeding or arbitration pursuant
to Section 4(a)(3) of these Procedures, independent legal counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
(d) If a change of control shall have occurred, in
making a determination with respect to entitlement to indemnification under the
Bylaws, the person, persons or entity making such determination shall presume
that an corporate agent is entitled to indemnification under the Bylaws if the
corporate agent has submitted a request for indemnification in accordance with
Section 3(a) hereof, and the Corporation shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
Section 4. Review and Enforcement of Determination.
(a) In the event that (1) advancement of expenses is
not timely made pursuant to Section 5 of Article XII of the Bylaws, (2) payment
of indemnification is not made pursuant to Section 2 of Article XII of the
Bylaws within ten days after receipt by the Corporation of written request
therefor, (3) a determination is made pursuant to Section 6 of Article XII of
the Bylaws that a corporate agent is not entitled to indemnification under the
Bylaws, (4) the determination of entitlement to indemnification is to be made by
independent legal counsel pursuant to Section 6(iii) of Article XII of the
Bylaws and such determination shall not have been made and delivered in a
written opinion within ninety days after receipt by the Corporation of the
written request for indemnification, or (5) payment of indemnification is not
made within ten days after a determination has been made pursuant to Section 6
of Article XII of the Bylaws that a corporate agent is entitled to
indemnification, the corporate agent shall be entitled to an adjudication in an
appropriate court of the State of Tennessee, or in any other court of competent
jurisdiction, of the corporate agent's entitlement to such indemnification or
advancement of expenses. Alternatively, the corporate agent, at his or her
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. The corporate
agent shall commence such proceeding seeking an adjudication or an award in
arbitration within one year following the date on which the corporate agent
first has the right to commence such proceeding pursuant to this Section 4(a).
The Corporation shall not oppose the corporate agent's right to seek any such
adjudication or award in arbitration.
(b) In the event that a determination shall have been
made pursuant to Section 6 of Article XII of the Bylaws that a corporate agent
is not entitled to indemnification, any judicial proceeding or arbitration
commenced pursuant to this Section 4 shall be conducted in all respects as a de
novo trial, or arbitration, on the merits and the corporate agent shall not be
prejudiced by reason of that adverse determination. If a change of control shall
have occurred, the Corporation shall have the burden of proving in any judicial
proceeding or arbitration
A-4
<PAGE> 25
commenced pursuant to this Section 4 that the corporate agent is not entitled to
indemnification or advancement of expenses, as the case may be.
(c) If a determination shall have been made or deemed
to have been made pursuant to Section 6 of Article XII of the Bylaws that a
corporate agent is entitled to indemnification, the Corporation shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 4, absent (1) a misstatement or omission of a material
fact in connection with the corporate agent's request for indemnification, or
(2) a prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting
in any judicial proceeding or arbitration commenced pursuant to this Section 4
that the procedures and presumptions of these Procedures are not valid, binding
and enforceable, and shall stipulate in any such judicial proceeding or
arbitration that the Corporation is bound by all the provisions of these
Procedures.
(e) In the event that a corporate agent, pursuant to
this Section 4, seeks to enforce the corporate agent's rights under, or to
recover damages for breach of, Article XII of the Bylaws or these Procedures in
a judicial proceeding or arbitration, the Corporate agent shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all expenses [(of the types described in the definition of
expenses in Section 1 of Article XII of the Bylaws)] actually and reasonably
incurred in such judicial proceeding or arbitration, but only if the corporate
agent prevails therein. If it shall be determined in such judicial proceeding or
arbitration that the corporate agent is entitled to receive part but not all of
the indemnification or advancement of expenses sought, the expenses incurred by
the corporate agent in connection with such judicial proceeding or arbitration
shall be appropriately prorated.
Section 5. AMENDMENTS. These Procedures may be amended at any
time and from time to time in the same manner as any bylaw of the Corporation in
accordance with the Amended and Restated Charter of the Corporation and the
Bylaws; provided, however, that notwithstanding any amendment, alteration or
repeal of these Procedures or any provision hereof, any corporate agent shall be
entitled to utilize these Procedures with respect to any claim for
indemnification arising out of any action taken or omitted prior to such
amendment, alteration or repeal except to the extent otherwise required by law.
A-5
<PAGE> 1
Exhibit 4.1
KIRKLAND'S INC.
NUMBER SHARES
SC
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF TENNESSEE CUSIP_____________________________
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
KIRKLAND'S INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed or assigned. This certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Charter and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Kirkland's, Inc.
Corporate Seal
1981
Tennessee
/s/ Carl Kirkland /s/ Robert E. Alderson
Chief Executive Officer Secretary
COUNTERSIGNED AND REGISTERED
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _______________ Custodian _______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________
SIGNATURE(S) GUARANTEED: _________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the certificate in every particular without
alteration or enlargement or any change whatever.
The signature of the person executing this power
must be guaranteed by an Eligible Guarantor
Institution such as a Commercial Bank, Trust
Company, Securities Broker/Dealer, Credit Union,
or a Savings Association participating in a
Medallion program approved by the Securities
Transfer Association, Inc.
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
AMONG
KIRKLAND HOLDINGS L.L.C.
THE BORROWERS SPECIFIED HEREIN,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
THE FIRST NATIONAL BANK OF BOSTON,
AS ADMINISTRATIVE AGENT
AND
LEHMAN COMMERCIAL PAPER INC.,
AS ADVISOR AND ARRANGER
DATED AS OF JUNE 12, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................... 2
1.1 Defined Terms.................................................. 2
1.2 Other Definitional Provisions.................................. 22
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 22
2.1 Tranche A Term Loans........................................... 22
2.2 Procedure for Tranche A Term Loan Borrowing.................... 22
2.3 Tranche B Term Loans........................................... 23
2.4 Procedure for Tranche B Term Loan Borrowing.................... 23
2.5 Revolving Credit Commitments................................... 23
2.6 Procedure for Revolving Credit Borrowing....................... 24
2.7 Clean-Up....................................................... 24
2.8 Commitment Fees, etc. ......................................... 25
2.9 Repayment of Loans; Evidence of Debt........................... 25
2.10 Termination or Reduction of Revolving Credit Commitments...... 26
2.11 Optional Prepayments.......................................... 26
2.12 Mandatory Prepayments and Commitment Reductions............... 27
2.13 Conversion and Continuation Options........................... 28
2.14 Minimum Amounts and Maximum Number of Eurodollar Tranches..... 29
2.15 Interest Rates and Payment Dates.............................. 29
2.16 Computation of Interest and Fees.............................. 30
2.17 Inability to Determine Interest Rate.......................... 30
2.18 Pro Rata Treatment and Payments; Use of Proceeds.............. 31
2.19 Illegality.................................................... 32
2.20 Requirements of Law........................................... 32
2.21 Taxes ........................................................ 33
2.22 Indemnity..................................................... 35
2.23 Change of Lending Office...................................... 35
2.24 Right of Contribution......................................... 35
2.25 Swing Line Commitment......................................... 36
2.26 Procedure for Swing Line Borrowing............................ 36
2.27 Refunded Swing Line Loans; Swing Line Loan Participations..... 37
SECTION 3. LETTERS OF CREDIT............................................... 38
3.1 L/C Commitment................................................. 38
3.2 Procedure for Issuance of Letter of Credit..................... 39
3.3 Fees, Commissions and Other Charges............................ 39
3.4 L/C Participations............................................. 40
3.5 Reimbursement Obligation of the Borrowers...................... 41
3.6 Obligations Absolute........................................... 41
3.7 Letter of Credit Payments...................................... 41
3.8 Applications................................................... 42
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<PAGE> 3
Page
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 42
4.1 Financial Condition............................................ 42
4.2 No Change...................................................... 43
4.3 Corporate Existence; Compliance with Law....................... 43
4.4 Corporate Power; Authorization; Enforceable Obligations........ 43
4.5 No Legal Bar................................................... 44
4.6 No Material Litigation......................................... 44
4.7 No Default..................................................... 44
4.8 Ownership of Property; Liens................................... 44
4.9 Intellectual Property.......................................... 44
4.10 No Burdensome Restrictions.................................... 45
4.11 Taxes ........................................................ 45
4.12 Federal Regulations........................................... 45
4.13 ERISA ........................................................ 45
4.14 Investment Company Act; Other Regulations..................... 46
4.15 Subsidiaries.................................................. 46
4.16 Purpose of Loans; Limitations on Use.......................... 46
4.17 Environmental Matters......................................... 46
4.18 Accuracy of Information....................................... 47
4.19 Security Documents............................................ 48
4.20 Solvency...................................................... 48
4.21 Purchase Agreement Representations and Warranties............. 48
SECTION 5. CONDITIONS PRECEDENT............................................ 48
5.1 Conditions to Initial Extension of Credit...................... 48
5.2 Conditions to Each Extension of Credit......................... 53
SECTION 6. AFFIRMATIVE COVENANTS........................................... 54
6.1 Financial Statements........................................... 54
6.2 Certificates; Other Information................................ 55
6.3 Payment of Obligations......................................... 56
6.4 Conduct of Business and Maintenance of Existence, etc. ........ 56
6.5 Maintenance of Property; Insurance............................. 56
6.6 Inspection of Property; Books and Records; Discussions......... 57
6.7 Notices........................................................ 57
6.8 Environmental Laws............................................. 58
6.9 Interest Rate Protection....................................... 58
6.10 Further Assurances............................................ 58
6.11 Additional Collateral......................................... 58
6.12 Key Man Life Insurance........................................ 59
6.13 Store Locations............................................... 59
6.14 Landlord Waivers.............................................. 59
6.15 Purchase Agreement Affirmative Covenants...................... 59
6.16 Termination of Series C Preferred Voting Rights............... 60
SECTION 7. NEGATIVE COVENANTS.............................................. 60
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<PAGE> 4
Page
7.2 Limitation on Indebtedness..................................... 63
7.3 Limitation on Liens............................................ 64
7.4 Limitation on Guarantee Obligations............................ 65
7.5 Limitation on Fundamental Changes.............................. 65
7.6 Limitation on Sale of Assets................................... 66
7.7 Limitation on Restricted Payments.............................. 66
7.8 Limitation on Capital Expenditures............................. 67
7.9 Limitation on Investments, Loans and Advances.................. 67
7.10 Limitation on Optional Payments and Modifications
of Debt Instruments and Preferred Stock, etc................. 68
7.11 Limitation on Transactions with Affiliates.................... 68
7.12 Limitation on Sales and Leasebacks............................ 68
7.13 Limitation on Changes in Fiscal Year.......................... 69
7.14 Limitation on Negative Pledge Clauses......................... 69
7.15 Limitation on Lines of Business............................... 69
7.16 Limitation on Activities of the Parent........................ 69
7.17 Purchase Agreement Negative Covenants......................... 69
SECTION 8. EVENTS OF DEFAULT............................................... 70
SECTION 9. THE ADMINISTRATIVE AGENT........................................ 73
9.1 Appointment.................................................... 73
9.2 Delegation of Duties........................................... 74
9.3 Exculpatory Provisions......................................... 74
9.4 Reliance by Administrative Agent............................... 74
9.5 Notice of Default.............................................. 75
9.6 Non-Reliance on Administrative Agent and Other Lenders......... 75
9.7 Indemnification................................................ 75
9.8 Administrative Agent in Its Individual Capacity................ 76
9.9 Successor Administrative Agent................................. 76
9.10 The Arranger.................................................. 76
SECTION 10. GUARANTEE...................................................... 77
10.1 Guarantee..................................................... 77
10.2 No Subrogation, Contribution, Reimbursement or Indemnity...... 77
10.3 Amendments, etc. with respect to the Obligations.............. 77
10.4 Guarantee Absolute and Unconditional.......................... 78
10.5 Reinstatement................................................. 79
10.6 Payments...................................................... 79
SECTION 11. MISCELLANEOUS.................................................. 79
11.1 Amendments and Waivers........................................ 79
11.2 Notices....................................................... 80
11.3 No Waiver; Cumulative Remedies................................ 82
11.4 Survival...................................................... 82
11.5 Payment of Expenses and Taxes................................. 82
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<PAGE> 5
Page
11.6 Successors and Assigns; Participations and Assignments........ 83
11.7 Adjustments; Set-off.......................................... 86
11.8 Counterparts.................................................. 87
11.9 Severability.................................................. 87
11.10 Integration.................................................. 87
11.11 GOVERNING LAW................................................ 87
11.12 Submission To Jurisdiction; Waivers.......................... 87
11.13 Acknowledgements............................................. 88
11.14 WAIVERS OF JURY TRIAL........................................ 88
11.15 Confidentiality.............................................. 89
11.16 Reliance on Representations and Actions of Designated
Borrower.................................................... 89
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<PAGE> 6
SCHEDULES:
1.1A Schedule of Borrowers
1.1B Commitments and Addresses of Lenders
1.1C Mortgaged Property
1.1D Tranche A Term Loan Amortization Schedule
1.1E Tranche B Term Loan Amortization Schedule
4.4 Consents, Authorizations, Filings and Notices
4.19(b) UCC Filing Jurisdictions
4.19(c) Mortgage Filing Jurisdiction
5.1(y) Prior Credit Facilities
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.4(a) Existing Guarantee Obligations
7.11 Transactions with Affiliates
EXHIBITS:
A-1 Form of Revolving Credit Note
A-2 Form of Tranche A Term Note
A-3 Form of Tranche B Term Note
A-4 Form of Swing Line Note
B Form of Borrowers Security Agreement
C Form of Mortgage
D Form of Assignment and Acceptance
E-1 Form of Parent Pledge Agreement
E-2 Form of Management Pledge Agreement
F Form of Assignment of Insurance
G Form of Closing Certificate
H-1 Legal Opinion of Pepper, Hamilton & Scheetz
H-2 Legal Opinion of Baker, Donelson, Bearman & Caldwell
I-1 Form of Alternative Revolving Credit Note
I-2 Form of Alternative Tranche A Term Note
I-3 Form of Alternative Tranche B Term Note
J Form of Swing Line Loan Participation Certificate
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<PAGE> 7
CREDIT AGREEMENT, dated as of June 12, 1996, among Kirkland's Holdings
L.L.C., a Delaware limited liability company (the "Parent"), the entities listed
on Schedule 1.1A hereto, as joint and several borrowers hereunder (the
"Borrowers"), the several banks and other financial institutions or entities
from time to time parties to this Agreement (the "Lenders"), The First National
Bank of Boston, as Administrative Agent (as hereinafter defined) for the Lenders
hereunder, and Lehman Commercial Paper Inc., as advisor and arranger with
respect to the credit facilities contained herein (the "Arranger").
W I T N E S S E T H
WHEREAS, funds (the "Advent Funds") affiliated with Advent International
Corporation ("Advent") own 64.26% of the membership interests of the Parent;
WHEREAS, the Parent has agreed to acquire all of the Class A Preferred
Stock and common stock from each of the Borrowers which after the transactions
contemplated by the Recapitalization Agreement (as defined herein) will comprise
approximately 68.4% of the common stock of each of the Borrowers;
WHEREAS, immediately following the Parent's investment in the Borrowers, a
portion of the capital stock of the Borrowers owned by Carl Kirkland, Bruce
Moore, Robert Alderson (collectively, the "Management Shareholders") and Robert
Kirkland (together with the Management Shareholders, the "Individual
Shareholders") will be redeemed (the "Redemptions");
WHEREAS, the Redemptions will be financed by (a) the issuance by the
Borrowers of: (i) $20,000,000 of 12.25% to 12.50% senior subordinated notes (the
"Subordinated Debt") to Capital Resource Lenders II, L.P., Allied Capital
Corporation, Allied Capital Corporation II and The Marlboro Capital Investment
Fund, L.P., and Capital Trust Investments, Ltd. (collectively, the "Subordinated
Debt Holders"); (ii) at least $30,749,220 of Series A Redeemable Preferred Stock
(the "Series A Preferred") to the Parent; and (iii) at least $14,205,780 of
Series B Redeemable Preferred Stock (the "Series B Preferred") to the Individual
Shareholders and (b) borrowings under the credit facilities provided for herein
in an amount not to exceed $52,000,000;
WHEREAS, following the Redemptions, certain Individual Shareholders will
purchase common stock of the Borrowers and the Borrowers will recapitalize so
that each of the Individual Shareholders owns 25% of the outstanding Class B
Preferred Stock and 7.9% of the outstanding common stock of the Borrowers;
WHEREAS, in connection with the issuance of the Subordinated Debt, the
Borrowers have issued to the Subordinated Debt Holders the Warrants (as defined
below);
WHEREAS, the Borrowers have requested that the Lenders make the Loans and
issue and participate in the Letters of Credit (as defined herein) to provide
for a portion of the financing required for the Redemptions and the ongoing
working capital needs of the Borrowers;
<PAGE> 8
2
WHEREAS, all the obligations of the Borrowers under the Loan Documents (as
defined herein) will be secured by, among other things, (i) a security interest
in and perfected lien on certain assets and property of the Borrowers and (ii) a
pledge of all the issued and outstanding capital stock of each Borrower, and all
such obligations will be unconditionally guaranteed by the Parent;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Administrative Agent": The First National Bank of Boston, together
with its affiliates, as the administrative agent for the Lenders under
this Agreement and the other Loan Documents, and together with any of
their respective successors.
"Advent": as defined in the recitals hereto.
"Advent Funds": as defined in the recitals hereto.
"Aggregate Outstanding Revolving Extensions of Credit": as to any
Revolving Credit Lender at any time, an amount equal to the sum of (a) the
aggregate principal amount of all Revolving Credit Loans made by such
Lender then outstanding, (b) such Lender's Revolving Credit Percentage of
the L/C Obligations then outstanding and (c) such Lender's Revolving
Credit Percentage of the aggregate principal amount of Swing Line Loans
then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Alternative Note": as defined in Section 11.6(d).
"Alternative Noteholder": as defined in Section 11.6(e).
<PAGE> 9
3
"Applicable Margin": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
<TABLE>
<CAPTION>
Eurodollar
Base Rate Loans Loans
--------------- ----------
<S> <C> <C>
Revolving Credit Loans 2-1/4% 3-1/4%
Tranche A Loans 2-1/4% 3-1/4%
Tranche B Term Loans 2-3/4% 3-3/4%
</TABLE>
"Application": an application, in such form as the Issuing Lender
may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit.
"Arranger": as defined in the preamble hereto.
"Asset Sale": any sale or other disposition by the Parent, any
Borrower or any of their Subsidiaries of any asset or assets of the
Parent, such Borrower or such Subsidiary (including any sale and leaseback
of assets and any mortgage of real property other than pursuant to a
Mortgage); provided, that any sale of assets expressly permitted by
clauses (a), (b), (c) or (d) of Section 7.6 shall not constitute an "Asset
Sale" hereunder.
"Assignee": as defined in Section 11.6(c).
"Assignment of Insurance": the Assignments of Insurance, each
executed and delivered by [the appropriate Borrower], substantially in the
form of Exhibit F, as the same may be amended, supplemented or otherwise
modified from time to time.
"Available Revolving Credit Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment over (b) such Lender's Aggregate Outstanding
Revolving Extensions of Credit; provided, that in calculating any Lender's
Aggregate Outstanding Revolving Extensions of Credit for the purpose of
determining such Lender's Available Revolving Credit Commitment pursuant
to Section 2.8(a), the aggregate unpaid principal amount of Swing Line
Loans then outstanding shall be deemed to be zero.
"Base Rate": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to time
by the Administrative Agent as its prime or base rate in effect at its
principal office in Boston, Massachusetts; and "Federal Funds Effective
Rate" shall mean, for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received
<PAGE> 10
4
by the Administrative Agent from three federal funds brokers of recognized
standing selected by it. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Effective Rate shall be effective as
of the opening of business on the effective day of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is
based upon the Base Rate.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowers Security Agreement": the Borrowers Security Agreement to
be executed and delivered by each Borrower, substantially in the form of
Exhibit B, as the same may be amended, supplemented or otherwise modified
from time to time.
"Borrowing Date": any Business Day specified in a notice pursuant to
Section 2.2, 2.4, 2.6 or 2.26 as a date on which the Designated Borrower
requests the Lenders to make Loans hereunder.
"Business": as defined in Section 4.17.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in Boston, Massachusetts are authorized or required
by law to close.
"Capital Expenditures": for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for
the acquisition or leasing (pursuant to a capital lease) of fixed or
capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which should be
capitalized under GAAP on a combined balance sheet of such Person and its
Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any
of the foregoing.
<PAGE> 11
5
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or
less from the date of acquisition issued by any Lender or by any
commercial bank organized under the laws of the United States or any state
thereof having combined capital and surplus of not less than $250,000,000;
and (c) commercial paper of (i) an issuer rated at least A-1 by Standard &
Poor's Ratings Services or P-1 by Moody's Investors Service, Inc., or
carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of
commercial paper issuers generally or (ii) the holding company of any
Lender, and, in either case, maturing within six months from the date of
acquisition.
"C/D Assessment Rate": for any day as applied to any Base Rate Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.3(d) (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or
such successor's) insuring time deposits at offices of such institution in
the United States.
"C/D Reserve Percentage": for any day as applied to any Base
Rate Loan, that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board, for determining the maximum
reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board as in effect from time to time) in respect of
new non-personal time deposits in Dollars having a maturity of 30 days
or more.
"Certificate of Designations": the Certificate of Designations,
dated June 7, 1996 and effective as of June 12, 1996 at 12:01 a.m., of
each Borrower.
"Closing Date": the date on which the conditions precedent set forth
in Section 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all assets of the Loan Parties or the Individual
Shareholders, now owned or hereafter acquired, upon which a Lien is
purported to be created by any Security Document.
"Combined Current Assets": at a particular date, all amounts (other
than cash and Cash Equivalents) which would, in conformity with GAAP, be
set forth opposite
<PAGE> 12
6
the caption "total current assets" (or any like caption) on a combined
balance sheet of the Borrowers and their Subsidiaries at such date.
"Combined Current Liabilities": at a particular date, all amounts
which would, in conformity with GAAP, be set forth opposite the caption
"total current liabilities" (or any like caption) on a combined balance
sheet of the Borrowers and their Subsidiaries at such date, but excluding
(a) the current portion of any Funded Debt of the Borrowers and their
Subsidiaries and (b) without duplication of clause (a) above, all
Indebtedness consisting of Revolving Credit Loans or Swing Line Loans to
the extent otherwise included therein.
"Combined EBITDA": for any period, Combined Net Income for such
period plus, without duplication and to the extent reflected as a charge
in the statement of such Combined Net Income for such period, the sum of
(a) total income tax expense, (b) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions,
discounts and other fees and charges associated with Indebtedness
(including the Loans), (c) depreciation and amortization expense, (d)
amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary expenses or losses (including,
whether or not otherwise includable as a separate item in the statement of
such Combined Net Income for such period, losses on sales of assets
outside of the ordinary course of business), (f) any other noncash charges
(excluding inventory writedowns and LIFO charges) and (g) if applicable,
restructuring charges, write-off of goodwill and licensing agreements and
minus, to the extent included in the statement of such Combined Net Income
for such period, the sum of (a) non-cash interest income, (b) any
extraordinary income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Combined Net Income
for such period, gains on the sales of assets outside of the ordinary
course of business) and (c) any other noncash income, all as determined on
a combined basis.
"Combined Fixed Charge Coverage Ratio": for any period, the ratio of
(a) (i) the sum of (without duplication) (A) Combined EBITDA for such
period, (B) any Management Fee accrued during such period and (C) Combined
Lease Expense minus (ii) the sum of (without duplication) (A) any
provision for cash income taxes made by the Borrowers or any of their
Subsidiaries on a combined basis in respect of such period, and (B)
Capital Expenditures actually paid in cash for such period to (b) the sum
(without duplication) of (I) Combined Interest Expense for such period,
(II) any Management Fee accrued during such period, (III) scheduled
payments required to have been made during such period on account of
principal of Indebtedness of the Borrowers or any of their Subsidiaries
(including the Loans but excluding optional principal prepayments in
respect of Revolving Credit Loans) and (IV) Combined Lease Expense,
determined without duplication of items included in Combined Interest
Expense.
<PAGE> 13
7
"Combined Interest Coverage Ratio": for any period, the ratio of (a)
Combined EBITDA plus the Management Fee for such period to (b) Combined
Interest Expense for such period.
"Combined Interest Expense": for any period, total interest expense
(including that attributable to Capital Lease Obligations), both expensed
and capitalized, of the Borrowers and their Subsidiaries for such period
with respect to all outstanding Indebtedness of the Borrowers and their
Subsidiaries (including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Interest Rate Protection
Agreements to the extent such net costs are allocable to such period in
accordance with GAAP), determined on a combined basis in accordance with
GAAP.
"Combined Lease Expense": for any period, the aggregate amount of
fixed and contingent rentals payable by the Borrowers and their
Subsidiaries, determined on a combined basis in accordance with GAAP, for
such period with respect to leases of real and personal property; provided
that amounts included in Capital Lease Obligations shall be excluded from
Combined Lease Expense.
"Combined Management Fee Ratio": for any fiscal year, the ratio of
(a) Combined EBITDA plus the Management Fee for such fiscal year to (b)
the sum of (I) Combined Interest Expense for such fiscal year plus (II)
any Management Fee accrued during such fiscal year.
"Combined Net Income": for any period, the combined net income (or
loss) of the Borrowers and their Subsidiaries, determined on a combined
basis in accordance with GAAP; provided that there shall be excluded (a)
the income (or deficit) of any Person accrued prior to the date it becomes
a Subsidiary of the Borrowers or is merged into or combined with the
Borrowers or any of their Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of the Borrowers) in which the Borrowers
or any of their Subsidiaries has an ownership interest, except to the
extent that any such income is actually received by the Borrowers or such
Subsidiary in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary of the Borrowers to the extent
that the declaration or payment of dividends or similar distributions by
such Subsidiary is not at the time permitted by the terms of any
Contractual Obligation (other than under any Loan Document) or Requirement
of Law applicable to such Subsidiary.
"Combined Net Worth": at a particular date, all amounts which would,
in conformity with GAAP, be included on a combined balance sheet of the
Borrowers and their Subsidiaries as at such date for Preferred Stock plus
any increase or decrease in retained earnings between the Closing Date and
such date.
"Combined Total Debt": at any date, the aggregate principal amount
of all Funded Debt (other than Revolving Credit Loans, Swing Line Loans
and
<PAGE> 14
8
Reimbursement Obligations) of the Borrowers and their Subsidiaries at such
date, determined on a combined basis in accordance with GAAP.
"Combined Total Debt Ratio": as of the last day of any period, the
ratio of (a) Combined Total Debt as of such day to (b) Combined EBITDA
plus the Management Fee for such period.
"Combined Working Capital": the excess of Combined Current Assets
over Combined Current Liabilities.
"Commercial Letter of Credit": as defined in Section 3.1(a).
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment and the Revolving Credit
Commitment of such Lender.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with any Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes any
Borrower and which is treated as a single employer under Section 414 of
the Code.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated as of May, 1996 with respect to the Borrowers and the
credit facilities provided for herein.
"Consulting Agreement": the consulting agreement dated June 12,
1996, between Kirkland's Inc. and Robert Kirkland.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Designated Borrower": Kirkland's Inc., a Tennessee corporation, on
behalf of itself or any of the other Borrowers in accordance with the
terms hereof.
"Dollars" and "$": dollars in lawful currency of the United States.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning the protection of human
health or the environment, as now or may at any time hereafter be in
effect.
<PAGE> 15
9
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate of interest
determined on the basis of the rate for deposits in dollars for a period
equal to such Interest Period commencing on the first day of such Interest
Period appearing on Page 3750 of the Telerate Service as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the
Telerate Service (or otherwise on such service), the "Eurodollar Base
Rate" shall be determined by reference to such other publicly available
service for displaying eurodollar rates as may be agreed upon by the
Administrative Agent and the Designated Borrower or, in the absence of
such agreement, the "Eurodollar Base Rate" shall instead be the rate per
annum equal to the rate at which the Administrative Agent is offered
Dollar deposits at or about 10:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being 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 its
Eurodollar Loans to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
that are Tranche A Term Loans, Tranche B Term Loans or Revolving Credit
Loans, as the case may be, the then current Interest Periods with respect
to all of which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the same
day).
<PAGE> 16
10
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time,
or both, has been satisfied.
"Excess Cash Flow": for any period, Combined Net Income for such
period, plus the sum of (i) depreciation expense and amortization expense
deducted from earnings in determining such Combined Net Income, (ii) the
net increase during such period (if any) in deferred tax accounts, (iii)
any proceeds received by the Borrowers during such period in respect of
the key man life insurance policies required hereunder and (iv) the
decrease during such period (if any) in Combined Working Capital minus the
sum of (i) the net decrease during such period (if any) in deferred tax
accounts, (ii) the aggregate amount actually paid in cash during such
period on account of Capital Expenditures permitted hereunder (but only to
the extent not financed by Indebtedness or capital contributions), in each
case, determined on a consolidated basis in accordance with GAAP, (iii)
the increase during such period (if any) in Combined Working Capital and
(iv) scheduled principal payments on Indebtedness of the Borrowers and
their Subsidiaries not prohibited hereunder during such period (not
including optional principal prepayments in respect of Revolving Credit
Loans or Swing Line Loans). For purposes of calculating Excess Cash Flow
for the fiscal year ending December 31, 1996, (i) any change in Combined
Working Capital shall be calculated for the entire fiscal year ending
December 31, 1996, and (ii) all other amounts shall be calculated based on
the period from the Closing Date through December 31, 1996.
"Excess Cash Flow Application Date": as defined in Section 2.12(c).
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Funded Debt": as to any Person, all Indebtedness of such Person
that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the
option of such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
from such date, including, without limitation, all current maturities and
current sinking fund payments in respect of such Indebtedness whether or
not required to be paid within one year from the date of its creation and,
in the case of the Borrowers, all current maturities in respect of the
Loans.
"GAAP": generally accepted accounting principles in the United
States in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
<PAGE> 17
11
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued
a reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrowers in good faith.
"Incur": as defined in Section 7.2.
"Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services (other
than current trade payables incurred in the ordinary course of such
Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though
the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations (and not operating lease
obligations) of such Person, (f) all obligations, contingent or otherwise,
of such Person as an account party under acceptance, letter of credit or
similar facilities, (g) all obligations of such Person to purchase,
redeem, retire or otherwise acquire for value any Capital Stock of such
Person, (h) all Guarantee Obligations of such Person and (i) all
obligations of the kind referred to in clauses (a) through (h) above
secured by any Lien on property (including, without limitation,
<PAGE> 18
12
accounts and contract rights) owned by such Person, whether or not such
Person has assumed or become liable for the payment of such obligation.
"Individual Shareholders": as defined in the recitals hereto.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Insurance Policies": (i) key man life insurance policies on each of
the three Management Shareholders in the amount of $3,000,000 per person,
on terms satisfactory to the Arranger, (ii) the insurance policies the
Borrowers are required to maintain pursuant to Sections 6.5 and 6.12 and
(iii) the insurance policies the Borrowers are required to maintain
pursuant to Section 4.2 of the Borrowers Security Agreement.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
of each March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, (c) as to any
Eurodollar Loan having an Interest Period longer than three months, each
day which is three months, or a whole multiple thereof, after the first
day of such Interest Period and the last day of such Interest Period.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrowers in their notice of
borrowing or notice of conversion, as the case may be, given with respect
thereto; and (b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrowers by irrevocable notice to the Administrative Agent not less than
three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not
a Business Day, such 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;
(ii) any Interest Period that would otherwise extend beyond the
Revolving Credit Termination Date (in the case of Revolving Credit Loans)
or beyond the date final payment is due on the Tranche A Term Loans or the
Tranche B Term Loans (in the case of the Term Loans) shall end on the
Revolving Credit Termination Date or such date of final payment, as
applicable;
<PAGE> 19
13
(iii) any Interest Period 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
(iv) the Borrowers shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
agreement, interest rate futures contract, interest rate option, interest
rate cap or other interest rate hedge arrangement, to or under which the
Borrowers or any Subsidiary is a party or a beneficiary on the date hereof
or becomes a party or a beneficiary after the date hereof.
"Issuing Lender": The First National Bank of Boston, in its capacity
as issuer of any Letter of Credit and any other Lender designated as
"Issuing Lender" hereunder by the Designated Borrower with the consent of
the Arranger, the Administrative Agent and such Lender.
"L/C Commitment": $5,000,000.
"L/C Fee Payment Date": the last day of each March, June, September
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a)
the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Applications and
the Security Documents.
<PAGE> 20
14
"Loan Parties": the Parent, the Borrowers and each other Subsidiary
of the Parent or the Borrowers which is a party to a Loan Document.
"Management Contracts": the collective reference to the letter
agreements, each dated June 12, 1996, between Kirkland's, Inc. and each of
the Management Shareholders.
"Management Fee": the amount payable to (a) the Management
Shareholders pursuant to clause (b) of the third sentence of Section 2 of
the Management Contracts and (b) to Robert Kirkland pursuant to Section 3
of the Consulting Agreement.
"Management Pledge Agreement": the Pledge Agreement to be executed
and delivered by the Management Shareholders substantially in the form of
Exhibit E-2, as the same may be amended, supplemented or otherwise
modified from time to time.
"Management Shareholders": as defined in the recitals hereto.
"Material Adverse Effect": a material adverse effect on (a) the
consummation of the Recapitalization in accordance with the
Recapitalization Documents, (b) the business, assets, results of
operations, financial condition or prospects of the Parent, the Borrowers
and their Subsidiaries taken as a whole or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Material Environmental Amount": an amount payable by the Borrowers
and/or their Subsidiaries in excess of $250,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated
as such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Mortgage": the mortgage or deed of trust made by the appropriate
Loan Party in favor of, or for the benefit of, the Administrative Agent
for the benefit of the Lenders, substantially in the form of Exhibit C
(with such changes thereto as shall be advisable under the law of the
jurisdiction in which such mortgage or deed of trust is to be recorded),
as the same may be amended, supplemented or otherwise modified from time
to time.
"Mortgaged Property": the real property listed on Schedule 1.1C, as
to which the Administrative Agent for the benefit of the Lenders shall be
granted a Lien pursuant to each Mortgage.
<PAGE> 21
15
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied
to the repayment of Indebtedness secured by a Lien expressly permitted
hereunder on any asset which is the subject of such Asset Sale or Recovery
Event (other than any Lien in favor of the Administrative Agent for the
benefit of the Lenders) and other customary fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and
(b) in connection with any issuance or sale of equity securities or debt
securities or instruments or the incurrence of loans, the cash proceeds
received from such issuance or incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Excluded Taxes": as defined in Section 2.21(a).
"Non-U.S. Lender": as defined in Section 2.21(b).
"Notes": the collective reference to the Tranche A Term Notes, the
Tranche B Term Notes, the Revolving Credit Notes and the Swing Line Notes.
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrowers, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Notes and all other obligations and liabilities of the
Borrowers to the Administrative Agent or to any Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
this Agreement, any other Loan Document, the Letters of Credit, any
Interest Rate Protection Agreement entered into with any Lender or any
other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrowers pursuant hereto).
<PAGE> 22
16
"Parent Pledge Agreement": the Parent Pledge Agreement to be
executed and delivered by the Parent, substantially in the form of Exhibit
E, as the same may be amended, supplemented or otherwise modified from
time to time.
"Participant": as defined in Section 11.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrowers or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to the Management
Pledge Agreement and the Parent Pledge Agreement.
"Preferred Stock": the collective reference to the Series A
Preferred, the Series B Preferred and the Series C Preferred, in each
case, as defined in the recitals hereto.
"Prior Credit Facilities": the debt obligations referred to on
Schedule 5.1(y).
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": the collective reference to the real property owned,
leased or operated by the Parent, the Borrowers or any of their
Subsidiaries.
"Purchase Agreement": the Senior Subordinated Note and Warrant
Purchase Agreement dated as of June 12, 1996 among the Subordinated Debt
Holders and the Borrowers.
"Recapitalization": as defined in the Recapitalization Agreement.
"Recapitalization Agreement": the Recapitalization Agreement dated
April 26, 1996 among the Parent, the Borrowers and the Individual
Shareholders, together with such amendments, waivers, supplements and
other modifications thereto as shall be reasonably satisfactory to the
Administrative Agent and the Lenders (the consent of the Administrative
Agent and the Lenders shall only be required with respect to material
amendments, waivers, supplements and other modifications).
<PAGE> 23
17
"Recapitalization Documents": the Recapitalization Agreement and any
agreement or other document entered into or executed by any Loan Party in
connection with the Recapitalization Agreement.
"Recovery Event": any settlement of or payment in respect of a
property or casualty insurance claim relating to any asset of the Parent,
the Borrowers or any of their Subsidiaries.
"Refunded Swing Line Loans": as defined in Section 2.27(a).
"Register": as defined in Section 11.6(g).
"Registration Rights Agreement" the Registration Rights Agreement
dated as of June 12, 1996 among the Parent, Kirkland's Inc., the other
corporations listed on the signature pages thereto, the Subordinated Debt
Holders and the Individual Shareholders, as amended, supplemented or
otherwise modified from time to time.
"Reimbursement Obligation": the obligation of the Borrowers to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
Event, the aggregate Net Cash Proceeds received by the Parent, the
Borrowers or any of their Subsidiaries in connection therewith which are
not applied to prepay the Term Loans or reduce the Revolving Credit
Commitments pursuant to Section 2.12(b) as a result of the delivery of a
Reinvestment Notice.
"Reinvestment Event": any Recovery Event in respect of which the
Designated Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer of the Designated Borrower to the Administrative Agent within 30
days of the Reinvestment Event to which it relates stating that no Event
of Default has occurred and is continuing and that the Borrowers (directly
or indirectly through another Subsidiary), in good faith, intend and
expect to use all or a specified portion of the Net Cash Proceeds of a
Recovery Event to restore or replace the assets in respect of which such
Recovery Event occurred within twelve months from the date of receipt of
such Net Cash Proceeds (provided that if the affected assets constituted
Collateral, such restored or replacement assets shall also constitute
Collateral).
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to restore or
replace the assets in respect of which a Recovery Event has occurred.
"Reinvestment Prepayment Date": with respect to any Reinvestment
Event, the earliest of (a) the first date occurring after such
Reinvestment Event on which an
<PAGE> 24
18
Event of Default shall have occurred, (b) the date occurring twelve months
after such Reinvestment Event and (c) the date on which the applicable
Borrower shall have determined not to, or shall have otherwise ceased to,
restore or replace the assets in respect of which a Recovery Event has
occurred.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
of ERISA, other than those events as to which the thirty day notice period
is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Required Lenders": at any date shall mean the holders of 66-2/3% or
more of (a) until the Closing Date, the Commitments and (b) thereafter,
the sum of (i) the aggregate unpaid principal amount of the Term Loans and
(ii) the aggregate Revolving Credit Commitments, or, if the Revolving
Credit Commitments have been terminated, the Aggregate Outstanding
Revolving Extensions of Credit of the Revolving Credit Lenders.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, president or
chief financial officer of the Parent, the Designated Borrower or any
other Borrower, as the case may be, but in any event, with respect to
financial matters, the chief financial officer of the Parent, the
Designated Borrower or any other Borrower, as the case may be.
"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans to and/or issue or
participate in Letters of Credit issued on behalf of a Borrower hereunder
in an aggregate principal and/or face amount not to exceed the amount set
forth under the heading "Revolving Credit Commitment" opposite such
Lender's name on Schedule 1.1B, as the same may be changed from time to
time pursuant to the terms hereof.
"Revolving Credit Commitment Period": the period from and including
the Closing Date to but not including the Revolving Credit Termination
Date, or such earlier date on which the Revolving Credit Commitments shall
have been terminated.
"Revolving Credit Lender": each Lender which has a Revolving Credit
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.5(a).
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19
"Revolving Credit Note": as defined in Section 2.9(e).
"Revolving Credit Percentage": as to Revolving Credit Lender at any
time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any time
after the Revolving Credit Commitments shall have expired or terminated,
the percentage which the aggregate principal amount of such Lender's
Revolving Credit Loans then outstanding constitutes of the aggregate
principal amount of the Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": June 30, 2001.
"Security Documents": the collective reference to each Mortgage, the
Borrowers Security Agreement, the Pledge Agreements, the Assignments of
Insurance and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any asset or assets of any Person
to secure the obligations and liabilities of the Borrowers hereunder
and/or under any of the other Loan Documents or to secure any guarantee of
any such obligations and liabilities.
"Series C Preferred": the $20,000,000 of Series C Redeemable
Preferred Stock issued by the Borrowers pursuant to the Recapitalization
Agreement.
"Shareholders Agreement": the Shareholders Agreement dated as of
June 12, 1996 among the Parent, the Borrowers, the Individual Shareholders
and the Subordinated Debt Holders, as amended, supplemented or otherwise
modified from time to time.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as of
such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of the assets
of such Person will, as of such date, be greater than the amount that will
be required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they
mature. For purposes of this definition, (i) "debt" means liability on a
"claim", and (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or
not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or
unsecured.
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"Standby Letter of Credit": as defined in Section 3.1(a).
"Subordinated Debt": as defined in the recitals hereto.
"Subordinated Debt Holders": as defined in the recitals hereto.
"Subordination Agreement": the Subordination and Intercreditor
Agreement dated as of June 12, 1996 by and among the Administrative Agent,
on behalf of the Lenders, and the Subordinated Debt Holders.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries"
in this Agreement shall refer to a Subsidiary or Subsidiaries of a
Borrower.
"Swing Line Commitment": the obligation of the Swing Line Lender to
make Swing Line Loans pursuant to Section 2.25 in an aggregate principal
amount at any one time outstanding not to exceed $2,500,000.
"Swing Line Lender": as defined in Section 2.25.
"Swing Line Loan Participation Certificate": a certificate
substantially in the form of Exhibit J.
"Swing Line Loans": as defined in Section 2.25.
"Swing Line Note": as defined in Section 2.9(e).
"Swing Line Participation Amount": as defined in Section 2.27(c).
"Term Loan Lenders": the collective reference to the Tranche A Term
Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A Term Loans
and Tranche B Term Loans.
"Tranche A Loans": the collective reference to the Tranche A Term
Loans, the Revolving Credit Loans and Swing Line Loans.
"Tranche A Term Loan": as defined in Section 2.1.
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"Tranche A Term Loan Commitment": as to any Lender, the obligation
of such Lender, if any, to make a Tranche A Term Loan to the Borrowers
hereunder in a principal amount not to exceed the amount set forth under
the heading "Tranche A Term Loan Commitment" opposite such Lender's name
on Schedule 1.1B.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
Loan Commitment or which has made a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Tranche A Term Loan
Lender at any time, the percentage which such Lender's Tranche A Term Loan
Commitment then constitutes of the aggregate Tranche A Term Loan
Commitments (or, at any time after the Closing Date, the percentage which
the aggregate principal amount of such Lender's Tranche A Term Loans then
outstanding constitutes of the aggregate principal amount of the Tranche A
Term Loans then outstanding).
"Tranche A Term Note": as defined in Section 2.9(e).
"Tranche B Term Loan": as defined in Section 2.3.
"Tranche B Term Loan Commitment": as to any Tranche B Term Loan
Lender, the obligation of such Lender, if any, to make a Tranche B Term
Loan to the Borrowers hereunder in a principal amount not to exceed the
amount set forth under the heading "Tranche B Term Loan Commitment"
opposite such Lender's name on Schedule 1.1B.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche B Term Loan Commitment then
constitutes of the aggregate Tranche B Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche B Term Loans then outstanding constitutes
of the aggregate principal amount of the Tranche B Term Loans then
outstanding).
"Tranche B Term Note": as defined in Section 2.9(e).
"Transferee": as defined in Section 11.6(i).
"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"United States": the United States of America.
<PAGE> 28
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"U.S. Taxes": as defined in Section 11.6(d).
"Warrants": collectively, (a) the warrants to purchase up to 10% of
the common stock of each of the Borrowers and (b) the Contingent Warrants
(as defined in the Purchase Agreement) to purchase up to 3.5% of the
common stock of each of the Borrowers, in each case, pursuant to the
Purchase Agreement.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Parent, the Borrowers and their Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Tranche A Term Loans. Subject to the terms and conditions hereof, each
Tranche A Term Loan Lender severally agrees to make term loans (a "Tranche A
Term Loan") to the Borrowers, jointly and severally, on the Closing Date in an
amount not to exceed the amount of the Tranche A Term Loan Commitment of such
Lender. The Tranche A Term Loans may from time to time be (a) Eurodollar Loans,
(b) Base Rate Loans or (c) a combination thereof, as determined by the
Designated Borrower and notified to the Administrative Agent in accordance with
Sections 2.2 and 2.13.
2.2 Procedure for Tranche A Term Loan Borrowing. The Designated Borrower,
as agent for the Borrowers, shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 10:00
A.M., New York City time, one Business Day prior to the anticipated Closing
Date) requesting that the Tranche A Term Loan Lenders make Tranche A Term
Loan(s) on the Closing Date and specifying (a)
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the amount to be borrowed, (b) the account to which the proceeds of such Loans
should be deposited and (c) the Closing Date. The Tranche A Term Loans made on
the Closing Date shall initially be Base Rate Loans and no Tranche A Term Loan
may be converted into or continued as a Eurodollar Loan having an Interest
Period in excess of one month prior to the date which is 60 days after the
Closing Date. Upon receipt of such notice, the Administrative Agent shall
promptly notify each Tranche A Term Loan Lender thereof. Not later than 12:00
Noon, New York City time, on the Closing Date, each Tranche A Term Loan Lender
shall make available to the Administrative Agent at its office specified in
Section 11.2 an amount in immediately available funds equal to the Tranche A
Term Loan to be made by such Lender. The Administrative Agent shall on such date
by 2:00 P.M., New York City time, deposit to the designated account, in
accordance with the instructions of the Designated Borrower, the aggregate of
the amounts made available to the Administrative Agent by the Tranche A Term
Loan Lenders in immediately available funds.
2.3 Tranche B Term Loans. Subject to the terms and conditions hereof, each
Tranche B Term Loan Lender severally agrees to make term loans (a "Tranche B
Term Loan") to the Borrowers, jointly and severally, on the Closing Date in an
amount not to exceed the amount of the Tranche B Term Loan Commitment of such
Lender then in effect. The Tranche B Term Loans may from time to time be (a)
Eurodollar Loans, (b) Base Rate Loans or (c) a combination thereof, as
determined by the Designated Borrower and notified to the Administrative Agent
in accordance with Sections 2.4 and 2.13.
2.4 Procedure for Tranche B Term Loan Borrowing. The Designated Borrower,
as agent for the Borrowers, shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 10:00
A.M., New York City time, one Business Day prior to the anticipated Closing
Date) requesting that the Tranche B Term Loan Lenders make the Tranche B Term
Loan(s) on the Closing Date and specifying (a) the amount to be borrowed, (b)
the account to which the proceeds of such Loans shall be deposited and (c) the
Closing Date. The Tranche B Term Loans made on the Closing Date shall initially
be Base Rate Loans and no Tranche B Term Loan may be converted into or continued
as a Eurodollar Loan having an Interest Period in excess of one month prior to
the date which is 60 days after the Closing Date. Upon receipt of such notice,
the Administrative Agent shall promptly notify each Tranche B Term Loan Lender
thereof. Not later than 12:00 Noon, New York City time, on the Closing Date,
each Tranche B Term Loan Lender shall make available to the Administrative Agent
at its office specified in Section 11.2 an amount in immediately available funds
equal to the Tranche B Term Loan to be made by such Lender. The Administrative
Agent shall on such date by 2:00 P.M., New York City time, deposit to the
designated account, in accordance with the instructions of the Designated
Borrower, the aggregate of the amounts made available to the Administrative
Agent by the Tranche B Term Loan Lenders in immediately available funds.
2.5 Revolving Credit Commitments. (a) Subject to the terms and conditions
hereof, each Revolving Credit Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrowers, jointly and severally, from
time to time during the Revolving Credit Commitment Period in an aggregate
principal amount at any one time outstanding which, when added to such Lender's
Revolving Credit Percentage of the sum of
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(i) the L/C Obligations then outstanding and (ii) the aggregate principal amount
of the Swing Line Loans then outstanding, does not exceed the amount of such
Lender's Revolving Credit Commitment. During the Revolving Credit Commitment
Period, the Borrowers may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as
determined by the Designated Borrower and notified to the Administrative Agent
in accordance with Sections 2.6 and 2.13, provided that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Revolving Credit Termination Date.
2.6 Procedure for Revolving Credit Borrowing. The Borrowers
may borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Designated Borrower
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 12:00 Noon, New York City time,
(a) three Business Days prior to the requested Borrowing Date, if all or any
part of the requested Revolving Credit Loans are to be Eurodollar Loans or (b)
one Business Day prior to the requested Borrowing Date, otherwise), specifying
(i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether
the borrowing is to be of Eurodollar Loans, Base Rate Loans, or a combination
thereof, (iv) the identity of the Borrower or Borrowers to which the proceeds of
the Revolving Credit Loan should be made available and (v) if the borrowing is
to be entirely or partly of Eurodollar Loans, the respective amounts of each
such Type of Loan and the respective lengths of the initial Interest Periods
therefor; provided that prior to the date which is 60 days after the Closing
Date no Revolving Credit Loan may be made, converted or continued as a
Eurodollar Loan having an Interest Period in excess of one month. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in the
case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then
Available Revolving Credit Commitments are less than $1,000,000, such lesser
amount) and (y) in the case of Eurodollar Loans, $2,500,000 or a whole multiple
of $1,000,000 in excess thereof; provided, that the Swing Line Lender may
request, on behalf of the Borrowers, borrowings under the Revolving Credit
Commitments which are Base Rate Loans in other amounts pursuant to Section
2.27(a). Upon receipt of any such notice from the Designated Borrower, the
Administrative Agent shall promptly notify each Revolving Credit Lender thereof.
Each Revolving Credit Lender will make the amount of its pro rata share of each
borrowing available to the Administrative Agent for the account of the
appropriate Borrower at the office of the Administrative Agent specified in
Section 11.2 prior to 11:00 A.M., New York City time, on the Borrowing Date
requested by the Designated Borrower in funds immediately available to the
Administrative Agent. The aggregate of the amounts made available to the
Administrative Agent by the Revolving Credit Lenders will then be made available
to the appropriate Borrower by the Administrative Agent in accordance with the
instructions of the Designated Borrower in like funds as received by the
Administrative Agent.
2.7 Clean-Up. Notwithstanding the foregoing provisions of this
Section 2 for a period of not less than 30 consecutive days during each period
from December 1 to
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March 1 during the term of this Agreement the aggregate outstanding principal
amount of the Revolving Credit Loans and Swing Line Loans shall be reduced to
zero.
2.8 Commitment Fees, etc. (a) The Borrowers jointly and
severally agree to pay to the Administrative Agent for the account of each
Revolving Credit Lender a commitment fee for the period from and including the
Closing Date to the last day of the Revolving Credit Commitment Period, computed
at the rate of 1/2 of 1% per annum on the average daily amount of the Available
Revolving Credit Commitment of such Lender during the period for which payment
is made, payable quarterly in arrears on the last day of each March, June,
September and December and on the last day of the Revolving Credit Commitment
Period, commencing on the first of such dates to occur after the date hereof.
(b) The Borrowers jointly and severally agree to pay to the
Arranger the fees in the amounts and on the dates previously agreed to in
writing by Advent and the Arranger.
(c) The Borrowers jointly and severally agree to pay to the
Administrative Agent the fees in the amounts and on the dates previously agreed
to in writing by the Administrative Agent and the Borrowers.
2.9 Repayment of Loans; Evidence of Debt. (a) The Borrowers
jointly and severally hereby unconditionally promise to pay to the
Administrative Agent for the account of the appropriate Lender (i) the then
unpaid principal amount of each Revolving Credit Loan of such Revolving Credit
Lender on the last day of the Revolving Credit Commitment Period (or such
earlier date on which the Revolving Credit Loans become due and payable pursuant
to Section 8), (ii) the principal amount of the Tranche A Term Loans of such
Tranche A Term Loan Lender, in 20 consecutive quarterly installments, according
to the amortization schedule set forth on Schedule 1.1D, commencing on September
30, 1996 (or on such earlier date on which the then unpaid principal amount of
the Tranche A Term Loans become due and payable pursuant to Section 8) and (iii)
the principal amount of the Tranche B Term Loans of such Tranche B Term Loan
Lender, in 24 consecutive quarterly installments, according to the amortization
schedule set forth on Schedule 1.1E, commencing on September 30, 1996 (or on
such earlier date on which the then unpaid principal amount of such Tranche B
Term Loans become due and payable pursuant to Section 8). The Borrowers jointly
and severally hereby further agree to pay interest on the unpaid principal
amount of the Loans from time to time outstanding from the date hereof until
payment in full thereof at the rates per annum, and on the dates, set forth in
Section 2.15.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrowers to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent, on behalf of the Borrowers,
shall maintain the Register pursuant to Section 11.6(g), and a subaccount
therein for each Lender, in which shall be recorded (i) the amount of each
Revolving Credit Loan, Tranche A Term Loan and Tranche B Term Loan made
hereunder, the Type thereof and each Interest Period applicable
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thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrowers to each Lender hereunder and (iii)
both the amount of any sum received by the Administrative Agent hereunder from
the Borrowers and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to Section 2.9(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrowers to repay (with applicable interest) the Loans made
to such Borrowers by such Lender in accordance with the terms of this Agreement.
(e) Each of the Borrowers agrees that, upon the request to the
Administrative Agent by any Lender, the Borrowers will execute and deliver to
such Lender (i) a promissory note of the Borrowers evidencing any Revolving
Credit Loans of such Lender, substantially in the form of Exhibit A-1 with
appropriate insertions as to date and principal amount (together with any
alternative note substantially in the form of Exhibit I-1 issued in lieu thereof
or in exchange therefor, a "Revolving Credit Note"), and/or (ii) a promissory
note of the Borrowers evidencing any Tranche A Term Loan of such Lender,
substantially in the form of Exhibit A-2with appropriate insertions as to date
and principal amount (together with any alternative note substantially in the
form of Exhibit I-2 issued in lieu thereof or in exchange therefor, a "Tranche A
Term Note") and/or (iii) a promissory note of the Borrowers evidencing any
Tranche B Term Loans of such Lender, substantially in the form of Exhibit A-3
with appropriate insertions as to date and principal amount (together with any
alternative note substantially in the form of Exhibit I-3 issued in lieu thereof
or in exchange therefor, a "Tranche B Term Note") and/or (iv) in the case of a
request by the Swing Line Lender, a promissory note of the Borrowers evidencing
any Swing Line Loans of the Swing Line Lender, substantially in the form of
Exhibit A-4 with appropriate insertions as to the date and principal amount (a
"Swing Line Note").
2.10 Termination or Reduction of Revolving Credit Commitments.
The Designated Borrower shall have the right, upon not less than three Business
Days' notice to the Administrative Agent, to terminate the Revolving Credit
Commitments or, from time to time, to reduce the amount of the Revolving Credit
Commitments; provided that no such termination or reduction of Revolving Credit
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans and Swing Line Loans made on the
effective date thereof, the sum of the Aggregate Outstanding Revolving
Extensions of Credit of all Revolving Credit Lenders would exceed the Revolving
Credit Commitments then in effect. Any such reduction shall be in an amount
equal to $500,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Credit Commitments then in effect.
2.11 Optional Prepayments. The Borrowers may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' irrevocable notice to the
Administrative Agent by the Designated Borrower,
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specifying the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans, Base Rate Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each, provided, that if a
Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto, the Borrowers shall also pay any amounts owing
pursuant to Section 2.22. Upon receipt of any such notice, the Administrative
Agent shall promptly notify each Lender thereof. If any such notice is given,
the amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to such date on the amount
prepaid. Partial prepayments of the Term Loans shall be applied pro rata to the
Tranche A Term Loans and the Tranche B Term Loans, and to the remaining
installments of principal thereof pro rata in accordance with the remaining
outstanding principal amounts thereof. Notwithstanding the foregoing, so long as
any Tranche A Term Loans are outstanding, each Tranche B Term Loan Lender shall
have the right to refuse all or any portion of any prepayment pursuant to this
Section 2.11 allocable to such Lender's Tranche B Term Loans, and the amount so
refused shall be applied to prepay the Tranche A Term Loans in accordance with
the preceding sentence. Amounts prepaid on account of the Term Loans may not be
reborrowed. Partial prepayments of Term Loans and Revolving Credit Loans shall
be in an aggregate principal amount of $500,000 or a whole multiple thereof.
Partial prepayments of Swing Line Loans shall be in an aggregate principal
amount of $100,000 or a whole multiple thereof.
2.12 Mandatory Prepayments and Commitment Reductions.
(a) If any class of equity or debt securities or instruments of the Parent, the
Borrowers or any of their Subsidiaries shall be issued or sold or the Parent,
the Borrowers or any of their Subsidiaries shall incur or permit the incurrence
of loans (except (i) any Capital Stock issued pursuant to the Recapitalization
or to an employee of a Borrower in connection with a Guarantee Obligation or a
loan or advance permitted by Sections 7.4(e) or 7.9(c)(ii), respectively, (ii)
any debt securities or instruments issued or loans incurred in accordance with
Section 7.2 and (iii) so long as such equity investment is not for the purpose
of and does not have the effect of curing a Default or Event of Default, any
Person who owns Capital Stock in the Parent, the Borrowers or any of their
Subsidiaries on the date hereof (subsequent to the Recapitalization) may make a
one-time equity investment in the Parent, which the Parent shall invest in the
equity of the Borrowers, in the aggregate amount of up to $5,000,000), an amount
equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of
such issuance or incurrence toward the prepayment of the Term Loans and the
reduction of the Revolving Credit Commitments as set forth in paragraph (d) of
this Section 2.12.
(b) If on any date the Parent, the Borrowers or any of their
Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or from any
Recovery Event (other than, if no Event of Default shall have occurred and be
continuing, to the extent that such Net Cash Proceeds are to be used to restore
or replace the assets in respect of which such Recovery Event occurred within
twelve months from the date of such Recovery Event, as certified by a
Responsible Officer of the Designated Borrower pursuant to a Reinvestment
Notice), such Net Cash Proceeds shall be applied on such date toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in paragraph (d) of this Section 2.12; provided, that,
notwithstanding the foregoing, on each Reinvestment Prepayment Date, an amount
equal to the Reinvestment Prepayment Amount with respect to the relevant
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Reinvestment Event shall be applied toward the prepayment of the Term Loans and
the reduction of the Revolving Credit Commitments as set forth in paragraph (d)
of this Section 2.12.
(c) If, for any fiscal year of the Borrowers ending after the
Closing Date, there shall be Excess Cash Flow, the Borrowers shall, on the
relevant Excess Cash Flow Application Date, apply toward the prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments as set forth in
paragraph (d) of this Section 2.12 a percentage of such Excess Cash Flow equal
to 75%. Each such prepayment and commitment reduction shall be made on a date
(an "Excess Cash Flow Application Date") no later than five days after the
earlier of (i) the date on which the financial statements of the Borrowers
referred to in Section 6.1(a), for the fiscal year with respect to which such
prepayment is made, are required to be delivered to the Lenders and (ii) the
date such financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to this Section 2.12 shall be applied,
first, to the prepayment of the Term Loans and, second, to reduce permanently
the Revolving Credit Commitments. Any such reduction of the Revolving Credit
Commitments shall be accompanied by prepayment of the Revolving Credit Loans
and/or Swing Line Loans to the extent, if any, that the sum of the Aggregate
Outstanding Revolving Extensions of Credit of all Revolving Credit Lenders
exceeds the amount of the aggregate Revolving Credit Commitments as so reduced,
provided that if the aggregate principal amount of Revolving Credit Loans and
Swing Line Loans then outstanding is less than the amount of such excess
(because L/C Obligations constitute a portion thereof), the Borrowers shall, to
the extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established with
the Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment
pursuant to this Section 2.12 shall be made, within each category of Loans to be
prepaid as provided above, first to Base Rate Loans and second to Eurodollar
Loans. Each prepayment of the Loans under this Section 2.12 shall be accompanied
by accrued interest to the date of such prepayment on the amount prepaid. All
prepayments of the Term Loans pursuant to this Section 2.12 shall be applied pro
rata to the Tranche A Term Loans and the Tranche B Term Loans and to the
remaining installments of principal thereof in the inverse order of scheduled
maturity. Notwithstanding the foregoing, so long as any Tranche A Term Loans are
outstanding, each Tranche B Term Loan Lender shall have the right to refuse all
or any portion of any prepayment pursuant to this Section 2.12 allocable to such
Lender's Tranche B Term Loans and the amount so refused shall be applied first
pro rata to prepay the Tranche A Term Loans and second to reduce permanently the
Revolving Credit Commitments as provided above. Amounts prepaid on account of
the Term Loans may not be reborrowed.
2.13 Conversion and Continuation Options. (a) The Borrowers
may elect from time to time to convert Eurodollar Loans to Base Rate Loans by
the Designated Borrower giving the Administrative Agent at least two Business
Days' prior irrevocable notice of such election, provided that any such
conversion of Eurodollar Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrowers may elect from time to time to
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convert Base Rate Loans to Eurodollar Loans by the Designated Borrower giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period therefor. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined in its or their
sole discretion not to permit such a conversion and (ii) no Loan may be
converted into a Eurodollar Loan after the date that is one month prior to (i)
the Revolving Credit Termination Date, with respect to the Tranche A Loans and
(ii) the Tranche B Termination Date, with respect to the Tranche B Term Loans.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Designated Borrower giving irrevocable notice to the Administrative Agent, in
accordance with the applicable provisions of the term "Interest Period" set
forth in Section 1.1, of the length of the next Interest Period to be applicable
to such Loans, provided that no Eurodollar Loan may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Required Lenders have determined in its or their sole
discretion not to permit such a continuation or (ii) after the date that is one
month prior to (A) the Revolving Credit Termination Date, with respect to the
Tranche A Loans or (B) the Tranche B Termination Date, with respect to the
Tranche B Term Loans, and provided, further, that if the Designated Borrower
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to Base Rate Loans on the last day of
such then expiring Interest Period.
2.14 Minimum Amounts and Maximum Number of Eurodollar
Tranches. Notwithstanding anything to the contrary in this Agreement, all
borrowings, conversions, continuations and optional prepayments of Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Loans comprising each Eurodollar
Tranche shall be equal to $2,500,000 or a whole multiple of $1,000,000 in excess
thereof, (b) no more than two Eurodollar Tranches in respect of the Revolving
Credit Loans shall be outstanding at any one time and (c) no more than seven
Eurodollar Tranches in respect of all Loans (including the Revolving Credit
Loans) shall be outstanding at any one time.
2.15 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin.
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(c) If all or a portion of (i) any principal of any Loan or
Reimbursement Obligations, (ii) any interest payable thereon, (iii) any
commitment fee or (iv) any other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), the
principal of the Loans and Reimbursement Obligations and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per annum
which is (x) in the case of principal of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section plus 2% and (y) in the case of Reimbursement Obligations, and any
overdue interest, commitment fee or other amount, the rate applicable to Tranche
A Loans which are Base Rate Loans plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, commitment fee or other
amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
Section 2.15 shall be payable from time to time on demand.
2.16 Computation of Interest and Fees. (a) Interest on Loans
and Reimbursement Obligations, commitment fees, letter of credit commissions and
interest on overdue interest, commitment fees and other amounts payable
hereunder shall be calculated on the basis of a 360-day year for the actual days
elapsed, except that, with respect to Base Rate Loans the rate of interest on
which is calculated on the basis of the Prime Rate, the interest thereon shall
be calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Designated Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the Base Rate or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Designated Borrower and the Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrowers and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Designated
Borrower, deliver to the Designated Borrower a statement showing the quotations
used by the Administrative Agent in determining any interest rate pursuant to
Section 2.15(a).
2.17 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
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(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Designated Borrower and the Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Base Rate Loans, (y) any Loans that
were to have been converted on the first day of such Interest Period to
Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding
Eurodollar Loans shall be converted, on the first day of such Interest Period,
to Base Rate Loans. Until such notice has been withdrawn by the Administrative
Agent, no further Eurodollar Loans shall be made or continued as such, nor shall
the Borrowers have the right to convert Loans to Eurodollar Loans.
2.18 Pro Rata Treatment and Payments; Use of Proceeds. (a)
Each borrowing by the Borrowers from the Lenders hereunder, each payment by the
Borrowers on account of any commitment fee and any reduction of the Commitments
of the Lenders shall be made pro rata according to the respective Tranche A Term
Loan Percentages, Tranche B Term Loan Percentages or Revolving Credit
Percentages, as the case may be, of the relevant Lenders. Except as provided in
Section 2.11 and 2.12, each payment (including each prepayment) by the Borrowers
on account of principal of and interest on the Term Loans shall be made pro rata
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders (or, in the case of installment payments made
pursuant to Section 2.9 or payments of accrued interest in respect thereof, the
affected Term Loans then held by the relevant Term Loan Lenders). Each payment
(including each prepayment) by the Borrowers on account of principal of and
interest on the Revolving Credit Loans shall be made pro rata according to the
respective outstanding principal amounts of the Revolving Credit Loans then held
by the Revolving Credit Lenders. All payments (including prepayments) to be made
by the Borrowers hereunder and under the Notes, whether on account of principal,
interest, fees or otherwise, shall be made without setoff or counterclaim and
shall be made prior to 12:00 Noon, New York City time, on the due date thereof
to the Administrative Agent, for the account of the Lenders, at the
Administrative Agent's office specified in Section 11.2, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
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(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this Section 2.18(b) shall be conclusive in
the absence of manifest error. If such Lender's share of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrowers.
(c) The Borrowers shall use the proceeds of the Loans only in
the manner expressly contemplated by Section 4.16.
2.19 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrowers shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 2.22.
2.20 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 2.21 and changes in
the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or
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33
any other acquisition of funds by, any office of such Lender which
is not otherwise included in the determination of the Eurodollar
Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrowers shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this Section 2.20, it shall promptly
notify the Designated Borrower (with a copy to the Administrative Agent) of the
event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Designated Borrower (with a copy to the
Administrative Agent) of a written request therefor, the Designated Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Designated
Borrower (with a copy to the Administrative Agent) of the event by reason of
which it has become so entitled. A certificate as to any additional amounts
payable pursuant to this Section 2.20 submitted by any Lender to the Designated
Borrower (with a copy to the Administrative Agent) shall be conclusive in the
absence of manifest error. The obligations of the Borrowers pursuant to this
Section 2.20 shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
2.21 Taxes. (a) All payments made by the Borrowers under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or
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such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any other Loan Document). If any
such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Administrative Agent or any Lender hereunder or under the Notes,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes, provided, however, that the Borrowers shall make
payments net of and after deduction for Non-Excluded Taxes and shall not be
required to increase any such amounts payable to any Lender if, (i) at the time
such Lender becomes a party to this Agreement such Lender fails to establish a
complete exemption from such withholding, or (ii) such Lender fails to comply
with its obligations under subsection 2.21(b) on an ongoing basis. Whenever any
Non-Excluded Taxes are payable by the Borrowers, as promptly as possible
thereafter the Designated Borrower shall send to the Administrative Agent for
its own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the Borrowers showing
payment thereof. If the Borrowers fail to pay any Non-Excluded Taxes when due
to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the
Borrowers shall indemnify the Administrative Agent and the Lenders for any
incremental Non-Excluded Taxes and related interest or penalties that may become
payable by the Administrative Agent or any Lender as a result of any such
failure. The agreements in this Section 2.21 shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder.
(b) Each Lender (or Transferee) that is not a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States, or any estate or
trust that is subject to federal income taxation regardless of the source of its
income (a "Non-U.S. Lender") shall deliver to the Designated Borrower and the
Administrative Agent (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) two copies of either U.S.
Internal Revenue Service Form 1001 or Form 4224, or any subsequent versions
thereof or successors thereto or, in the case of a Non-U.S. Lender claiming
exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8 claiming the payments constitute "portfolio interest", an
annual certificate representing that such Non-U.S. Lender is not a "bank" (or
other prohibited recipient, as may be defined in the Code or regulations
promulgated under the Code for purposes of Section 881(c) of the Code, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of any Borrower and is not a controlled foreign corporation related to the
Borrowers (within the meaning of Section 864(d)(4) of the Code) (such Sections
to include any successor Sections covering similar items)), properly completed
and duly executed by such Non-U.S. Lender claiming complete exemption from, or a
reduced rate of, U.S. federal withholding tax on all payments by the Borrowers
under this Agreement
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and the other Loan Documents. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement (or, in the
case of any Participant, on or before the date such Participant purchases the
related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Designated Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrowers (or
any other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of this Section 2.21(b), a
Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.21(b) that such Non-U.S. Lender is not legally able to deliver.
2.22 Indemnity. The Borrowers agree to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrowers in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Designated Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (b) default by the Borrowers in making any
prepayment after the Designated Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. A certificate as to any amounts
payable pursuant to this Section 2.22 submitted to the Designated Borrower by
any Lender shall be conclusive in the absence of manifest error. This covenant
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
2.23 Change of Lending Office. Each Lender (or Transferee)
agrees that, upon the occurrence of any event giving rise to the operation of
Section 2.19, 2.20(a) or 2.21 with respect to such Lender (or Transferee), it
will, if requested by the Designated Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender (or Transferee)) to designate
another lending office for any Loans affected by such event with the object of
avoiding the consequences of such event; provided, that such designation is made
on terms that, in the sole judgment of such Lender, cause such Lender and its
lending office(s) to suffer no material economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.23 shall
affect or postpone any of the obligations of any Borrowers or the rights of any
Lender (or Transferee) pursuant to Section 2.19, 2.20(a) or 2.21.
2.24 Right of Contribution. Each Borrower hereby agrees that
to the extent a Borrower shall have paid more than its proportionate share of
any payment made hereunder,
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such Borrower shall be entitled to seek and receive contribution from and
against any other Borrower hereunder who has not paid its proportionate share of
such payment; provided however such Borrower shall not seek any such
contribution from any other Borrower until all Obligations have been paid in
full and all Commitments of the Lenders hereunder have been terminated. The
provisions of this Section 2.24 shall in no respect limit the obligations and
liabilities of any Borrower to the Administrative Agent and the Lenders, and
each Borrower shall remain liable to the Administrative Agent and the Lenders
for the full amount of its obligations hereunder.
2.25 Swing Line Commitment. Subject to the terms and
conditions hereof, The First National Bank of Boston (in such capacity, the
"Swing Line Lender") agrees to make a portion of the credit otherwise available
to the Borrowers under the Revolving Credit Lenders' Revolving Credit
Commitments from time to time during the Revolving Credit Commitment Period by
making swing line loans ("Swing Line Loans") to the Borrowers in an aggregate
principal amount not to exceed at any one time outstanding the Swing Line
Commitment; provided that (a) the aggregate principal amount of Swing Line Loans
outstanding at any time shall not exceed the Swing Line Commitment then in
effect (notwithstanding that the Swing Line Loans outstanding at any time, when
aggregated with the Swing Line Lender's other outstanding Loans hereunder, may
exceed the Swing Line Commitment then in effect) and (b) the Designated Borrower
shall not request, and the Swing Line Lender shall not make, any Swing Line Loan
if, after giving effect to the making of such Swing Line Loan, the aggregate
amount of the Available Revolving Credit Commitments would be less than zero.
During the Revolving Credit Commitment Period, the Borrowers may use the Swing
Line Commitment by borrowing, repaying and reborrowing, all in accordance with
the terms and conditions hereof. Swing Line Loans shall be Base Rate Loans only.
The Borrower shall repay all outstanding Swing Line Loans on the last day of the
Revolving Credit Commitment Period.
2.26 Procedure for Swing Line Borrowing. Whenever the
Designated Borrower desires that the Swing Line Lender make Swing Line Loans
under Section 2.25 it shall give the Swing Line Lender irrevocable telephonic
notice confirmed promptly in writing (which telephonic notice must be received
by the Swing Line Lender not later than 1:00 P.M., New York City time, on the
proposed Borrowing Date), specifying (a) the amount to be borrowed, (b) the
requested Borrowing Date (which shall be a Business Day during the Revolving
Credit Commitment Period) and (c) the identity of the Borrower or Borrowers to
which the proceeds of the Swing Line Loans should be made available. Each
borrowing under the Swing Line Commitment shall be in an amount equal to
$100,000 or a whole multiple thereof. Not later than 3:00 P.M., New York City
time, on the Borrowing Date specified in the notice in respect of Swing Line
Loans, the Swing Line Lender shall make available to the Administrative Agent at
its office specified in Section 11.2 an amount in immediately available funds
equal to the amount of the Swing Line Loan to be made by the Swing Line Lender.
The Administrative Agent shall make the proceeds of such Swing Line Loan
available to the appropriate Borrower on such Borrowing Date in accordance with
the instructions of the Designated Borrower in like funds as received by the
Administrative Agent.
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2.27 Refunded Swing Line Loans; Swing Line Loan
Participations. (a) The Swing Line Lender, at any time and from time to time in
its sole and absolute discretion may, on behalf of the Borrowers (which hereby
irrevocably direct the Swing Line Lender to act on their behalf), on one
Business Day's notice given by the Swing Line Lender no later than 10:00 A.M.,
New York City time, request each Revolving Credit Lender to make, and each
Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an
amount equal to such Revolving Credit Lender's Revolving Credit Percentage of
the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans")
outstanding on the date of such notice, to repay the Swing Line Lender. Unless
any of the events described in Section 8(f) shall have occurred and be
continuing (in which case the procedures of Section 2.27(c) shall apply), each
Revolving Credit Lender shall make the amount of such Revolving Credit Loan
available to the Administrative Agent at its office set forth in Section 11.2 in
immediately available funds, not later than 10:00 A.M., New York City time, one
Business Day after the date of such notice. The proceeds of such Revolving
Credit Loans shall be immediately applied by the Swing Line Lender to repay the
Refunded Swing Line Loans. Effective on the day such Revolving Credit Loans are
made, the portion of the Swing Line Loans so paid shall no longer be outstanding
as Swing Line Loans and shall be due as Revolving Credit Loans in accordance
with their respective Revolving Credit Percentages. The Borrowers irrevocably
authorize the Swing Line Lender to charge the Borrowers' accounts with the
Administrative Agent (up to the amount available in each such account) to
immediately pay the amount of such Refunded Swing Line Loans to the extent
amounts received from the Revolving Credit Lenders are not sufficient to repay
in full such Refunded Swing Line Loans.
(b) The making of any Swing Line Loan hereunder shall be
subject to the satisfaction of the applicable conditions precedent thereto set
forth in Section 5 (unless otherwise waived in accordance with Section 11.1).
The Swing Line Lender shall notify the Designated Borrower of its election not
to make Swing Line Loans hereunder as a result of the failure to satisfy such
conditions precedent, unless an Event of Default of the type specified in
Section 8(f) shall have occurred and be continuing.
(c) If prior to the time a Revolving Credit Loan would have
otherwise been made pursuant to Section 2.27(a), one of the events described in
Section 8(f) shall have occurred and be continuing, each Revolving Credit Lender
shall, on the date such Revolving Credit Loan was to have been made pursuant to
the notice referred to in Section 2.27(a) (the "Refunding Date"), purchase an
undivided participating interest in an amount equal to (i) its Revolving Credit
Percentage times (ii) the aggregate principal amount of Swing Line Loans then
outstanding which were to have been repaid with such Revolving Credit Loans (the
"Swing Line Participation Amount"). On the Refunding Date, each Revolving Credit
Lender shall transfer to the Swing Line Lender, in immediately available funds,
such Lender's Swing Line Participation Amount and upon receipt thereof the Swing
Line Lender shall deliver to such Lender a Swing Line Loan Participation
Certificate dated the date of the Swing Line Lender's receipt of such funds and
in such Swing Line Participation Amount.
(d) Whenever, at any time after the Swing Line Lender has
received from any Revolving Credit Lender such Lender's Swing Line Participation
Amount, the Swing Line
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Lender receives any payment on account of the Swing Line Loans, the Swing Line
Lender will distribute to such Lender its Swing Line Participation Amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such
Lender's pro rata portion of such payment if such payment is not sufficient to
pay the principal of and interest on all Swing Line Loans then due); provided,
however, that in the event that such payment received by the Swing Line Lender
is required to be returned, such Revolving Credit Lender will return to the
Swing Line Lender any portion thereof previously distributed to it by the Swing
Line Lender.
(e) Each Revolving Credit Lender's obligation to make the
Loans referred to in Section 2.27(a) and to purchase participating interests
pursuant to Section 2.27(c) shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Revolving Credit
Lender or the Borrowers may have against the Swing Line Lender, the Borrowers or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default or an Event of Default or the failure to satisfy any of the other
conditions specified in Section 5; (iii) any adverse change in the condition
(financial or otherwise) of the Borrowers; (iv) any breach of this Agreement or
any other Loan Document by the Borrowers, any other Loan Party or any other
Revolving Credit Lender; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Revolving
Credit Lenders set forth in Section 3.4(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrowers on any Business Day
during the Revolving Credit Commitment Period in such form as may be approved
from time to time by the Issuing Lender; provided that the Issuing Lender shall
have no obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the aggregate Available Revolving Credit Commitments would
be less than zero. Each Letter of Credit shall (i) be denominated in Dollars,
(ii) be either (x) a standby letter of credit issued to support (I) obligations
of the Borrowers or any of their Subsidiaries, contingent or otherwise, which
finance the working capital and business needs of the Borrowers or their
Subsidiaries or (II) performance obligations of the Borrowers and their
Subsidiaries, in each case, incurred in the ordinary course of business (a
"Standby Letter of Credit"), or (y) a commercial letter of credit in respect of
the purchase of goods or services by the Borrowers or any of their Subsidiaries
in the ordinary course of business (a "Commercial Letter of Credit"), (iii)
expire no later than five Business Days prior to the Revolving Credit
Termination Date and (iv) expire no later than 365 days after its date of
issuance, provided that any Letter of Credit with a 365-day duration may provide
for the renewal thereof at the election of the Designated Borrower (in
accordance with procedures to be established by the Issuing Lender) for
additional 365-day periods (which shall not expire later than the Revolving
Credit Termination Date).
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(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Designated
Borrower may from time to time request that the Issuing Lender issue a Letter of
Credit by delivering to the Issuing Lender at its address for notices specified
herein an Application therefor, completed to the satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and information
as the Issuing Lender may request. Upon receipt of any Application, the Issuing
Lender will process such Application and the certificates, documents and other
papers and information delivered to it in connection therewith in accordance
with its customary procedures and shall promptly issue the Letter of Credit
requested thereby (but in no event shall the Issuing Lender be required to issue
any Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Designated Borrower. The Issuing Lender shall furnish a
copy of such Letter of Credit to the Designated Borrower promptly following the
issuance thereof. The Issuing Lender shall promptly furnish to the
Administrative Agent, which shall in turn promptly furnish to the Lenders,
notice of the issuance of each Standby Letter of Credit (including the amount
thereof). On each L/C Fee Payment Date, the Issuing Lender shall promptly
furnish to the Administrative Agent, which shall in turn promptly furnish to the
Lenders, notice of the aggregate face amount of the Commercial Letters of Credit
outstanding on such date.
3.3 Fees, Commissions and Other Charges. (a) The Borrowers
jointly and severally agree that they will pay a commission on all outstanding
Standby Letters of Credit at the rate of 3-1/2% per annum of the face amount of
each such Letter of Credit, of which 1/4 of 1% per annum will be a fronting fee
for the account of the Issuing Lender, and the remainder will be shared ratably
among the Revolving Credit Lenders in accordance with their Revolving Credit
Percentage, payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date. The Borrowers jointly and severally agree that they will pay a
commission on all outstanding Commercial Letters of Credit at the rate of 3-1/2%
per annum of the average daily face amount of such Letters of Credit during the
period for which such payment is made, of which 1/4 of 1% per annum will be a
fronting fee for the account of the Issuing Lender, and the remainder will be
shared ratably among the Revolving Credit Lenders in accordance with the
Revolving Credit Percentage, payable quarterly in arrears on each L/C Fee
Payment Date.
(b) In addition to the foregoing fees and commissions, the
Borrowers jointly and severally agree that they shall pay or reimburse the
Issuing Lender for such normal and customary costs and expenses as are incurred
or charged by the Issuing Lender in issuing, negotiating, effecting payment
under, amending or otherwise administering any Letter of Credit.
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(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the L/C Participants all
fees and commissions received by the Administrative Agent for their respective
accounts pursuant to this Section.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrowers in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, 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 L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to Base Rate Loans hereunder. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Designated Borrower or otherwise, including proceeds of collateral
applied thereto by the Issuing Lender), or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, however, that in the event that any such payment
received by the Issuing Lender shall be required to be returned by the Issuing
Lender, such L/C Participant shall return to the Issuing Lender the portion
thereof previously distributed by the Issuing Lender to it.
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3.5 Reimbursement Obligation of the Borrowers. The Borrowers
jointly and severally agree to reimburse the Issuing Lender on each date on
which the Issuing Lender notifies the Designated Borrower of the date and amount
of a draft presented under any Letter of Credit and paid by the Issuing Lender
for the amount of (a) such draft so paid and (b) any taxes, fees, charges or
other costs or expenses incurred by the Issuing Lender in connection with such
payment. Each such payment shall be made to the Issuing Lender at its address
for notices specified herein in lawful money of the United States and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrowers under this Section from the date such amounts
become payable (whether at stated maturity, by acceleration or otherwise) until
payment in full at the rate set forth in Section 2.15(c). Each drawing under any
Letter of Credit shall constitute a request by the Designated Borrower to the
Administrative Agent for a borrowing pursuant to Section 2.6 of Base Rate Loans
(or, at the option of the Administrative Agent and the Swing Line Lender in
their sole discretion, a borrowing pursuant to Section 2.25 of Swing Line Loans)
in the amount of such drawing, the proceeds of such Loans to be applied to
reimburse such drawing. The Borrowing Date with respect to such borrowing shall
be the date of such drawing.
3.6 Obligations Absolute. The Borrowers' obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrowers may have or have had against the Issuing Lender, any
beneficiary of a Letter of Credit or any other Person. The Borrowers jointly and
severally also agree with the Issuing Lender that the Issuing Lender shall not
be responsible for, and the Borrowers' Reimbursement Obligations under Section
3.5 shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
any Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or any claims whatsoever of any
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender 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, except for
errors or omissions found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Issuing Lender. The Borrowers jointly and severally agree that
any action taken or omitted by the Issuing Lender under or in connection with
any Letter of Credit or the related drafts or documents, if done in the absence
of gross negligence or willful misconduct and in accordance with the standards
or care specified in the Uniform Commercial Code of the State of New York, shall
be binding on the Borrowers jointly and severally and shall not result in any
liability of the Issuing Lender to the Borrowers.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Designated Borrower of the date and amount thereof. The responsibility of
the Issuing Lender to the Borrowers in connection with any draft presented for
payment under any Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to
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determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment are substantially in
conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into this Agreement and to make the Loans and issue or participate in the
Letters of Credit, the Parent and the Borrowers hereby jointly and severally
represent and warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma combined
balance sheet of the Borrowers as at April 30, 1996 (including the notes
thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been
furnished to each Lender, has been prepared giving effect (as if such events had
occurred on such date) to (i) the Recapitalization, (ii) the borrowings under
this Agreement contemplated to be made on the Closing Date and the use of
proceeds thereof, (iii) the incurrence of the Subordinated Debt, (iv) the
issuance of the Preferred Stock, (v) the other transactions contemplated by the
Recapitalization Agreement and (vi) the payment of fees and expenses in
connection with the foregoing. The Pro Forma Balance Sheet has been prepared
based on the best information available to the Borrowers as of the date of
delivery thereof, and presents fairly on a pro forma basis the estimated
combined financial position of the Borrowers as of April 30, 1996, assuming that
the events specified in the preceding sentence had actually occurred at such
date.
(b) The combined balance sheet of the Borrowers as at December
31, 1995 and December 31, 1994 and the related combined statements of income and
of cash flows for the fiscal years ended on such dates, reported on by KPMG Peat
Marwick LLP, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly the combined financial condition of the
Borrowers as at such dates, and the combined results of their operations and
their combined cash flows for the fiscal years then ended. The unaudited
combined balance sheet of the Borrowers as at April 30, 1996 and the related
unaudited combined statements of income and of cash flows for the four-month
period ended on such date, certified by a Responsible Officer of the Designated
Borrower, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly the combined financial condition of the
Borrowers as at such date, and the combined results of their operations and
their combined cash flows for the four-month period then ended (subject to
normal year-end audit adjustments (including adjustments for inventory
capitalization and depreciation). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer of the Designated Borrower, as the case may
be, and as disclosed therein and except for the absence of
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adjustments for inventory capitalization and depreciation in the case of the
April 30, 1996 financial statements). None of the Borrowers had, at the date of
the most recent balance sheet referred to above, any undisclosed liabilities,
any material Guarantee Obligation, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the foregoing statements or in the notes
thereto and not required to be disclosed by GAAP. During the period from
December 31, 1995 to and including the date hereof there has been no sale,
transfer or other disposition by the Borrowers or any of their combined
Subsidiaries of any material part of their business or property and no purchase
or other acquisition of any business or property (including any Capital Stock of
any other Person) material in relation to the combined financial condition of
the Borrowers at December 31, 1995, other than pursuant to the Recapitalization
Agreement.
4.2 No Change. (a) Since December 31, 1995, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from December 31, 1995 to and
including the date hereof no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Parent, the Borrowers or
any Subsidiary nor has any of the Capital Stock of the Parent, the Borrowers or
any Subsidiary been redeemed, retired, purchased or otherwise acquired for value
by the Parent, the Borrowers any or any of their Subsidiaries, other than
pursuant to the Recapitalization Agreement.
4.3 Corporate Existence; Compliance with Law. Each of the
Parent, the Borrowers and their Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the power and authority, and the legal right, to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, (c) is duly qualified and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations.
Each Loan Party has the power and authority, and the legal right, to make,
deliver and perform each Loan Document to which it is a party and, in the case
of the Borrowers, to borrow hereunder. Each Loan Party has taken all necessary
action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party and, in the case of the Borrowers, to authorize
the borrowings on the terms and conditions of this Agreement and the Notes. No
material consent or authorization of, filing with, notice to or other act by or
in respect of, any Governmental Authority or any other Person is required in
connection with the Recapitalization, the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect and (ii) the
filings referred to in Section 4.19(b). Each Loan Document has been duly
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executed and delivered on behalf of each Loan Party thereto. This Agreement
constitutes, and each other Loan Document upon execution will constitute, a
legal, valid and binding obligation of each Loan Party thereto, enforceable
against each such Loan Party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of
this Agreement and the other Loan Documents, the issuance of Letters of Credit,
the borrowings hereunder and the use of the proceeds thereof will not violate
any Requirement of Law or Contractual Obligation of the Parent, the Borrowers or
of any of their Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of their respective properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation (other than
the Liens created by the Security Documents).
4.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Parent or the Borrowers, threatened by or against the
Parent, the Borrowers or any of their Subsidiaries or against any of its or
their respective properties or revenues (a) with respect to any of the Loan
Documents or any of the transactions contemplated hereby or thereby, or (b)
which could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither the Parent, the Borrowers nor any of
their Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Parent, the
Borrowers and their Subsidiaries has title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of such property is
subject to any Lien except as permitted by Section 7.3. The Parent, the
Borrowers and their Subsidiaries have title in fee simple to no real property
other than the Mortgaged Property.
4.9 Intellectual Property. The Parent, the Borrowers and each
of their Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted, except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect
("Intellectual Property"). No material claim has been asserted and is pending by
any Person challenging or questioning the use of any Intellectual Property or
the validity or effectiveness of any Intellectual Property, nor does the Parent
or any of the Borrowers know of any valid basis for any such claim. The use of
Intellectual Property by the Parent, the Borrowers and their Subsidiaries does
not infringe on the rights of any Person in any material respect.
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4.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of the Parent, the Borrowers or any of their Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
4.11 Taxes. Each of the Parent, the Borrowers and their Subsidiaries
has filed or caused to be filed all Federal, state and other material tax
returns which are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrowers); no tax Lien has been filed, and, to the knowledge of
the Parent and the Borrowers, no claim is being asserted, with respect to any
such tax, fee or other charge.
4.12 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect or for any purpose which
violates the provisions of the Regulations of the Board. If requested by any
Lender or the Administrative Agent, the Borrowers will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither any Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither any Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if any
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent. The present value (determined using actuarial
and other assumptions which are reasonable in respect of the benefits provided
and the employees participating) of the liability of the Borrowers and each
Commonly Controlled Entity for post retirement benefits to be provided to their
current and former employees under Plans which are welfare benefit plans (as
defined
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in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under
all such Plans allocable to such benefits by an amount in excess of $50,000.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Federal or State statute or regulation
(other than Regulation X of the Board) which limits its ability to incur
Indebtedness.
4.15 Subsidiaries. The Borrowers listed on Schedule 1.1A constitute all
the direct or indirect Subsidiaries of the Parent.
4.16 Purpose of Loans; Limitations on Use. The proceeds of the Term
Loans shall be used to finance the Recapitalization and to pay related fees and
expenses. The Revolving Credit Loans shall be used to finance the working
capital needs of the Borrowers and their Subsidiaries.
4.17 Environmental Matters.
(a) The Properties do not contain, and have not previously contained,
any Materials of Environmental Concern in amounts or concentrations or
under circumstances which (i) constitute or constituted a violation of, or
(ii) could give rise to liability under, any Environmental Law, except in
either case insofar as such violation or liability, or any aggregation
thereof, could not reasonably be expected to result in the payment of a
Material Environmental Amount.
(b) The Properties and all operations at the Properties are in
material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated
by the Parent, the Borrowers or any of their Subsidiaries (the "Business")
which could reasonably be expected to materially interfere with the
continued operation of the Properties or materially impair the fair
saleable value thereof. Neither the Parent, the Borrowers nor any of their
Subsidiaries has assumed any liability of any other Person under
Environmental Laws.
(c) Neither the Parent, the Borrowers nor any of their Subsidiaries
has received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the Business, nor does the Parent, the Borrowers or any of
their Subsidiaries have knowledge or reason to believe that any such notice
will be received or is being threatened, except insofar as such notice or
threatened notice, or any aggregation thereof, does not involve a matter or
matters that could reasonably be expected to result in the payment of a
Material Environmental Amount.
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(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location which could reasonably be expected to give rise to liability
under, any Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on or under any
of the Properties in violation of, or in a manner that could give rise to
liability under, any applicable Environmental Law, except insofar as any
such violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to result in the
payment of a Material Environmental Amount.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Parent, the Borrowers or any of their
Subsidiaries, threatened, under any Environmental Law to which the Parent,
the Borrowers or any of their Subsidiaries is or will be named as a party
with respect to the Properties or the Business, nor are there any consent
decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under
any Environmental Law with respect to the Properties or the Business,
except insofar as such proceeding, action, decree, order or other
requirement, or any aggregation thereof, could not reasonably be expected
to result in the payment of a Material Adverse Amount.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Parent, the Borrowers or any of their Subsidiaries
in connection with the Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give rise
to liability under Environmental Laws, except insofar as any such violation
or liability referred to in this paragraph, or any aggregation thereof,
could not reasonably be expected to result in the payment of a Material
Environmental Amount.
4.18 Accuracy of Information. No statement or information contained in
this Agreement, any other Loan Document, the Confidential Information Memorandum
or any other document, certificate or statement furnished to the Administrative
Agent or the Lenders, by or on behalf of any Loan Party for use in connection
with the transactions contemplated by this Agreement or the other Loan
Documents, contained as of the date such statement, information, document or
certificate was so furnished any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. The projections and pro forma financial
information contained in the materials referenced above are based upon good
faith estimates and assumptions believed by management of the Parent, the
Borrowers and their Subsidiaries to be reasonable at the time made, it being
recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. There is no fact known
to the Parent, the Borrowers or any of their Subsidiaries that could reasonably
be expected to have a Material Adverse Effect that has not been expressly
disclosed herein, in the other Loan Documents, or in such other documents,
<PAGE> 54
48
certificates and statements furnished to the Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby and by
the other Loan Documents.
4.19 Security Documents. (a) Each of the Pledge Agreements is effective
to create in favor of the Administrative Agent, for the benefit of the Lenders,
a legal, valid and enforceable security interest in the Pledged Stock described
therein and proceeds thereof and, when the stock certificates representing the
Pledged Stock described therein are delivered to the Administrative Agent, each
such Pledge Agreement shall constitute a fully perfected first priority Lien on,
and security interest in, all right, title and interest of the relevant pledgor
in such Pledged Stock and the proceeds thereof, as security for the Obligations
(as defined in the relevant Pledge Agreement), in each case prior and superior
in right to any other Person.
(b) The Borrowers Security Agreement is effective to create in favor
of the Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable security interest in the Collateral described therein and proceeds
thereof, and when financing statements in appropriate form are filed in the
offices specified on Schedule 4.19(b), the Borrowers Security Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in such Collateral and the proceeds thereof, as
security for the Obligations (as defined in the Borrowers Security Agreement),
in each case prior and superior in right to any other Person, other than with
respect to Liens expressly permitted by Section 7.3.
(c) Each Mortgage, when executed and delivered by the relevant Loan
Party, shall be effective to create in favor of the Administrative Agent, for
the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged
Property described therein and proceeds thereof, and when each Mortgage is filed
in the office(s) specified on Schedule 4.19(c), each Mortgage shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the Loan Parties in the Mortgaged Property and the proceeds thereof, as
security for the Obligations (as defined in the relevant Mortgage), in each case
prior and superior in right to any other Person, other than with respect to
Liens expressly permitted by Section 7.3.
4.20 Solvency. Each Loan Party is, and after giving effect to the
consummation of the Recapitalization and to the incurrence of all Indebtedness
and obligations being incurred in connection herewith and therewith will be and
will continue to be, taking into account the provisions of Section 2.24,
Solvent.
4.21 Purchase Agreement Representations and Warranties. On the Closing
Date, each of the representatives and warranties of the Borrowers set forth in
Article VI of the Purchase Agreement are true and correct in all material
respects.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction,
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49
prior to or concurrently with the making of such extension of credit on the
Closing Date, of the following conditions precedent:
(a) Loan Documents. The Arranger shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Parent and each of the Borrowers, with a counterpart for each Lender, (ii)
for the account of any Lender requesting Notes in accordance with Section
2.9(e), Notes conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrowers, (iii) each of the
Pledge Agreements, each executed and delivered by a duly authorized officer
of each party thereto, with a counterpart or a conformed copy for each
Lender, (iv) the Borrowers Security Agreement, executed and delivered by a
duly authorized officer of each Borrower, with a counterpart or a conformed
copy for each Lender, (v) (except as provided in subsection 6.12) each of
the Assignments of Insurance, each executed and delivered by a duly
authorized officer of each party thereto, with a counterpart or a conformed
copy for each Lender, and (vi) each Mortgage, executed and delivered by a
duly authorized officer of each party thereto, with a counterpart for each
Lender.
(b) Related Agreements. The Arranger shall have received, in form and
substance satisfactory to it, with a copy for each Lender, true and correct
copies, certified as to authenticity by the Designated Borrower, of (i) the
Recapitalization Agreement and any of the other Recapitalization Documents
reasonably requested by the Arranger (ii) the Management Contracts, (iii)
the Shareholders Agreement, (iv) the Certificate of Designations for each
series of the Preferred Stock, (v) the Registration Rights Agreement (vi)
the Purchase Agreement, (vii) the limited liability company agreement for
the Parent, and (viii) the Subordination Agreement. Except as provided in
subsection 6.12, the Arranger shall have received (in a form reasonably
satisfactory to the Arranger), with a copy for each Lender, true and
correct copies, certified as to authenticity by the Designated Borrower, of
the Insurance Policies (or certificates evidencing the effectiveness of
such Insurance Policies and the material terms thereof) and such other
documents or instruments as may be reasonably requested by the Arranger,
including, without limitation, a copy of any other debt instrument,
security agreement or other material contract to which any Borrower may be
a party.
(c) Recapitalization. On or prior to the Closing Date, the
Recapitalization shall have been consummated for an aggregate purchase
price not exceeding $125,000,000 (which amount may be increased or
decreased in accordance with certain purchase price adjustments described
in section 4.3 of the Recapitalization Agreement, including all fees,
costs, and expenses incurred in connection therewith, pursuant to the
Recapitalization Documents, any conditions precedent set forth in the
Recapitalization Agreement shall have been satisfied or waived, and no
material provision of the Recapitalization Documents shall have been
amended, supplemented, waived or otherwise modified without the prior
written consent of the Arranger.
(d) Capitalization; Capital Structure. The Borrowers shall have
received (i) at least $30,780,000 from the issuance of the Series A
Preferred, (ii) at least $20,000,000
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50
from the issuance of the Subordinated Debt pursuant to the Purchase
Agreement and (iii) at least $14,200,000 and at least $20,000,000 from the
issuance of the Series B Preferred and the Series C Preferred,
respectively, to the Individual Shareholders. The capital structure of the
Parent, the Borrowers and each of their Subsidiaries after the
Recapitalization shall be satisfactory to the Arranger and the Lenders in
all respects.
(e) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
have received (i) the Pro Forma Balance Sheet, which Pro Forma Balance
Sheet shall be in form and substance satisfactory to the Lenders and (ii)
satisfactory unaudited interim combined financial statements of the
Borrowers for each fiscal month of the Borrowers ended in the 1996 fiscal
year of the Borrowers as to which such financial statements are available
prior to the Closing Date and such financial statements shall not reflect
any material adverse change in the combined financial condition of the
Borrowers as reflected in the financial statements previously delivered to
the Lenders.
(f) Approvals. All governmental and third party approvals (including
landlords' and other consents) necessary or advisable in connection with
the Recapitalization, the transactions contemplated hereby and the
continuing operations of the Borrowers shall have been obtained and be in
full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Recapitalization, the financing thereof, the financing
contemplated hereby or the continuing operations of the Borrowers.
Notwithstanding the foregoing requirement with respect to third party
approvals, the Borrowers shall not be required to have obtained landlords'
waivers in form and substance satisfactory to the Arranger relating to the
Lender's security interest in the Borrower's assets for more than 20% of
the Borrowers' leases on the Closing Date.
(g) Business Plan. The Lenders shall have received a satisfactory
detailed business plan of the Borrowers for fiscal years 1996 - 2002 and a
satisfactory written analysis of the business and prospects of the
Borrowers for the period from the Closing Date through the final maturity
of the Term Loans.
(h) Lien Searches. The Arranger shall have received the results of a
recent lien search in each of the relevant jurisdictions where assets of
the Borrowers are located, and such search shall reveal no liens on any of
the assets of the Borrowers except for liens permitted by Section 7.3 or
liens to be discharged on or prior to the Closing Date pursuant to
documentation satisfactory to the Arranger.
(i) Expenses. The expenses incurred in connection with the
Recapitalization and the financing thereof shall not exceed $7,000,000 in
the aggregate.
(j) Valuation of Inventory. The Lenders shall have received copies of
a valuation, prepared by a firm satisfactory to the Arranger and in form
and substance satisfactory to the Arranger, of the inventory of the
Borrowers.
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51
(k) Management. The Lenders shall be satisfied that senior managers
acceptable to them shall be available to manage the Borrowers.
(l) Working Capital. The Lenders shall be satisfied with the
sufficiency of amounts available to the Borrowers pursuant to the aggregate
Revolving Credit Commitments to meet the ongoing working capital needs of
the Borrowers following the Recapitalization and the consummation of the
other transactions contemplated hereby.
(m) Officers. The Lenders shall be satisfied with the results of an
independent background investigation concerning certain key officers,
directors and managers of the Borrowers.
(n) Closing Certificate. The Arranger shall have received, with a
counterpart for each Lender, a certificate of each Loan Party (other than
the Individual Shareholders), dated the Closing Date, substantially in the
form of Exhibit G, with appropriate insertions and attachments, executed by
the President or any Vice President and the Secretary or any Assistant
Secretary of such Loan Party.
(o) Corporate Proceedings of Loan Parties. The Arranger shall have
received, with a counterpart for each Lender, a copy of the resolutions of
the Board of Directors of each Loan Party authorizing (i) the execution,
delivery and performance of the Loan Documents to which it is a party, and
(ii) in the case of the Borrowers, the borrowings contemplated hereunder.
(p) Fees. The Arranger shall have received all fees, expenses and
other consideration required to be paid on or before the Closing Date.
(q) Legal Opinions. The Arranger shall have received, with a
counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Pepper, Hamilton & Scheetz,
counsel to the Parent, substantially in the form of Exhibit H-1;
(ii) the executed legal opinion of Baker, Donelson, Bearman &
Caldwell, counsel of the Borrowers and the other Loan Parties,
substantially in the form of Exhibit H-2; and
(iii) the executed legal opinion of Simpson Thacher &
Bartlett, in form and substance satisfactory to the Arranger;
Each such legal opinion shall be in form and substance satisfactory to the
Lenders and shall cover such matters incident to the transactions
contemplated by this Agreement as the Arranger may reasonably require.
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52
(r) Pledged Stock; Stock Powers. The Arranger shall have received the
certificates representing the shares pledged pursuant to each of the Pledge
Agreements, together with an undated stock power for each such certificate
executed in blank by a duly authorized officer of the pledgor thereof.
(s) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Arranger to be filed, registered or recorded in order to create in
favor of the Arranger, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other
Person (other than with respect to Liens expressly permitted by Section
7.3), shall be in proper form for filing, registration or recordation in
each jurisdiction in which the filing, registration or recordation thereof
is so required or requested.
(t) Surveys. The Arranger shall have received, and the title insurance
company issuing the policy referred to in Section 5.1(u) (the "Title
Insurance Company") shall have received, maps or plats of an as-built
survey of the sites of the property covered by each Mortgage certified to
the Administrative Agent and the Title Insurance Company in a manner
satisfactory to them, dated a date satisfactory to the Arranger and the
Title Insurance Company by an independent professional licensed land
surveyor satisfactory to the Arranger and the Title Insurance Company,
which maps or plats and the surveys on which they are based shall be made
in accordance with the Minimum Standard Detail Requirements for Land Title
Surveys jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there shall be
surveyed and shown on such maps, plats or surveys the following: (i) the
locations on such sites of all the buildings, structures and other
improvements and the established building setback lines; (ii) the lines of
streets abutting the sites and width thereof; (iii) all access and other
easements appurtenant to the sites or necessary or desirable to use the
sites; (iv) all roadways, paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (v) any encroachments on any adjoining
property by the building structures and improvements on the sites; and (vi)
if the site is described as being on a filed map, a legend relating the
survey to said map.
(u) Title Insurance Policy. The Arranger shall have received in
respect of each parcel covered by each Mortgage a mortgagee's title policy
(or policies) or marked up unconditional binder for such insurance dated
the Closing Date. Each such policy shall (i) be in an amount satisfactory
to the Arranger; (ii) be issued at ordinary rates; (iii) insure that the
Mortgage insured thereby creates a valid first Lien on such parcel free and
clear of all defects and encumbrances, except such as may be approved by
the Arranger; (iv) name the Administrative Agent for the benefit of the
Lenders as the insured thereunder; (v) be in the form of ALTA Loan Policy -
1992; (vi) contain such endorsements and affirmative coverage as the
Arranger may request and (vii) be
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53
issued by title companies satisfactory to the Arranger (including any such
title companies acting as co-insurers or reinsurers, at the option of the
Arranger). The Arranger shall have received evidence satisfactory to it
that all premiums in respect of each such policy, and all charges for
mortgage recording tax, if any, have been paid.
(v) Flood Insurance. If requested by the Arranger, the Arranger shall
have received (i) a policy of flood insurance which (A) covers any parcel
of improved real property which is encumbered by any Mortgage, (B) is
written in an amount not less than the outstanding principal amount of the
indebtedness secured by such Mortgage which is reasonably allocable to such
real property or the maximum limit of coverage made available with respect
to the particular type of property under the National Flood Insurance Act
of 1968, whichever is less, and (C) has a term ending not earlier than the
maturity of the indebtedness secured by such Mortgage and (ii) confirmation
that the Company has received the notice requirement pursuant to Section
208(e)(3) of Regulation H of the Board.
(w) Copies of Documents. The Arranger shall have received a copy of
all recorded documents referred to, or listed as exceptions to title in,
the title policy or policies referred to in Section 5.1(u) and a copy,
certified by such parties as the Arranger may deem appropriate, of all
other documents affecting the property covered by each Mortgage.
(x) Solvency Opinion. The Arranger shall have received, with a copy
for each Lender, an opinion from an independent valuation firm satisfactory
to the Arranger documenting the solvency of the Borrowers after giving
effect to the Recapitalization (including the fair market value of the
Borrower's assets) and the other transactions contemplated hereby.
(y) Termination of Prior Credit Facilities. The Arranger shall have
received evidence satisfactory to it that the Prior Credit Facilities shall
have been terminated and all amounts payable thereunder shall have been
paid in full.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
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54
(c) Additional Matters. All proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Agreement, the other Loan Documents and the
Recapitalization shall be reasonably satisfactory in form and substance to
the Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrowers
hereunder shall constitute a representation and warranty by the Borrowers as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Parent and the Borrowers hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Note or Letter of Credit
remains outstanding and unpaid or any other amount is owing to any Lender or the
Administrative Agent hereunder, the Parent and the Borrowers shall and shall
cause each of their respective Subsidiaries to:
6.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrowers, a copy of the combined balance
sheet of the Borrowers and their Subsidiaries as at the end of such year
and the related combined statements of income and retained earnings and of
cash flows for such year, setting forth in each case in comparative form
the figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by KPMG Peat Marwick LLP or other independent certified
public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrowers, the unaudited combined balance sheet of the
Borrowers and their Subsidiaries as at the end of such quarter and the
related unaudited combined statements of income and retained earnings and
of cash flows of the Borrowers and their Subsidiaries for such quarter and
the portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of the Parent and of the Designated
Borrower as being fairly stated in all material respects (subject to normal
year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45 days
after the end of each month occurring during each fiscal year of the
Borrowers (other than the third, sixth, ninth and twelfth such month), the
unaudited combined balance sheets of the Borrowers and their Subsidiaries
as at the end of such month and the related unaudited combined statements
of income and retained earnings and of cash flows of the
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Borrowers and their Subsidiaries for such month and the portion of the
fiscal year through the end of such month, setting forth in each case in
comparative form the figures for the previous year;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except for any change in accounting principle in accordance with GAAP
(A) as approved (i) by such accountants (in the case of audited financial
statements) or (ii) by a Responsible Officer of the Designated Borrower (in the
case of unaudited financial statements), (B) as disclosed therein, (C) as
approved in writing by the Required Lenders if such change results in a
significant increase in Combined EBITDA for the periods reflected therein and,
(D) in the case of interim financial statements, subject to normal year-end
adjustments, including adjustments for inventory capitalization and
depreciation).
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such certificate
and (ii) copies of all reports or written communications providing advice,
recommendations or analysis to the management of the Borrowers from such
independent certified public accountants with regard to their audit of the
financial statements referred to in Section 6.1 or the internal financial
controls and systems of the Borrowers;
(b) concurrently with the delivery of any financial statement pursuant
to Section 6.1, (y) a certificate of a Responsible Officer of each of the
Parent and the Designated Borrower stating that, to the best of each such
Responsible Officer's knowledge, during such period (i) no Subsidiary has
been formed or acquired (or, if any such Subsidiary has been formed or
acquired, the Borrowers have complied with the requirements of Section 6.11
with respect thereto), (ii) neither the Parent, the Borrowers nor any of
their Subsidiaries has changed its name, its principal place of business,
its chief executive office or the location of any material item of tangible
Collateral without complying with the requirements of this Agreement and
the Security Documents with respect thereto and (iii) each Loan Party has
observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement and the other Loan
Documents to which it is a party to be observed, performed or satisfied by
it, and that such Responsible Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate and (z)
in the case of quarterly or annual financial statements, a certificate
containing all information reasonably necessary for determining compliance
by the Parent, the Borrowers and their Subsidiaries with the provisions of
this Agreement (including but not limited to Sections 2.12 and 7.1) as of
the last day of such fiscal quarter or fiscal year of the Borrowers as the
case may be;
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(c) as soon as available, and in any event no later than 30 days after
the end of each fiscal year of the Borrowers, a projected combined balance
sheet of the Borrowers as of the end of the following fiscal year, and the
related combined statements of projected cash flow, projected changes in
financial position and projected income for the following fiscal year,
together with an operating budget with respect to the following fiscal
year, and, as soon as available, significant revisions, if any, of such
projections with respect to such fiscal year (the "Projections"), which
Projections shall in each case be accompanied by a certificate of a
Responsible Officer of the Parent stating that such Projections are based
on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each month of each fiscal year of
the Parent, a narrative discussion and analysis of the financial condition
and results of operations of the Borrowers for such month and for the
period from the beginning of the then current fiscal year to the end of
such month, as compared to the portion of the Projections covering such
periods and to the comparable periods of the previous year;
(e) within five days after the same are filed, copies of all financial
statements and reports which the Parent or the Borrowers may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and
(f) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Parent, the Borrowers or their Subsidiaries, as the case may
be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a)
Continue to engage in business of the same general type as now conducted by it,
(b) preserve, renew and keep in full force and effect its existence and (c) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted pursuant to Section 7.5 and except, in the case of
clause (c) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all material property
useful and necessary in its business in good working order and condition,
ordinary wear and tear
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excepted; (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and (c) furnish to each Lender, upon written request, full information
as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and upon reasonable
notice permit representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Parent, the Borrowers and their Subsidiaries with senior officers of the Parent,
the Borrowers and their Subsidiaries and with its independent certified public
accountants.
6.7 Notices. Promptly give notice to the Administrative Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Parent, the Borrowers or any of their Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any time
between the Parent, the Borrowers or any of their Subsidiaries and any
Governmental Authority, which in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding affecting the Parent, the Borrowers
or any of their Subsidiaries in which the amount involved is $250,000 or
more and not covered by insurance or in which injunctive or similar relief
is sought;
(d) the following events, as soon as possible and in any event within
30 days after the Parent, the Borrowers or any of their Subsidiaries knows
or has reason to know thereof: (i) the occurrence or expected occurrence of
any Reportable Event with respect to any Plan, a failure to make any
required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the Borrowers
or any Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the terminating, Reorganization or Insolvency of,
any Plan; and
(e) any development or event which could reasonably be expected to
have a Material Adverse Effect.
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Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer of the Designated Borrower setting forth details of the
occurrence referred to therein and stating what action the Parent, the relevant
Borrower or the relevant Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with, and
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of the Borrowers, within 90
days after the Closing Date, enter into Interest Rate Protection Agreements with
one or more of the Lenders providing interest rate protection with respect to at
least $25,000,000 of the Term Loans for a period of at least 24 months at an
interest rate not higher than 3% above the Eurodollar Rate that would be
applicable to a six-month Interest Period commencing on the Closing Date.
6.10 Further Assurances. Upon the request of the Administrative Agent,
promptly perform or cause to be performed any and all acts and execute or cause
to be executed any and all documents (including, without limitation, financing
statements and continuation statements) for filing under the provisions of the
Uniform Commercial Code or any other Requirement of Law which are necessary or
advisable to maintain in favor of the Administrative Agent, for the benefit of
the Lenders, Liens on the Collateral that are duly perfected in accordance with
all applicable Requirements of Law.
6.11 Additional Collateral. (a) With respect to any assets acquired
after the Closing Date by the Parent, the Borrowers or any of their Subsidiaries
that are intended to be subject to the Lien created by any of the Security
Documents but which are not so subject (other than (y) any assets described in
paragraph (b) of this Section and (z) immaterial assets a Lien on which cannot
be perfected by filing UCC-1 financing statements), promptly (and in any event
within 30 days after the acquisition thereof): (i) execute and deliver to the
Administrative Agent such amendments to the relevant Security Documents or such
other documents as the Administrative Agent shall deem necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a Lien on
such assets, (ii) take all actions necessary or advisable to cause such Lien to
be duly perfected in accordance with all applicable Requirements of Law,
including, without limitation, the filing of financing statements in such
jurisdictions as may be requested by the Administrative Agent, and (iii) if
requested by the Administrative Agent, with respect to any material fee real
property acquired by the Parent, the Borrowers or their Subsidiaries after the
Closing Date, deliver to the
<PAGE> 65
59
Administrative Agent legal opinions relating to the matters described in
clauses (i) and (ii) immediately preceding, which opinions shall be in form
and substance and from counsel reasonably satisfactory to the
Administrative Agent.
(b) With respect to any Person that, subsequent to the Closing Date,
becomes a Subsidiary, promptly upon the request of the Administrative
Agent: (i) execute and deliver to the Administrative Agent, for the benefit
of the Lenders, a new pledge agreement or such amendments to the relevant
Pledge Agreement as the Administrative Agent shall deem necessary or
advisable to grant to the Administrative Agent, for the benefit of the
Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by
the Parent, the Individual Shareholders, the Borrowers or any of their
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers duly
executed and delivered in blank, (iii) cause such new Subsidiary (A) to
become a Borrower party hereto (in the case of a Subsidiary of the Parent)
or a party to a guarantee and a security agreement (in the case of a
Subsidiary of the Borrowers), in each case pursuant to documentation which
is in form and substance satisfactory to the Administrative Agent, and (B)
to take all actions necessary or advisable to cause the Lien created by
such security agreement to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing
of financing statements in such jurisdictions as may be requested by the
Administrative Agent and (iv) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters
described in clauses (i), (ii) and (iii) immediately preceding, which
opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
6.12 Key Man Life Insurance. Obtain within 30 days after the Closing
Date and maintain at all times thereafter key man life insurance policies
in the amount of $3,000,000 on each of the Management Shareholders; and
upon obtaining such policies, execute and deliver all documents and take
all actions in respect thereof that would be required by subsection 5.1(b)
if such policies were in effect on the Closing Date.
6.13 Store Locations. Maintain leases in accordance with past
practices with respect to all store locations for the Borrowers and their
Subsidiaries.
6.14 Landlord Waivers. Obtain landlords' waivers in form and substance
satisfactory to the Arranger and/or the Administrative Agent relating to
the Lender's security interest in the Borrower's assets for at least 20% of
the leases on the Closing Date, 40% of the leases within 60 days after the
Closing Date, 60% of the leases within 120 days after the Closing Date, 80%
of the leases within 180 days after the Closing Date and 90% of the leases
within one year after the Closing Date and thereafter.
6.15 Purchase Agreement Affirmative Covenants. Comply with Sections
7.01(a) - (o) and 7.03 of the Purchase Agreement, which Sections, together
with all definitions of defined terms used in such Sections, are hereby
incorporated by reference herein (without giving effect to any subsequent
amendment or other modification thereof not consented to by the Required
Lenders) as if such provisions were set forth in full herein.
<PAGE> 66
60
6.16 Termination of Series C Preferred Voting Rights. Within five
Business Days of the Closing Date, cause the Certificate of Designations of
each Borrower to be amended to provide that (i) all voting rights of the
Series C Preferred may be terminated by the Parent at any time during the
continuance of an Event of Default if the Parent has been directed to do so
by the Administrative Agent and (ii) all voting rights of the Series C
Preferred will terminate automatically upon the occurrence of an Event of
Default pursuant to Section 8(f). Upon receipt of a demand by the
Administrative Agent to such effect at any time during the continuance of
an Event of Default, the Parent shall immediately take all actions
necessary to terminate all voting rights of the Series C Preferred.
SECTION 7. NEGATIVE COVENANTS
The Parent and the Borrowers hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Note or Letter of Credit
remains outstanding and unpaid or any other amount is owing to any Lender
or the Administrative Agent hereunder, the Parent and the Borrowers shall
not, and shall not permit any of their respective Subsidiaries to, directly
or indirectly:
7.1 Financial Condition Covenants.
(a) Combined Total Debt Ratio. Permit the Combined Total Debt Ratio of
the Borrowers and their Subsidiaries for any period of four consecutive
fiscal quarters of the Borrowers ending with any fiscal quarter set forth
below to exceed the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Combined
Fiscal Quarter Total Debt Ratio
---------------------- ----------------------
<S> <C>
Third Quarter 1996 N.A.
Fourth Quarter 1996 4.50 to 1.0
First Quarter 1997 4.50 to 1.0
Second Quarter 1997 4.50 to 1.0
Third Quarter 1997 4.25 to 1.0
Fourth Quarter 1997 3.50 to 1.0
First Quarter 1998 3.50 to 1.0
Second Quarter 1998 3.50 to 1.0
Third Quarter 1998 3.50 to 1.0
Fourth Quarter 1998 2.75 to 1.0
First Quarter 1999 2.75 to 1.0
Second Quarter 1999 2.75 to 1.0
Third Quarter 1999 2.50 to 1.0
Fourth Quarter 1999 2.15 to 1.0
First Quarter 2000 2.15 to 1.0
</TABLE>
<PAGE> 67
61
<TABLE>
<CAPTION>
Combined
Fiscal Quarter Total Debt Ratio
---------------------- ----------------------
<S> <C>
Second Quarter 2000 2.15 to 1.0
Third Quarter 2000 1.90 to 1.0
Fourth Quarter 2000 1.60 to 1.0
First Quarter 2001 1.60 to 1.0
Second Quarter 2001 1.60 to 1.0
Third Quarter 2001 1.35 to 1.0
Fourth Quarter 2001 1.00 to 1.0
First Quarter 2002 1.00 to 1.0
Second Quarter 2002 .75 to 1.0
</TABLE>
(b) Maintenance of Net Worth. Permit Combined Net Worth of the
Borrowers and their Subsidiaries at any time during any fiscal quarter of
the Borrowers set forth below to be less than the amount set forth below
opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Net Worth
-------------- ------------
<S> <C>
Third Quarter 1996 $ 63,000,000
Fourth Quarter 1996 65,000,000
First Quarter 1997 65,000,000
Second Quarter 1997 65,000,000
Third Quarter 1997 65,000,000
Fourth Quarter 1997 72,000,000
First Quarter 1998 70,000,000
Second Quarter 1998 70,000,000
Third Quarter 1998 70,000,000
Fourth Quarter 1998 77,000,000
First Quarter 1999 75,000,000
Second Quarter 1999 75,000,000
Third Quarter 1999 75,000,000
Fourth Quarter 1999 85,000,000
First Quarter 2000 83,000,000
Second Quarter 2000 83,000,000
Third Quarter 2000 83,000,000
Fourth Quarter 2000 95,000,000
First Quarter 2001 93,000,000
Second Quarter 2001 93,000,000
Third Quarter 2001 93,000,000
Fourth Quarter 2001 105,000,000
First Quarter 2002 105,000,000
</TABLE>
<PAGE> 68
62
<TABLE>
<CAPTION>
Fiscal Quarter Net Worth
-------------- ------------
<S> <C>
Second Quarter 2002 105,000,000
</TABLE>
(c) Combined Interest Coverage Ratio. Permit the Combined Interest
Coverage Ratio of the Borrowers and their Subsidiaries for any period of
four consecutive fiscal quarters of the Borrowers ending with any fiscal
quarter set forth below to be less than the ratio set forth below opposite
such fiscal quarter:
<TABLE>
<CAPTION>
Combined Interest
Fiscal Quarter Coverage Ratio
---------------------- --------------
<S> <C>
Third Quarter 1996 N.A.
Fourth Quarter 1996 3.75 to 1.0
First Quarter 1997 2.50 to 1.0
Second Quarter 1997 2.20 to 1.0
Third Quarter 1997 2.20 to 1.0
Fourth Quarter 1997 2.40 to 1.0
First Quarter 1998 2.40 to 1.0
Second Quarter 1998 2.40 to 1.0
Third Quarter 1998 2.65 to 1.0
Fourth Quarter 1998 3.00 to 1.0
First Quarter 1999 3.00 to 1.0
Second Quarter 1999 3.00 to 1.0
Third Quarter 1999 3.25 to 1.0
Fourth Quarter 1999 3.75 to 1.0
First Quarter 2000 3.75 to 1.0
Second Quarter 2000 3.75 to 1.0
Third Quarter 2000 4.00 to 1.0
Fourth Quarter 2000 4.75 to 1.0
First Quarter 2001 4.75 to 1.0
Second Quarter 2001 4.75 to 1.0
Third Quarter 2001 5.00 to 1.0
Fourth Quarter 2001 5.75 to 1.0
First Quarter 2002 5.75 to 1.0
Second Quarter 2002 6.00 to 1.0
</TABLE>
(d) Combined Fixed Charge Coverage Ratio. Permit the Combined Fixed
Charge Coverage Ratio of the Borrowers and their Subsidiaries for any
period of four consecutive fiscal quarters of the Borrowers ending with any
fiscal quarter set forth below to be less than the ratio set forth below
opposite such fiscal quarter:
<PAGE> 69
63
<TABLE>
<CAPTION>
Fiscal Quarter Combined Fixed Charge
-------------- Coverage Ratio
---------------------
<S> <C>
Third Quarter 1996 N.A.
Fourth Quarter 1996 1.35 to 1.00
First Quarter 1997 1.00 to 1.00
Second Quarter 1997 1.00 to 1.00
Third Quarter 1997 1.00 to 1.00
Fourth Quarter 1997 1.05 to 1.00
First Quarter 1998 1.00 to 1.00
Second Quarter 1998 1.00 to 1.00
Third Quarter 1998 1.00 to 1.00
Fourth Quarter 1998 1.05 to 1.00
First Quarter 1999 1.00 to 1.00
Second Quarter 1999 1.00 to 1.00
Third Quarter 1999 1.00 to 1.00
Fourth Quarter 1999 1.05 to 1.00
First Quarter 2000 1.00 to 1.00
Second Quarter 2000 1.00 to 1.00
Third Quarter 2000 1.00 to 1.00
Fourth Quarter 2000 1.10 to 1.00
First Quarter 2001 1.00 to 1.00
Second Quarter 2001 1.00 to 1.00
Third Quarter 2001 1.00 to 1.00
Fourth Quarter 2001 0.85 to 1.00
First Quarter 2002 0.85 to 1.00
Second Quarter 2002 0.75 to 1.00
</TABLE>
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist (in each case, to "Incur") any Indebtedness, except:
(a) Indebtedness of the Borrowers under the Loan Documents and the
Subordinated Debt;
(b) Indebtedness of a Borrower to a Borrower or a Wholly Owned
Subsidiary and of a Wholly Owned Subsidiary to a Borrower or any other
Wholly Owned Subsidiary;
(c) Indebtedness of a Borrower or any Subsidiary incurred to finance
the acquisition of fixed or capital assets (whether pursuant to a loan, a
Financing Lease or otherwise) in an aggregate principal amount not
exceeding as to the Borrowers and their Subsidiaries $2,500,000 at any time
outstanding; and
<PAGE> 70
64
(d) Indebtedness outstanding on the date hereof and listed on Schedule
7.2(d).
7.3 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Parent, the Borrowers or
their Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Parent, the Borrowers or any Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no such
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of a Borrower or any Subsidiary
incurred to finance the acquisition of fixed or capital assets, provided
that (i) such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do not at any
time encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not
increased and (iv) the proceeds of the Indebtedness secured by any such
Lien shall at no time exceed 100% of the original purchase price of such
property;
(h) Liens created pursuant to the Security Documents; and
<PAGE> 71
65
(i) Liens of landlords arising by operation of law, and Liens of a
lessor under any lease entered into by a Borrower or any Subsidiary in the
ordinary course of its business, to the extent the provisions of such
leases relating to such Liens are standard and customary in the relevant
market.
7.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and listed
on Schedule 7.4(a);
(b) guarantees made in the ordinary course of its business by the
Parent or any Borrower of obligations of any of their respective
Subsidiaries or a Borrower, as the case may be, which obligations are
otherwise permitted under this Agreement;
(c) Guarantee Obligations in respect of Standby Letters of Credit; and
(d) the Guarantee Obligation of the Parent pursuant to Section 10; and
(e) Guarantee Obligations in respect of loans by a third party to an
employee of a Borrower or Subsidiary for the purchase of the Capital Stock
of the Parent in an aggregate amount not to exceed at any one time
outstanding (i) $1,000,000 minus (ii) the aggregate principal amount of any
loans or advances made by the Parent or the Borrowers pursuant to Section
7.9(c)(ii).
7.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Wholly Owned Subsidiary of the Parent or Borrower may be
merged or combined with or into any Borrower (provided that such Borrower
shall be the continuing or surviving corporation);
(b) any Wholly Owned Subsidiary or Borrower may sell, lease, transfer
or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to any Borrower or any other Wholly Owned
Subsidiary of a Borrower; and
(c) the Recapitalization, and
(d) the Parent may liquidate, wind-up or dissolve itself so long as
(i) at such time no Default or Event of Default shall have occurred and be
continuing, (ii) the Parent has no material assets at the time of such
transaction other than assets subject to the Lien of a Security Document
and (iii) the distribution of such assets in such transaction is made
subject to the Liens of the Security Documents and at the time of
<PAGE> 72
66
such transaction the Borrowers and such recipients enter into such
instruments and take such actions (including delivery to the Administrative
Agent of appropriate legal opinions) as shall be reasonably requested by
the Administrative Agent to ensure and evidence that the Liens of the
Security Documents on such assets are unaffected by such transaction.
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary of the Parent
or any Borrower, issue or sell any shares of such Subsidiary's Capital Stock to
any Person, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business having a fair market value not to exceed,
in the aggregate, $500,000 in any period of twelve consecutive months;
(b) the sale or other disposition of any property in the ordinary
course of business, provided that (other than inventory) the aggregate book
value of all assets so sold or disposed of in any period of twelve
consecutive months shall not exceed $500,000;
(c) the sale of inventory in the ordinary course of business; and
(d) as permitted by Section 7.5(b).
7.7 Limitation on Restricted Payments. Declare or pay any dividend
(other than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Parent, the Borrowers or any Subsidiary or any warrants or options to
purchase any such Capital Stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Parent, the Borrowers or
any Subsidiary (collectively, "Restricted Payments"), except:
(a) payments of interest on the Subordinated Debt in accordance with
the Subordination Agreement and the Purchase Agreement;
(b) so long as (i) no Default or Event of Default shall have occurred
and be continuing, (ii) there is Excess Cash Flow for the most recently
ended fiscal year of the Borrowers and (iii) the Combined Management Fee
Ratio for such fiscal year is greater than 3.25 to 1.00 in the case of the
1996 fiscal year, 2.25 to 1.00 in the case of the 1997 fiscal year, 2.75 to
1.00 in the case of the 1998 fiscal year, 3.50 to 1.00 in the case of the
1999 fiscal year, 4.50 to 1.00 in the case of the 2000 fiscal year, and
5.50 to 1.00 in the case of the 2001 and 2002 fiscal years, then the
Borrowers may pay Management Fees to the Individual Shareholders in an
amount not to exceed
<PAGE> 73
67
$1,000,000 per year in the case of the 1996 fiscal year and $1,800,000 per
year otherwise in the aggregate during the thirty-day period after the date
on which the financial statements of the Borrowers referred to in Section
6.1(a) with respect to the fiscal year ending with such fourth fiscal
quarter are delivered to the Lenders; and
(c) so long as no Default or Event of Default shall have occurred and
be continuing, purchases or redemptions of the Capital Stock of the Parent,
the Borrowers or their Subsidiaries held by employees of the Borrowers,
other than the Individual Shareholders, in an aggregate amount not to
exceed $500,000 per year and $1,000,000 in total.
7.8 Limitation on Capital Expenditures. Make or commit to make (by way
of the acquisition of securities of a Person or otherwise) any Capital
Expenditure (excluding any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations)
except for expenditures in the ordinary course of business not exceeding, in the
aggregate for the Borrowers and their Subsidiaries during any of the fiscal
years of the Borrowers set forth below, the amount set forth opposite such
fiscal year below:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -----------
<S> <C>
Closing Date-FYE 1996 $3,500,000
1997 $5,000,000
1998 $5,500,000
1999 $5,500,000
2000 $6,000,000
2001 $6,500,000
2002 $6,500,000
</TABLE>
provided that not more than 20 new retail store locations on premises owned by
the Borrowers in fee or subject to a long-term lease shall be opened in fiscal
year 1996; not more than 22 new retail store locations on premises owned by the
Borrowers in fee or subject to a long-term lease shall be opened in fiscal year
1997; and not more than 25 new retail store locations on premises owned by the
Borrowers in fee or subject to a long-term lease may be opened in any fiscal
year after 1997.
7.9 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
<PAGE> 74
68
(c) loans and advances to employees of a Borrower or Subsidiary for
(i) travel, entertainment and relocation expenses in the ordinary course of
business in an aggregate amount for the Borrowers and their Subsidiaries
not to exceed $250,000 at any one time outstanding and (ii) the purchase of
the Capital Stock of the Parent in an aggregate principal amount not to
exceed at any one time outstanding (A) $1,000,000 minus (B) the aggregate
principal amount of any loans guaranteed by the Parent or the Borrowers
pursuant to Section 7.4(e); and
(d) investments by any Borrower in any Borrower or a Wholly Owned
Subsidiary and investments by any Wholly Owned Subsidiary in any Borrower
and in other Wholly Owned Subsidiaries.
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments and Preferred Stock, etc. (a) Make any optional payment or
prepayment on or redemption or purchase of any material Indebtedness (other than
the Loans) or preferred stock, including, without limitation, the Subordinated
Debt and the Preferred Stock, (b) amend, modify or change, or consent or agree
to any amendment, modification or change to any of the terms of any such
Indebtedness, including but not limited to the Subordinated Debt (other than any
such amendment, modification or change which would extend the maturity or reduce
the amount of any payment of principal thereof or which would reduce the rate or
extend the date for payment of interest or dividends thereon), (c) amend the
Subordination Agreement, (d) amend, modify or change in any material respect, or
consent or agree to any amendment, modification, or change in any material
respect to the terms of the Preferred Stock or any other capitalization or
organizational documents, except as contemplated by Section 6.4.2 of the amended
and restated charter of the Borrowers as in effect on the Closing Date; (e)
amend, modify or change, the Shareholders Agreement or the Registration Rights
Agreement in a manner that would adversely affect the rights or interests of the
Borrowers, the Administrative Agent or the Lenders or (f) amend, modify, renew
or extend the Management Contracts in a manner which (i) would have the effect
of increasing the compensation due the Management Shareholders in the aggregate
to an amount in excess of $750,000 in any fiscal year or (ii) otherwise would
adversely affect the rights or interests of the Administrative Agent or the
Lenders.
7.11 Limitation on Transactions with Affiliates. Except as set forth
on Schedule 7.11, enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate (other than the Parent or the Borrowers) unless such
transaction (a) is otherwise permitted under this Agreement, (b) is in the
ordinary course of the Parent's, the Borrowers or such Subsidiary's business,
(c) is upon fair and reasonable terms no less favorable to the Parent, the
Borrowers or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate and
(d) is (unless immaterial) disclosed in writing to the Administrative Agent.
7.12 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Parent, the Borrowers or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Parent, the Borrowers
<PAGE> 75
69
or such Subsidiary to such Person or to any other Person to whom funds have been
or are to be advanced by such Person on the security of such property or rental
obligations of the Parent, the Borrowers or such Subsidiary.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal year of
the Parent, the Borrowers or any of their respective Subsidiaries to end on a
day other than December 31.
7.14 Limitation on Negative Pledge Clauses. Enter into with any
Person, or suffer to exist, any agreement, other than (a) this Agreement and the
other Loan Documents and the Purchase Agreement or (b) any industrial revenue
bonds, purchase money mortgages or Financing Leases permitted by this Agreement
(in which cases, any prohibition or limitation shall only be effective against
the assets financed thereby) which prohibits or limits the ability of the
Parent, the Borrowers or any of their Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
7.15 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrowers and their Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
7.16 Limitation on Activities of the Parent. In the case of the
Parent, notwithstanding anything to the contrary in this Agreement or any other
Loan Document, (a) conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or operations other than
those incidental to its ownership of the Capital Stock of the Borrowers, (b)
incur, create, assume or suffer to exist any Indebtedness or other liabilities
or financial obligations, except (i) nonconsensual obligations imposed by
operation of law, (ii) pursuant to the Loan Documents to which it is a party and
(iii) obligations with respect to its Capital Stock (other than any such
obligations constituting Indebtedness), (c) own, lease, manage or otherwise
operate any properties or assets (including cash (other than cash received in
connection with dividends made by the Borrowers in accordance with Section 7.7
pending application in the manner contemplated by said Section) and cash
equivalents) other than the ownership of shares of Capital Stock of the
Borrowers or (d) create or permit to exist any Subsidiary of the Parent or any
Borrower other than a wholly owned Subsidiary.
7.17 Purchase Agreement Negative Covenants. Fail to comply with
Section 7.02 of the Purchase Agreement, which Section, together with all
definitions of defined terms used in such Section, are hereby incorporated by
reference herein (without giving effect to any subsequent amendment or other
modification thereof not consented to by the Required Lenders) as if such
provisions were set forth in full herein.
<PAGE> 76
70
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrowers shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrowers shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by the Parent,
a Borrower or any other Loan Party herein or in any other Loan Document or
which is contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection with this
Agreement or any such other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed made;
or
(c) (i) The Parent, a Borrower or any other Loan Party shall default
in the observance or performance of any agreement contained in Section 2.7,
6.1(a), 6.7, 6.9, or 7, Section 5(b) of the Parent Pledge Agreement,
Section 5(b) of the Management Pledge Agreement or Section 4.4 of the
Borrowers Security Agreement or (ii) an Event of Default (as defined in the
Mortgage) shall occur under any Mortgage; or
(d) The Parent, a Borrower or any other Loan Party shall default in
the observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied for a period of 30 days after notice to the Parent, Borrower or
other Loan Party, as applicable, from the Administrative Agent or the
Required Lenders; or
(e) The Parent, a Borrower or any Subsidiary shall (i) default in
making any payment of any principal of any Indebtedness (including, without
limitation, any Guarantee Obligation) on the scheduled or original due date
with respect thereto; or (ii) default in making any payment of any interest
on any such Indebtedness beyond the period of grace, if any, provided in
the instrument or agreement under which such Indebtedness was created; or
(iii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided, that a default, event or condition described in clause
(i), (ii) or (iii) of this paragraph (e) shall not at any time constitute
an Event of Default under this
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Agreement unless, at such time, one or more defaults, events or conditions
of the type described in clauses (i), (ii) and (iii) of this paragraph (e)
shall have occurred and be continuing with respect to Indebtedness and/or
Guarantee Obligations of the Parent, the Borrowers and all Subsidiaries the
outstanding principal amount of which exceeds in the aggregate $250,000; or
(f) (i) The Parent, a Borrower or any Subsidiary shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Parent, a Borrower or any Subsidiary shall make
a general assignment for the benefit of its creditors; or (ii) there shall
be commenced against the Parent, a Borrower or any Subsidiary any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
the Parent, a Borrower or any Subsidiary any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Parent, a Borrower or any Subsidiary
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Parent, a Borrower or any Subsidiary shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of a
Borrower, a Subsidiary or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence
to have a trustee appointed, or a trustee shall be appointed, to administer
or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) a
Borrower, a Subsidiary or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or
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condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Required Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Parent, the Borrowers or any of their Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance) of $250,000
or more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(j) Section 10 shall cease, for any reason, to be in full force and
effect or the Parent shall so assert; or
(k) (i) The Parent and the Management Shareholders shall cease to have
the power (whether or not exercised) to elect a majority of the directors
of any of the Borrowers, (ii) the Parent shall cease to own and control, of
record and beneficially, directly, 60% of the outstanding Capital Stock of
each Borrower, (iii) the Advent Funds and the Management Shareholders shall
cease to own and control, directly or indirectly, 60% of the outstanding
Capital Stock of each Borrower, (iv) the Advent Funds shall cease to own
and control, of record and beneficially, directly, 55% of the member
interests of the Parent, (v) the Advent Funds shall cease to own and
control, directly or indirectly, 35% of the outstanding Capital Stock of
each Borrower; provided, that (A) each of the foregoing ownership
percentages in respect of the Borrower will be reduced to give effect to
the dilution resulting from the exercise of the Warrants and (B) each of
the foregoing shall be amended by the Administrative Agent and the
Borrowers at the time of any transaction permitted by Section 7.5(d) to
provide for such transaction or (vi) a "Change of Control" as defined in
the Purchase Agreement shall occur and be continuing; or
(l) (i) There shall have occurred any amendment, supplement or other
modification of the Purchase Agreement or the Subordination Agreement,
which in any such case shall not have been consented to in advance in
writing by the Administrative Agent and the Required Lenders, except to the
extent such amendment, supplement or modification is expressly permitted by
Section 7.10 or (ii) the Subordination Agreement shall cease, for any
reason, to be valid or any Loan Party or any of its Subsidiaries shall so
assert in writing; or
(m) There shall have occurred an "Event of Default" as defined in the
Purchase Agreement;
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then, and in any such event, (A) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (f) above with respect to the
Parent, a Borrower or any Subsidiary, automatically the Commitments shall
immediately terminate and the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other
Loan Documents (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding
Letters of Credit shall have presented the documents required thereunder)
shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative
Agent shall, by notice to the Designated Borrower declare the Commitments
to be terminated forthwith, whereupon the Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Designated Borrower, declare
the Loans hereunder (with accrued interest thereon) and all other amounts
owing under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to
this paragraph, the Borrowers shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to
the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit
shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrowers hereunder and under the other Loan
Documents. After all such Letters of Credit shall have expired or been
fully drawn upon, all Reimbursement Obligations shall have been satisfied
and all other obligations of the Borrowers hereunder and under the other
Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrowers (or such other
Person as may be lawfully entitled thereto). Except as expressly provided
above in this Section, presentment, demand, protest and all other notices
of any kind are hereby expressly waived.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and
the other Loan Documents, and each Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf
under the provisions of this Agreement and the other Loan Documents and to
exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set
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forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise
exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with this Agreement or
any other Loan Document (except to the extent that any of the foregoing are
found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from its or such Person's own gross
negligence or willful misconduct) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements, representations or warranties
made by any Loan Party or any officer thereof contained in this Agreement
or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other
Loan Document or for any failure of any Loan Party a party thereto to
perform its obligations hereunder or thereunder. The Administrative Agent
shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of any Loan Party. The Administrative
Agent shall not be responsible for any actions or approvals taken or
granted by the Arranger.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation 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 (including, without limitation, counsel to the
Parent or the Borrowers), independent accountants and other experts
selected by the Administrative Agent. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Lenders (or, if so specified by this
Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Loan Documents in accordance with a request of
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the Required Lenders (or, if so specified by this Agreement, all Lenders),
and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Lenders and all future holders of the Notes.
9.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received written
notice from a Lender, the Parent or the Borrowers referring to this
Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Administrative
Agent receives such a notice, the Administrative Agent shall give notice
thereof to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement,
all Lenders); provided that unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders.
9.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of a Loan Party or any Affiliate of a Loan Party, shall be deemed
to constitute any representation or warranty by the Administrative Agent to
any Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of
the Loan Parties and their Affiliates and made its own decision to make its
Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation
as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of the Loan
Parties and their Affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party
or any Affiliate of a Loan Party which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Parent
or the Borrowers and without limiting the obligation of the Parent or the
Borrowers to do so), ratably according to their respective Revolving Credit
Percentages, Tranche A Term Loan Percentages and
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Tranche B Term Loan Percentages in effect on the date on which
indemnification is sought under this Section 9.7, from and against any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including, without limitation, at any time following
the payment of the Notes) be imposed on, incurred by or asserted against
the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which are found
by a final and nonappealable decision of a court of competent jurisdiction
to have resulted from the Administrative Agent's gross negligence or
willful misconduct. The agreements in this Section 9.7 shall survive the
payment of the Notes and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits
from and generally engage in any kind of business with any Loan Party as
though the Administrative Agent were not the Administrative Agent hereunder
and under the other Loan Documents. With respect to its Loans made or
renewed by it and any Note issued to it and with respect to any Letter of
Credit issued or participated in by it, the Administrative Agent shall have
the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include
the Administrative Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall have been approved by the Parent and the Borrowers
(which approval shall not be unreasonably withheld or delayed), whereupon
such successor agent shall succeed to the rights, powers and duties of the
Administrative Agent hereunder. Effective upon such apportionment and
approval, the term "Administrative Agent" shall mean such successor agent
and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act
or deed on the part of such former Administrative Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions
of this Section 9 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents. The Required Lenders, with the
consent of the Designated Borrower, may replace the Administrative Agent,
provided, however, that if a Default or an Event of Default shall occur and
be continuing the consent of the Designated Borrower shall not be required.
9.10 The Arranger. The Arranger, in its capacity as such,
shall not have any duties or responsibilities hereunder or under any Loan
Document nor any fiduciary
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relationship with any Lender, and no implied covenants, functions,
responsibilities duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Arranger in its capacity as such.
SECTION 10. GUARANTEE
10.1 Guarantee. To induce the Administrative Agent and the Lenders to
execute and deliver this Agreement and to make or maintain the Loans
hereunder, and in consideration thereof, the Parent hereby unconditionally
and irrevocably guarantees to the Administrative Agent, for the ratable
benefit of the Lenders, the prompt and complete payment and performance by
the Borrowers when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations, and the Parent further agrees to pay any and
all expenses (including, without limitation, all reasonable fees, charges
and disbursements of counsel) which may be paid or incurred by the
Administrative Agent or by the Lenders in enforcing, or obtaining advice of
counsel in respect of, any of their rights under the guarantee contained in
this Section 10. The guarantee contained in this Section 10, subject to
Section 10.5, shall remain in full force and effect until the Obligations
are paid in full, the Revolving Credit Commitments are terminated and no
Letters of Credit are outstanding, notwithstanding that from time to time
prior thereto the Borrowers may be free from any Obligations.
10.2 No Subrogation, Contribution, Reimbursement or Indemnity.
Notwithstanding any payment or payments made by the Parent hereunder or any
set-off or application of funds of the Parent by any Lender, the Parent
shall not be entitled to be subrogated to any of the rights of the
Administrative Agent or any Lender against the Borrowers or any collateral
security or guarantee or right of offset held by any Lender for the payment
of the Obligations, nor shall the Parent seek or be entitled to seek any
contribution or reimbursement from the Borrowers in respect of payments
made by the Parent hereunder, until all amounts owing to the Administrative
Agent and the Lenders by the Borrowers on account of the Obligations are
paid in full, no Letters of Credit are outstanding and the Revolving Credit
Commitments are terminated. If any amount shall be paid to the Parent on
account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, any Letter of Credit shall be outstanding
or the Revolving Credit Commitments shall not have been terminated, such
amount shall be held by the Parent in trust for the Administrative Agent
and the Lenders, segregated from other funds of the Parent, and shall,
forthwith upon receipt by the Parent, be turned over to the Administrative
Agent in the exact form received by the Parent (duly indorsed by the Parent
to the Administrative Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the
Administrative Agent may determine. The Parent hereby further irrevocably
waives all contractual, common law, statutory and other rights of
reimbursement, contribution, exoneration or indemnity (or any similar
right) from or against the Borrowers or any other Person which may have
arisen in connection with the guarantee contained in this Section 10.
10.3 Amendments, etc. with respect to the Obligations. The Parent
shall remain obligated under this Section 10 notwithstanding that, without
any reservation of rights against the Parent, and without notice to or
further assent by the Parent, any demand for
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payment of or reduction in the principal amount of any of the Obligations
made by the Administrative Agent or any Lender may be rescinded by the
Administrative Agent or such Lender, and any of the Obligations continued,
and the Obligations, or the liability of any other party upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part,
be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and this
Agreement, any other Loan Document, and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Lenders (or the Required Lenders,
as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. Neither the
Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for
the Obligations or for the guarantee contained in this Section 10 or any
property subject thereto.
10.4 Guarantee Absolute and Unconditional. The Parent waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent
or any Lender upon the guarantee contained in this Section 10 or acceptance
of the guarantee contained in this Section 10; the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 10; and all dealings between any
Borrower or the Parent, on the one hand, and the Administrative Agent and
the Lenders, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon the guarantee contained in this
Section 10. The Parent waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrowers or the
Parent with respect to the Obligations. The guarantee contained in this
Section 10 shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability
of this Agreement or any other Loan Document, any of the Obligations or any
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent
or any Lender, (b) any defense, setoff or counterclaim (other than a
defense of payment or performance) which may at any time be available to or
be asserted by any Borrower against the Administrative Agent or any Lender,
or (c) any other circumstance whatsoever (with or without notice to or
knowledge of any Borrower or the Parent) which constitutes, or might be
construed to constitute, an equitable or legal discharge of any Borrower
for the Obligations, or of the Parent under the guarantee contained in this
Section 10, in bankruptcy or in any other instance. When the Administrative
Agent or any Lender is pursuing its rights and remedies under this Section
10 against the Parent, the Administrative Agent or any Lender may, but
shall be under no obligation to, pursue such rights and remedies as it may
have against any Borrower or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any Lender
to pursue such other rights or remedies or to collect any payments from any
Borrower or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any
release of the Borrowers or any such other Person or of any such collateral
security, guarantee
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or right of offset, shall not relieve the Parent of any liability under
this Section 10, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the
Administrative Agent and the Lenders against the Parent.
10.5 Reinstatement. The guarantee contained in this Section 10 shall
continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Obligations is rescinded
or must otherwise be restored or returned by the Administrative Agent or
any Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Borrower or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or trustee or similar officer
for, any Borrower or any substantial part of its property, or otherwise,
all as though such payments had not been made.
10.6 Payments. The Parent hereby agrees that any payments in respect
of the Obligations pursuant to this Section 10 will be paid to the
Administrative Agent without setoff or counterclaim in Dollars at the
office of the Administrative Agent specified in Section 11.2.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 11.1. The
Required Lenders and each Loan Party to the relevant Loan Documents may,
or, with the written consent of the Required Lenders, the Administrative
Agent and each Loan Party to the relevant Loan Document may, from time to
time, (a) enter into written amendments, supplements or modifications
hereto and to the other Loan Documents for the purpose of adding any
provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Loan Parties hereunder or
thereunder or (b) waive, on such terms and conditions as the Required
Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other
Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount or extend the final
scheduled date of maturity of any Note, or reduce the stated rate of any
interest, fee or letter of credit commission payable hereunder or extend
the scheduled date of any payment thereof or increase the amount or extend
the expiration date of any Lender's Revolving Credit Commitment, or make
any change in the application of any prepayment of the Loans specified in
the first sentence of Section 2.12(d) or in Section 2.18(a), in each case
without the consent of each Lender directly affected thereby, (ii) extend
the scheduled date of any amortization payment in respect of the Tranche A
Term Loans referred to in Section 2.9 without the consent of each Lender
affected thereby or extend the scheduled date of any amortization payment
in respect of the Tranche B Term Loans referred to in Section 2.9 without
the consent of each Lender affected thereby, (iii) amend, modify or waive
any provision of this Section 11.1 or reduce any percentage specified in
the definition of Required Lenders, or consent to the assignment or
transfer by any Loan Party of any of its rights and obligations under this
Agreement and the other Loan Documents or release all or a
<PAGE> 86
80
substantial portion of the Collateral (other than in connection with any
sale or other disposition of assets permitted by Section 7.6) or any
guarantee of the Obligations, in each case without the written consent of
all the Lenders, (iv) amend, modify or waive any provision of Section 9
without the written consent of the Administrative Agent, (v) amend, modify
or waive any provision of Section 3 without the written consent of the
Issuing Lender, (vi) amend, modify or waive any provision of Section 2.25,
2.26, or 2.27 without the written consent of the Swing Line Lender or (vii)
amend, modify or waive any provision of Section 2.7 without the written
consent of (A) the holders of 85% or more of the aggregate Revolving Credit
Commitments, or, if the Revolving Credit Commitments have been terminated,
the aggregate outstanding Revolving Extensions of Credit and (B) the
Required Lenders. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be
binding upon the Loan Parties, the Lenders, the Administrative Agent and
all future holders of the Notes. In the case of any waiver, the Loan
Parties, the Lenders and the Administrative Agent shall be restored to
their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent
or other Default or Event of Default, or impair any right consequent
thereon.
11.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of
telecopy notice, when received, addressed as follows in the case of the
Parent, the Designated Borrower and the Administrative Agent, and as set
forth in Schedule 1.1B in the case of the other parties hereto, or to such
other address as may be hereafter notified by the respective parties hereto
and any future holders of the Notes:
The Parent: Kirklands Holdings L.L.C.
Advent International Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: David M. Mussafer
Telecopy: (617) 951-0566
Telephone: (617) 951-9469
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81
The Designated
Borrower: Kirkland's, Inc.
805 North Parkway
Jackson, Tennessee 38305
Attention: Carl Kirkland
Telecopy: (901) 664-9345
Telephone: (901) 668-2444
with a copy to:
Baker, Donelson, Bearman & Caldwell
Tennessee Building
165 Madison Avenue, 20th Floor
Memphis, TN 38103
Attention: Robert Walker, Esq.
Telecopy: (901) 577-2303
Telephone: (901) 577-2719
and
Pepper, Hamelton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Attention: Cary S. Levinson, Esq.
Telecopy: (215) 981-4750
Telephone: (215) 981-4000
The Administrative
Agent: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Dan Corcoran
Telecopy: (617) 434 8102
Telephone: (617) 434-2251
provided that any notice, request or demand to or upon the Administrative
Agent or the Lenders pursuant to Section 2.2, 2.4, 2.6, 2.10, 2.11, 2.13 or
2.26 shall not be effective until received. Any notice or delivery to or
from or consent required of the Borrowers hereunder or pursuant to any
other Loan Document may be made to or by the Designated Borrower on behalf
of the Borrowers.
<PAGE> 88
82
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender,
any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4 Survival. All representations and warranties made hereunder, in
the other Loan Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Notes and the making of
the Loans hereunder.
11.5 Payment of Expenses and Taxes. The Borrowers jointly and
severally agree (a) to pay or reimburse the Administrative Agent for all
its reasonable out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, and any amendment,
supplement or modification to, this Agreement and the other Loan Documents
and any other documents prepared in connection herewith or therewith, and
the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the fees and disbursements of
counsel (including the allocated fees and expenses of in-house counsel) to
each Lender and counsel to the Administrative Agent, (c) to pay, indemnify,
and hold each Lender and the Administrative Agent harmless from, any and
all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if
any, which may be payable or determined to be payable in connection with
the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and
their respective officers, directors, trustees, employees, affiliates,
agents and controlling persons (each, an "indemnitee") harmless from and
against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the other
Loan Documents and any such other documents, including, without limitation,
any of the foregoing relating to the use of proceeds of the Loans or the
violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the Parent, the Borrowers any of their
Subsidiaries or any of the Properties (all the foregoing in this clause
(d), collectively, the "indemnified liabilities"), provided, that the
Borrowers shall have no obligation hereunder to any indemnitee with respect
to indemnified liabilities to the extent such indemnified liabilities are
found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful
misconduct of such indemnitee. The agreements in this Section
<PAGE> 89
83
11.5 shall survive repayment of the Notes and all other amounts
payable hereunder and the termination of the Commitments and, in the case
of any Lender that may assign any interest in its Commitments, Loans or
Letter of Credit Interest hereunder, shall survive the making of such
assignment, notwithstanding that such assigning Lender may cease to be a
"Lender" hereunder.
11.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Parent, the
Borrowers, the Lenders, the Administrative Agent, all future holders of the
Notes and their respective successors and assigns, except that neither the
Parent nor the Borrowers may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, without the consent of the Borrowers, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks, financial institutions or funds that
regularly invest in loans and/or loan participations or, with the consent
of the Borrowers and the Administrative Agent (which, in each case, shall
not be unreasonably withheld or delayed), any other entities (each, a
"Participant") participating interests in any Loan owing to such Lender,
any Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain
the holder of any such Note for all purposes under this Agreement and the
other Loan Documents, and the Borrowers and the Administrative Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other
Loan Documents. In no event shall any Participant under any such
participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or
consent would reduce the principal of, or interest on, the Notes or any
fees payable hereunder, postpone the date of the final maturity of the
Notes, consent to the assignment or transfer by any Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents,
release all or a substantial portion of the Collateral (other than in
connection with any sale or other disposition of assets permitted by
Section 7.6) or any guarantee of the Obligations, in each case to the
extent subject to such participation. The Borrowers agree that if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence
of an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement
and any Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or any
Note, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 11.7(a) as fully as if it were a
Lender hereunder. The Borrowers also agree that each Participant shall be
entitled to the benefits of Sections 2.20, 2.21 and 2.22
<PAGE> 90
84
with respect to its participation in the Commitments and the Loans
outstanding from time to time as if it was a Lender; provided that, in the
case of Section 2.21, such Participant shall have complied with the
requirements of said Section and provided, further, that no Participant
shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to
any Lender or any affiliate thereof or, with the consent of the Designated
Borrower and the Administrative Agent (which, in each case, shall not be
unreasonably withheld or delayed) (provided that no such consent need be
obtained by Lehman Commercial Paper Inc. for a period of 120 days following
the Closing Date), to an additional bank, financial institution or other
entity (an "Assignee") all or any part of its rights and obligations under
this Agreement, the Letters of Credit and the Notes pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit D, executed
by such Assignee, such assigning Lender (and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Designated
Borrower and the Administrative Agent) and delivered to the Administrative
Agent for its acceptance and recording in the Register; provided that no
such assignment to an Assignee (other than any Lender or any affiliate
thereof) shall be in an aggregate principal amount of less than $2,000,000
(other than in the case of an assignment of all of a Lender's interests
under this Agreement and the Notes). Such assignment need not be ratable as
among any Tranche A Term Loan Commitments and/or Tranche A Term Loans,
Tranche B Term Loan Commitments and/or Tranche B Term Loans and Revolving
Credit Commitments and/or Revolving Credit Loans of the assigning Lender.
Upon such execution, delivery, acceptance and recording, from and after the
effective date determined pursuant to such Assignment and Acceptance, (x)
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
Lender hereunder with a Commitment as set forth therein, and (y) the
assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and obligations under
this Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (g) of
this Section 11.6, the consent of the Designated Borrower shall not be
required, and, unless requested by the Assignee and/or the assigning
Lender, new Notes shall not be required to be executed and delivered by the
Borrowers, for any assignment which occurs at any time when any of the
events described in Section 8(f) shall have occurred and be continuing.
(d) Any Non-U.S. Lender that could become completely exempt from
withholding of any tax, assessment or other charge or levy imposed by or on
behalf of the United States or any taxing authority thereof ("U.S. Taxes")
in respect of payment of any Obligations due to such Non-U.S. Lender under
this Agreement if the Obligations were in registered form for U.S. federal
income tax purposes may request the Borrowers (through the Administrative
Agent), and the Borrowers agree thereupon, to exchange any promissory
<PAGE> 91
85
note(s) evidencing such Obligations for promissory note(s) registered as
provided in paragraph (f) below and substantially in the form of Exhibit
I-1 (in the case of Obligations in respect of Tranche A Term Loans),
Exhibit I-2 (in the case of Obligations in respect of Tranche B Term
Loans), or Exhibit I-3 (in the case of Obligations in respect of Revolving
Credit Loans) (each, an "Alternative Note"). Alternative Notes may not be
exchanged for promissory notes that are not Alternative Notes.
(e) Each Non-U.S. Lender that holds Alternative Note(s) (an
"Alternative Noteholder") (or, if such Alternative Noteholder is not the
beneficial owner thereof, such beneficial owner) shall deliver to the
Borrowers prior to or at the time such Non-U.S. Lender becomes an
Alternative Noteholder each of the forms and certifications required by
Section 2.21(b).
(f) An Alternative Note and the Obligation(s) evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration
of such assignment or transfer of such Alternative Note and the
Obligation(s) evidenced thereby on the Register (and each Alternative Note
shall expressly so provide). Any assignment or transfer of all or part of
such Obligation(s) and the Alternative Note(s) evidencing the same shall be
registered on the Register only upon surrender for registration of
assignment or transfer of the Alternative Note(s) evidencing such
Obligation(s), duly endorsed by (or accompanied by a written instrument of
assignment or transfer duly executed by) the Alternative Noteholder
thereof, and thereupon one or more new Alternative Note(s) in the same
aggregate principal amount shall be issued to the designated Assignee(s).
No assignment of an Alternative Note and the Obligation(s) evidenced
thereby shall be effective unless it has been recorded in the Register as
provided in this Section 11.6(f).
(g) The Administrative Agent shall maintain at its address referred to
in Section 11.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "Register") for the recordation of the names and
addresses of the Lenders (including Alternative Noteholders) and the
Commitment of, and principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrowers, the Administrative Agent and
the Lenders shall treat each Person whose name is recorded in the Register
as the owner of the Loan recorded therein for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers
or any Lender at any reasonable time and from time to time upon reasonable
prior notice.
(h) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Designated Borrower and
the Administrative Agent) together with payment to the Administrative Agent
of a registration and processing fee of $2,000 (except that no such
registration and processing fee shall be payable (y) by Lehman Commercial
Paper Inc. for a period of 120 days following the Closing Date or (z) in
the case of an Assignee which is already a Lender or is an affiliate of a
Lender), the Administrative Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto
record the information contained therein in the Register and
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86
give notice of such acceptance and recordation to the Lenders and the
Designated Borrower. On or prior to such effective date, the Borrowers, at
their own expense, shall execute and deliver to the Administrative Agent
(in exchange for the Revolving Credit Note, Tranche A Term Note and/or
Tranche B Term Note, as the case may be, of the assigning Lender) a new
Revolving Credit Note, Tranche A Term Note and/or Tranche B Term Note, as
the case may be, to the order of such Assignee (or, in the case of any
Alternative Note, payable to such Assignee or its registered assigns) in an
amount equal to the Revolving Credit Commitment, Tranche A Loan and/or
Tranche B Loan, as the case may be, assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a
Revolving Credit Commitment, Tranche A Loan and/or Tranche B Loan, as the
case may be, a new Revolving Credit Note, Tranche A Term Note and/or
Tranche B Term Note, as the case may be, to the order of the assigning
Lender (or, in the case of any Alternative Note, payable to such assigning
Lender or its registered assigns) in an amount equal to the Revolving
Credit Commitment, Tranche A Loan and/or Tranche B Loan, as the case may
be, retained by it hereunder. Such new Notes shall be dated the Closing
Date and shall otherwise be in the form of the Note replaced thereby.
(i) Each of the Parent and the Borrowers authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning the Parent, the Borrowers and their respective
Affiliates which has been delivered to such Lender by or on behalf of the
Parent or the Borrowers pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of the Parent or the Borrowers in
connection with such Lender's credit evaluation of the Parent, the
Borrowers and their respective Affiliates prior to becoming a party to this
Agreement.
(j) Nothing herein shall prohibit or restrict any Lender from (i)
pledging or assigning any Note to any Federal Reserve Bank in accordance
with applicable law or (ii) with the prior consent of the Administrative
Agent and the Borrowers (which, in each case, shall not be unreasonably
withheld or delayed), pledging its rights in connection with any Loan or
Note to any other Person.
11.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Loans or the
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in
Section 8(f), or otherwise), in a greater proportion than any such payment
to or collateral received by any other Lender, if any, in respect of such
other Lender's Loans or the Reimbursement Obligations owing to such other
Lender, or interest thereon, such Benefitted Lender shall purchase for cash
from the other Lenders a participating (or, at the option of such Lender, a
direct) interest in such portion of each such other Lender's Loan and/or of
the Reimbursement Obligations owing to each such other Lender, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any portion of
such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such
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87
purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Parent
or the Borrowers, any such notice being expressly waived by the Parent and
the Borrowers to the extent permitted by applicable law, upon any amount
becoming due and payable by the Parent or the Borrowers hereunder or under
the Notes (whether at the stated maturity, by acceleration or otherwise) to
set off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Parent or the Borrowers.
Each Lender agrees promptly to notify the Parent, the Designated Borrower
and the Administrative Agent after any such setoff and application made by
such Lender, provided that the failure to give such notice shall not affect
the validity of such setoff and application.
11.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall
be deemed to constitute one and the same instrument. A set of the copies of
this Agreement signed by all the parties shall be lodged with the Borrowers
and the Administrative Agent.
11.9 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Parent, the Borrowers, the Administrative
Agent and the Lenders with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
11.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
11.12 Submission To Jurisdiction; Waivers. Each of the Parent and the
Borrowers hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for
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recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York,
the courts of the United States for the Southern District of New York and
the courts of the Commonwealth of Massachusetts and the courts of the
United States for the District of Massachusetts, and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the Parent
or the Borrowers, as the case may be at its address set forth in Section
11.2 or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 11.12 any special, exemplary, punitive or consequential
damages.
11.13 Acknowledgements. Each of the Parent and the Borrowers hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Parent or any Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one hand, and
the Parent and the Borrowers, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Parent, the Borrowers and the Lenders.
11.14 WAIVERS OF JURY TRIAL. THE PARENT, THE BORROWERS, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY
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LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
11.15 Confidentiality. Each of the Administrative Agent and each
Lender agrees to keep confidential all non-public information provided to
it by any Loan Party pursuant to this Agreement that is designated by such
Loan Party as confidential; provided that nothing herein shall prevent the
Administrative Agent or any Lender from disclosing any such information (a)
to the Administrative Agent, any other Lender or any affiliate of any
Lender, (b) to any Transferee or prospective Transferee which agrees to
comply with the provisions of this Section 11.15, (c) to the employees,
directors, agents, attorneys, accountants and other professional advisors
of such Lender or its affiliates, (d) upon the request or demand of any
Governmental Authority having jurisdiction over the Administrative Agent or
such Lender, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection
with any litigation or similar proceeding, (g) which has been publicly
disclosed other than in breach of this Section 11.15, or (h) in connection
with the exercise of any remedy hereunder or under any other Loan Document.
11.16 Reliance on Representations and Actions of Designated Borrower.
The Borrowers hereby appoint the Designated Borrower as the Borrowers'
agent to execute, deliver and perform, on behalf of the Borrowers, any and
all notices, certificates, documents and actions to be executed, delivered
or performed hereunder or under any of the other Loan Documents, and the
Borrowers hereby agree that the Administrative Agent and the Lenders may
rely upon any representation, warranty, certificate, notice, document or
telephone request which purports to be executed or made or which the
Administrative Agent or the Lenders in good faith believe to have been
executed or made by the Designated Borrower or any of its executive
officers, and the Borrowers hereby further, jointly and severally, agree to
indemnify and hold the Administrative Agent and the Lenders harmless for
any action, including the making of Loans hereunder, and any loss or
expense, taken or incurred by any of them as a result of their good faith
reliance upon any such representation, warranty, certificate, notice,
document or telephone request.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
KIRKLANDS HOLDINGS L.L.C.
By: /s/ David M. Mussafer
------------------------------------
Title: President
KIRKLAND'S, INC.
KIRKLAND'S OF CAROLINA, INC.
KIRKLAND'S OF CHARLOTTE, EASTLAND MALL, INC.
KIRKLAND'S OF TENNESSEE, INC.
K. C. CORP. INC.
KIRKLAND'S OF GREENSBORO, FOUR SEASONS MALL, INC.
KIRKLAND'S OF FAYETTEVILLE, CROSS CREEK MALL, INC.
KIRKLAND'S OF WILMINGTON, INDEPENDENCE MALL, INC.
KIRKLAND'S III, JACKSON-METRO CENTER, INC.
KIRKLAND'S OF MEMPHIS, TENNESSEE, LAURELWOOD
SHOPPING CENTER, INC.
KIRKLAND'S OF RIDGELAND, MISSISSIPPI, NORTHPARK
MALL, INC.
KIRKLAND'S OF KNOXVILLE, EAST TOWNE MALL, INC.
KIRKLAND'S OF HUNTSVILLE, MADISON SQUARE MALL, INC.
KIRKLAND'S OF VALLEY VIEW MALL, ROANOKE, VA, INC.
KIRKLAND'S OF NASHVILLE, HICKORY HOLLOW MALL, INC.
KIRKLAND'S OF BIRMINGHAM, RIVERCHASE GALLERIA, INC.
KIRKLAND'S OF BRIARCLIFFE MALL, MYRTLE BEACH, SOUTH
CAROLINA, INC.
KIRKLAND'S OF PECANLAND MALL, MONROE, LA, INC.
KIRKLAND'S OF TOWNE CENTER AT COBB, ATLANTA, GA, INC.
KIRKLAND'S OF GWINNETT PLACE, ATLANTA, GA, INC.
KIRKLAND'S OF RIVERGATE MALL, NASHVILLE, TN, INC.
KIRKLAND'S OF PEACHTREE MALL, COLUMBUS, GA, INC.
KIRKLAND'S OF CUMBERLAND MALL, ATLANTA, GA, INC.
KIRKLAND'S OF HAMILTON PLACE MALL, CHATTANOOGA,
TN, INC.
KIRKLAND'S OF HOUSTON GALLERIA, HOUSTON, TX, INC.
KIRKLAND'S OF MALL OF MEMPHIS, MEMPHIS, TN, INC.
KIRKLAND'S OF WOODLAND HILLS MALL, TULSA, OK, INC.
KIRKLAND'S OF DAYTON MALL, DAYTON, OH, INC.
KIRKLAND'S OF OXMOOR CENTER, LOUISVILLE, KY, INC.
<PAGE> 97
91
KIRKLAND'S OF SOUTH SQUARE MALL, DURHAM, NC, INC.
KIRKLAND'S OF VALLEY VIEW CENTER, DALLAS, TX, INC.
KIRKLAND'S OF CHESTERFIELD TOWNE CENTER, RICHMOND,
VA, INC.
KIRKLAND'S OF PARK PLAZA, LITTLE ROCK, AR, INC.
KIRKLAND'S OF MONTGOMERY MALL, MONTGOMERY, AL,
INC.
KIRKLAND'S OF SOUTHLAKE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF SOUTHPARK MALL, RICHMOND, VA, INC.
KIRKLAND'S OF EASTLAND MALL, EVANSVILLE, IN, INC.
KIRKLAND'S OF FAYETTE MALL, LEXINGTON, KY, INC.
KIRKLAND'S OF HICKORY RIDGE MALL, MEMPHIS, TN, INC.
KIRKLAND'S OF REGENCY SQUARE MALL, JACKSONVILLE,
FL, INC.
KIRKLAND'S OF MCCAIN MALL, LITTLE ROCK, AR, INC.
KIRKLAND'S OF RIVER RIDGE MALL, LYNCHBURG, VA, INC.
KIRKLAND'S OF BEL AIR MALL, MOBILE, AL, INC.
KIRKLAND'S OF THE MALL AT BARNES CROSSING, TUPELO,
MS, INC.
KIRKLAND'S OF CORTANA MALL, BATON ROUGE, LA, INC.
KIRKLAND'S OF BELLEVUE CENTER, NASHVILLE, TN, INC.
KIRKLAND'S OF TRI-COUNTY MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF THE MALL OF THE AVENUES,
JACKSONVILLE, FL, INC.
KIRKLAND'S OF EASTWOOD MALL, BIRMINGHAM, AL, INC.
KIRKLAND'S OF LAKESIDE MALL, NEW ORLEANS, LA, INC.
KIRKLAND'S OF CAROLINA PLACE, CHARLOTTE, N.C., INC.
KIRKLAND'S OF CARY VILLAGE MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF COOL SPRINGS GALLERIA, NASHVILLE, TN,
INC.
KIRKLAND'S OF KENWOOD TOWNE CENTRE, CINCINNATI,
OH, INC.
KIRKLAND'S OF ST. LOUIS GALLERIA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WIREGRASS COMMONS MALL, DOTHAN, AL,
INC.
KIRKLAND'S OF REGENCY MALL, RICHMOND, VA, INC.
KIRKLAND'S OF FLORENCE, FLORENCE, KY, INC.
KIRKLAND'S OF ACADIANA MALL, LAFAYETTE, LA, INC.
KIRKLAND'S OF PADRE STAPLES MALL, CORPUS CHRISTI, TX,
INC.
KIRKLAND'S OF BELDEN VILLAGE, CANTON, OH, INC.
KIRKLAND'S OF WEST OAKS MALL, HOUSTON, TX, INC.
KIRKLAND'S OF CHARLESTON TOWN CENTER, CHARLESTON,
W. VA, INC.
KIRKLAND'S OF CRESTWOOD PLAZA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WHITE MARSH MALL, BALTIMORE, MD, INC.
<PAGE> 98
92
KIRKLAND'S OF COLLIN CREEK MALL, DALLAS, TX, INC.
KIRKLAND'S OF BAYBROOK MALL, HOUSTON, TX, INC.
KIRKLAND'S OF GOVERNOR'S SQUARE MALL, TALLAHASSEE,
FL, INC.
KIRKLAND'S OF BARTON CREEK MALL, AUSTIN, TX, INC.
KIRKLAND'S OF HIGHLAND MALL, AUSTIN, TX, INC.
KIRKLAND'S OF BATTLEFIELD MALL, SPRINGFIELD, MO, INC.
KIRKLAND'S OF PENN SQUARE MALL, OKLAHOMA CITY, OK,
INC.
KIRKLAND'S OF OAK PARK MALL, KANSAS CITY, KS, INC.
KIRKLAND'S OF MALL ST. VINCENT, SHREVEPORT, LA, INC.
KIRKLAND'S OF OWINGS MILLS MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF OAKWOOD CENTER, NEW ORLEANS, LA, INC.
KIRKLAND'S OF THE MALL AT JOHNSON CITY, JOHNSON
CITY, TN, INC.
KIRKLAND'S OF GLENBROOK MALL, FT. WAYNE, IN, INC.
KIRKLAND'S OF NORTH POINTE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF NORTHPARK MALL, JOPLIN, MO, INC.
KIRKLAND'S OF ORLANDO FASHION SQUARE, ORLANDO, FL,
INC.
KIRKLAND'S OF THE MALL AT FAIRFIELD COMMONS,
DAYTON, OH, INC.
KIRKLAND'S OF ST. CHARLES TOWNE CENTER, WALDORF,
MD INC.
KIRKLAND'S OF REGENCY MALL, FLORENCE, AL, INC.
KIRKLAND'S OF SOUTH PLAINS MALL, LUBBOCK, TX, INC.
KIRKLAND'S OF THE PARKS AT ARLINGTON, FT. WORTH, TX,
INC.
KIRKLAND'S OF PARMA TOWN MALL, CLEVELAND, OH, INC.
KIRKLAND'S OF ST. CLAIR SQUARE, ST. LOUIS, MO, INC.
KIRKLAND'S OF TURTLE CREEK MALL, HATTIESBURG, MS,
INC.
KIRKLAND'S OF THE WOODLANDS, HOUSTON, TX, INC.
KIRKLAND'S OF BRANDON TOWN CENTER, TAMPA, FL, INC.
KIRKLAND'S OF MEMORIAL CITY MALL, HOUSTON, TX, INC.
KIRKLAND'S OF UNIVERSITY MALL, TUSCALOOSA, AL, INC.
KIRKLAND'S OF SANTA ROSA MALL, FORT WALTON, FL, INC.
KIRKLAND'S OF PANAMA CITY MALL, PANAMA CITY, FL,
INC.
KIRKLAND'S OF TOWN EAST MALL, MESQUITE, TX, INC.
KIRKLAND'S OF KENTUCKY OAKS MALL, PADUCAH, KY, INC.
KIRKLAND'S OF CRABTREE VALLEY MALL, RALEIGH, N.C.,
INC.
KIRKLAND'S OF OAK HOLLOW MALL, HIGH POINT, N.C., INC.
KIRKLAND'S OF FOX VALLEY MALL, CHICAGO, IL, INC.
KIRKLAND'S OF HAWTHORNE MALL, CHICAGO, IL, INC.
<PAGE> 99
93
KIRKLAND'S OF STRATFORD SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF ORLAND SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF COASTLAND MALL, NAPLES, FL, INC.
KIRKLAND'S OF EDGEWATER MALL, BILOXI, MS, INC.
KIRKLAND'S OF TOWN CENTER PLAZA, KANSAS CITY, KS,
INC.
KIRKLAND'S OF CASTLETON SQUARE, INDIANAPOLIS, IN.,
INC.
KIRKLAND'S OF CORDOVA MALL, PENSACOLA, FL, INC.
KIRKLAND'S OF UNIVERSITY PARK, SOUTH BEND, IN, INC.
KIRKLAND'S OF WESTGATE MALL, AMARILLO, TX, INC.
KIRKLAND'S OF WESTGATE MALL, SPARTANBURG, SC, INC.
KIRKLAND'S OF MERIDIAN MALL, LANSING, MI, INC.
KIRKLAND'S OF COTTONWOOD MALL, ALBUQUERQUE, NM,
INC.
KIRKLAND'S OF UNIVERSITY MALL, TAMPA, FL, INC.
ATTEST:
By: /s/ Robert Alderson By: /s/ Carl Kirkland
--------------------- ---------------------
Title: Vice President Title: President
and Secretary
<PAGE> 100
94
LEHMAN COMMERCIAL PAPER INC., as Arranger and as a Lender
By: /s/ Dennis J. Dee
------------------------------------------
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent and as a Lender
By: /s/ Daniel P. Corcoran
------------------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ Mariah G. Lundberg
------------------------------------------
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
------------------------------------------
Title: Vice President
<PAGE> 101
95
MITSUI LEASING (U.S.A.) INC.
By: /s/ R. Wayne Hutton
------------------------------------------
Title: Vice President
PRIME INCOME TRUST
By: /s/ Rafael Scolari
------------------------------------------
Title: V.P. Portfolio Manager
CRESCENT/MACH I PARTNERS, L.P.
by: TCW Asset Management Company
Its Investment Manager
By: /s/ Justin L. Driscoll
------------------------------------------
Title: Vice President
UNION PLANTERS BANK OF
JACKSON, N.A.
By: /s/ Frank Hudacek
------------------------------------------
Title: Vice President
VOLUNTEER BANK OF
JACKSON, TENNESSEE
By: /s/ James N. Craft
------------------------------------------
Title: Executive Vice President
<PAGE> 102
SCHEDULE 1.1A TO CREDIT AGREEMENT
---------------------------------
SCHEDULE OF BORROWERS
<TABLE>
<CAPTION>
<S> <C>
Kirkland's, Inc.
101 Kirkland's of Carolina, Inc.
102 Kirkland's of Charlotte, Eastland Mall, Inc.
103 Kirkland's of Tennessee, Inc.
104 K. C. Corp. Inc.
107 Kirkland's of Greensboro, Four Seasons Mall, Inc.
109 Kirkland's of Fayetteville, Cross Creek Mall, Inc.
110 Kirkland's of Wilmington, Independence Mall, Inc.
111 Kirkland's III, Jackson-Metro Center, Inc.
114 Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center, Inc.
115 Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
116 Kirkland's of Knoxville, East Towne Mall, Inc.
117 Kirkland's of Huntsville, Madison Square Mall, Inc.
118 Kirkland's of Valley View Mall, Roanoke, VA, Inc.
119 Kirkland's of Nashville, Hickory Hollow Mall, Inc.
120 Kirkland's of Birmingham, Riverchase Galleria, Inc.
122 Kirkland's of BriarCliffe Mall, Myrtle Beach, South Carolina, Inc.
123 Kirkland's of Pecanland Mall, Monroe, LA, Inc.
125 Kirkland's of Towne Center at Cobb, Atlanta, GA, Inc.
126 Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
127 Kirkland's of Rivergate Mall, Nashville, TN, Inc.
128 Kirkland's of Peachtree Mall, Columbus, GA, Inc.
129 Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
130 Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
131 Kirkland's of Houston Galleria, Houston, TX, Inc.
132 Kirkland's of Mall of Memphis, Memphis, TN, Inc.
134 Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
135 Kirkland's of Dayton Mall, Dayton, OH, Inc.
136 Kirkland's of Oxmoor Center, Louisville, KY, Inc.
137 Kirkland's of South Square Mall, Durham, NC, Inc.
138 Kirkland's of Valley View Center, Dallas, TX, Inc.
139 Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
140 Kirkland's of Park Plaza, Little Rock, AR, Inc.
141 Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
142 Kirkland's of Southlake Mall, Atlanta, GA, Inc.
143 Kirkland's of Southpark Mall, Richmond, VA, Inc.
144 Kirkland's of Eastland Mall, Evansville, IN, Inc.
145 Kirkland's of Fayette Mall, Lexington, KY, Inc.
146 Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
148 Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
149 Kirkland's of McCain Mall, Little Rock, AR, Inc.
150 Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
<S> <C>
151 Kirkland's of Bel Air Mall, Mobile, AL, Inc.
152 Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
153 Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
154 Kirkland's of Bellevue Center, Nashville, TN, Inc.
155 Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
156 Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
157 Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
158 Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
159 Kirkland's of Carolina Place, Charlotte, N.C., Inc.
160 Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
161 Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
162 Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
163 Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
164 Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
165 Kirkland's of Regency Mall, Richmond, VA, Inc.
166 Kirkland's of Florence, Florence, KY, Inc.
167 Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
168 Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
169 Kirkland's of Belden Village, Canton, OH, Inc.
170 Kirkland's of West Oaks Mall, Houston, TX, Inc.
171 Kirkland's of Charleston Town Center, Charleston, W. VA, Inc.
172 Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
173 Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
174 Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
175 Kirkland's of Baybrook Mall, Houston, TX, Inc.
176 Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
178 Kirkland's of Barton Creek Mall, Austin, TX, Inc.
179 Kirkland's of Highland Mall, Austin, TX, Inc.
180 Kirkland's of Battlefield Mall, Springfield, MO, Inc.
181 Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
182 Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
183 Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
184 Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
185 Kirkland's of Oakwood Center, New Orleans, LA, Inc.
186 Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
187 Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
188 Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
189 Kirkland's of Northpark Mall, Joplin, MO, Inc.
190 Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
191 Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
192 Kirkland's of St. Charles Towne Center, Waldorf, MD Inc.
193 Kirkland's of Regency Mall, Florence, AL, Inc.
194 Kirkland's of South Plains Mall, Lubbock, TX, Inc.
195 Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
196 Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
197 Kirkland's of St. Clair Square, St. Louis, MO, Inc.
198 Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
</TABLE>
<PAGE> 104
199 Kirkland's of The Woodlands, Houston, TX, Inc.
200 Kirkland's of Brandon Town Center, Tampa, FL, Inc.
201 Kirkland's of Memorial City Mall, Houston, TX, Inc.
202 Kirkland's of University Mall, Tuscaloosa, AL, Inc.
203 Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
204 Kirkland's of Panama City Mall, Panama City, FL, Inc.
205 Kirkland's of Town East Mall, Mesquite, TX, Inc.
206 Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
207 Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
208 Kirkland's of Oak Hollow Mall, High Point, N.C., Inc.
209 Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
210 Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
211 Kirkland's of Stratford Square, Chicago, IL, Inc.
212 Kirkland's of Orland Square, Chicago, IL, Inc.
214 Kirkland's of Coastland Mall, Naples, FL, Inc.
215 Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
216 Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
217 Kirkland's of Castleton Square, Indianapolis, IN., Inc.
218 Kirkland's of Cordova Mall, Pensacola, FL, Inc.
219 Kirkland's of University Park, South Bend, IN, Inc.
220 Kirkland's of Westgate Mall, Amarillo, TX, Inc.
221 Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
222 Kirkland's of Meridian Mall, Lansing, MI, Inc.
223 Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
224 Kirkland's of University Mall, Tampa, FL, Inc.
<PAGE> 105
- --------------------------------------------------------------------------
FIRST AMENDMENT TO
CREDIT AGREEMENT
Among
KIRKLAND HOLDINGS L.L.C.,
THE BORROWERS SPECIFIED HEREIN,
THE LENDERS PARTY HERETO,
THE FIRST NATIONAL BANK OF BOSTON,
AS ADMINISTRATIVE AGENT
and
LEHMAN COMMERCIAL PAPER, INC.,
AS ARRANGER
Dated as of December 5, 1996
- --------------------------------------------------------------------------
<PAGE> 106
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT is dated as of December 5, 1996 by
and among KIRKLAND'S HOLDINGS L.L.C., a Delaware limited liability company (the
"Parent"), the entities listed on Schedule 1.1A of that certain Credit Agreement
referred to below (the "Borrowers"), THE FIRST NATIONAL BANK OF BOSTON (the
"Administrative Agent"), LEHMAN COMMERCIAL PAPER, INC., (the "Arranger") and the
several banks and financial institutions which are Lenders under the Credit
Agreement (the "Lenders").
Recitals
The Parent, the Borrowers, the Administrative Agent, the Arranger and the
Lenders are party to a Credit Agreement dated as of June 12, 1996 (the "Credit
Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Credit Agreement. The Parent and the Borrowers
desire to amend the Credit Agreement in certain respects to be relieved of
certain obligations to obtain landlord consents, to postpone the time for
delivery of key-man life insurance required thereunder and to provide for the
joinder of all Subsidiaries to the Credit Agreement as borrowers. The
Administrative Agent, the Arranger and the Lenders are willing to agree to such
amendments on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. Release of Requirement of Landlord Waivers. Section 6 of the
Credit Agreement is hereby amended by deleting Section 6.14 thereof in its
entirety.
Section 2. Key Man Life Insurance. Section 6 of the Credit Agreement is
hereby further amended by deleting Section 6.12 thereof in its entirety and
substituting therefor the following:
"6.12 Key Man Life Insurance. Obtain by December 31, 1996 and
maintain at all times thereafter key man life insurance
policies in the amount of $3,000,000 on each of the Management
Shareholders; and upon obtaining such policies, execute and
deliver all documents and take all actions in respect thereof
that would be required by subsection 5.1(b) if such policies
were in effect on the Closing Date."
<PAGE> 107
Section 3. Subsidiaries. Section 4 of the Credit Agreement is hereby
amended by deleting Section 4.15 in its entirety and substituting therefor the
following:
"4.15 Subsidiaries. The Borrowers listed on Schedule 1.1A, as
the same may be amended from time to time with consent of the
Administrative Agent, constitute all of the direct and indirect
Subsidiaries of the Parent."
Section 4. Joinder of Subsidiaries. Section 6.11(b) of the Credit
Agreement is hereby amended by deleting clause (iii)(A) thereof in its entirety
and substituting therefor the following:
"(A) to become a Borrower party hereto or, with consent of the
Administrative Agent, a party to a guaranty and a security
agreement, in each case pursuant to documentation which is in form
and substance satisfactory to the Administrative Agent, and"
Section 5. Change of Control. Section 8(k) of the Credit Agreement is
hereby amended by deleting clause (i) thereof and substituting therefor the
following:
"(i) The Parent and the Management Shareholders shall cease to
have the power (whether or not exercised) to elect a majority of
the directors of any of the Borrowers which is a direct Subsidiary
of the Parent, or the Designated Borrower shall cease to have the
power (whether or not exercised) to elect all of the directors of
any of the Borrowers which is an indirect Subsidiary of the
Parent,"
Section 6. Representations and Warranties: No Default. The Parent and
the Borrowers hereby confirm to the Bank the representations and warranties of
the Parent and the Borrowers set forth in Section 4 of the Credit Agreement (as
amended hereby) as of the date hereof, as if set forth herein in full. The
Parent and the Borrowers hereby certify that, after giving effect to this First
Amendment to Credit Agreement, no Default exists under the Credit Agreement.
Section 7. Miscellaneous The Parent and the Borrowers agree, jointly
and severally, to pay on demand all the Administrative Agent's reasonable
expenses in preparing, executing and delivering this First Amendment to Credit
Agreement, and all related instruments and documents, including, without
limitation, the reasonable fees and out-of-pocket expenses of the
Administrative Agent's special counsel, Goodwin, Procter &
2
<PAGE> 108
Hoar LLP. This First Amendment to Credit Agreement shall be considered a Loan
Document and shall be governed by and construed and enforced under the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Credit Agreement to be duly executed as an instrument under seal as of the
date first written above.
KIRKLANDS HOLDINGS LLC
By: /s/ David Mussafer
------------------------------
Name: David Mussafer
Title:
KIRKLAND'S INC.
KIRKLAND'S OF CAROLINA, INC.
KIRKLAND'S OF CHARLOTTE, EASTLAND MALL, INC.
KIRKLAND'S OF TENNESSEE, INC.
K.C. CORP. INC.
KIRKLAND'S OF GREENSBORO, FOUR SEASONS MALL, INC.
KIRKLAND'S OF FAYETTEVILLE, CROSS CREEK MALL, INC.
KIRKLAND'S OF WILMINGTON, INDEPENDENCE MALL, INC.
KIRKLAND'S III, JACKSON-METRO CENTER, INC.
KIRKLAND'S OF MEMPHIS, TENNESSEE, LAURELWOOD SHOPPING CENTER, INC.
KIRKLAND'S OF RIDGELAND, MISSISSIPPI, NORTHPARK MALL, INC.
KIRKLAND'S KNOXVILLE, EAST TOWNE MALL, INC.
KIRKLAND'S HUNTSVILLE, MADISON SQUARE MALL, INC.
KIRKLAND'S OF VALLEY VIEW MALL, ROANOKE, VA, INC.
KIRKLAND'S OF BIRMINGHAM, RIVERCHASE GALLERIA, INC.
KIRKLAND'S NASHVILLE, HICKORY HOLLOW MALL, INC.
KIRKLAND'S OF BRIARCLIFFE MALL, MYRTLE BEACH, SOUTH CAROLINA, INC.
KIRKLAND'S OF PECANLAND MALL, MONROE, LA, INC.
KIRKLAND'S OF TOWNE CENTER AT COBB, ATLANTA GA, INC.
KIRKLAND'S OF GWINNETT PLACE, MONROE, LA, INC.
KIRKLAND'S OF RIVERGATE MALL, NASHVILLE, TN, INC.
KIRKLAND'S OF PEACHTREE MALL, COLUMBUS, GA, INC.
KIRKLAND'S OF CUMBERLAND MALL, ATLANTA, GA, INC.
3
<PAGE> 109
KIRKLAND'S OF HAMILTON PLACE MALL, CHATTANOOGA, TN, INC.
KIRKLAND'S OF HOUSTON GALLERIA, HOUSTON, TX, INC.
KIRKLAND'S OF MALL OF MEMPHIS, MEMPHIS, TN, INC.
KIRKLAND'S OF WOODLAND HILLS MALL, TULSA, OK, INC.
KIRKLAND'S OF DAYTON MALL, DAYTON, OH, INC.
KIRKLAND'S OF OXMOOR CENTER, LOUISVILLE, KY, INC.
KIRKLAND'S OF SOUTH SQUARE MALL, DURHAM, NC, INC.
KIRKLAND'S OF VALLEY VIEW CENTER, DALLAS, TX, INC.
KIRKLAND'S OF CHESTERFIELD TOWNE CENTER, RICHMOND, VA, INC.
KIRKLAND'S OF PARK PLAZA, LITTLE ROCK, AR, INC.
KIRKLAND'S OF MONTGOMERY MALL, MONTGOMERY, AL, INC.
KIRKLAND'S OF SOUTHLAKE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF SOUTHPARK MALL, RICHMOND, VA, INC.
KIRKLAND'S OF EASTLAND MALL, EVANSVILLE, INC, INC.
KIRKLAND'S OF FAYETTE MALL, LEXINGTON, KY, INC.
KIRKLAND'S OF HICKORY RIDGE MALL, MEMPHIS, TN, INC.
KIRKLAND'S OF REGENCY SQUARE MALL, JACKSONVILLE, FL, INC.
KIRKLAND'S OF MCCAIN MALL, LITTLE ROCK, AR, INC.
KIRKLAND'S OF RIVER RIDGE MALL, LYNCHBURG, VA, INC.
KIRKLAND'S OF BEL AIR MALL, MOBILE, AL, INC.
KIRKLAND'S OF THE MALL AT BARNES CROSSING, TUPELO, MS, INC.
KIRKLAND'S OF CORTANA MALL, BATON ROUGE, LA, INC.
KIRKLAND'S OF BELLEVUE CENTER, NASHVILLE, TN, INC.
KIRKLAND'S OF TRI-COUNTY MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF THE MALL OF THE AVENUES, JACKSONVILLE, FL, INC.
KIRKLAND'S OF EASTWOOD MALL, BIRMINGHAM, AL, INC.
KIRKLAND'S OF LAKESIDE MALL, NEW ORLEANS, LA, INC.
KIRKLAND'S OF CAROLINA PLACE, CHARLOTTE, N.C., INC.
KIRKLAND'S OF CARY VILLAGE MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF COOL SPRINGS GALLERIA, NASHVILLE, TN, INC.
KIRKLAND'S OF KENWOOD TOWNE CENTRE, CINCINNATI, OH, INC.
KIRKLAND'S OF ST. LOUIS GALLERIA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WIREGRASS COMMONS MALL, DOTHAN, AL, INC.
KIRKLAND'S OF REGENCY MALL, RICHMOND, VA, INC.
KIRKLAND'S OF FLORENCE, FLORENCE, KY, INC.
KIRKLAND'S OF ACADIANA MALL, LAFAYETTE, LA, INC.
KIRKLAND'S OF PADRE STAPLES MALL, CORPUS CHRISTI, TX, INC.
4
<PAGE> 110
KIRKLAND'S OF BELDEN VILLAGE, CANTON, OH, INC.
KIRKLAND'S OF WEST OAKS MALL, HOUSTON, TX, INC.
KIRKLAND'S OF CHARLESTON TOWN CENTER, CHARLESTON, W. VA, INC.
KIRKLAND'S OF CRESTWOOD PLAZA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WHITE MARSH MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF COLLIN CREEK MALL, DALLAS, TX, INC.
KIRKLAND'S OF BAYBROOK MALL, HOUSTON, TX, INC.
KIRKLAND'S OF GOVERNOR'S SQUARE MALL, TALLAHASSEE, FL, INC.
KIRKLAND'S OF BARTON CREEK MALL, AUSTIN, TX, INC.
KIRKLAND'S OF HIGHLAND MALL, AUSTIN, TX, INC.
KIRKLAND'S OF BATTLEFIELD MALL, SPRINGFIELD, MO, INC.
KIRKLAND'S OF PENN SQUARE MALL, OKLAHOMA CITY, OK, INC.
KIRKLAND'S OF MALL ST. VICENT, SHREVEPORT, LA, INC.
KIRKLAND'S OF OWINGS MILLS MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF OAKWOOD CENTER, NEW ORLEANS, LA, INC.
KIRKLAND'S OF THE MALL AT JOHNSON CITY, JOHNSON CITY, TN, INC.
KIRKLAND'S OF GLENNBROOK MALL, FT. WAYNE, IN, INC.
KIRKLAND'S OF NORTH POINTE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF NORTHPARK MALL, JOPLIN, MO, INC.
KIRKLAND'S OF ORLANDO FASHION SQUARE, ORLANDO, FL, INC.
KIRKLAND'S OF THE MALL AT FAIRFIELD COMMONS, DAYTON, OH, INC.
KIRKLAND'S OF ST. CHARLES TOWNE CENTER, WALDORF, MD, INC.
KIRKLAND'S OF REGENCY MALL, FLORENCE, AL, INC.
KIRKLAND'S OF SOUTH PLAINS MALL, LUBBOCK, TX, INC.
KIRKLAND'S OF THE PARKS AT ARLINGTON, FT. WORTH, TX, INC.
KIRKLAND'S OF PARMA TOWN MALL, CLEVELAND, OH, INC.
KIRKLAND'S OF ST. CLAIR SQUARE, ST. LOUIS, MO, INC.
KIRKLAND'S OF TURTLE CREEK MALL, HATTIESBURG, MS, INC.
KIRKLAND'S OF THE WOODLANDS, HOUSTON, TX, INC.
KIRKLAND'S OF BRANDON TOWN CENTER, TAMPA, FL, INC.
KIRKLAND'S OF MEMORIAL CITY MALL, HOUSTON, TX, INC.
KIRKLAND'S OF UNIVERSITY MALL, TUSCALOOSA, AL, INC.
KIRKLAND'S OF SANTA ROSA MALL, FORT WALTON, FL, INC.
KIRKLAND'S OF PANAMA CITY MALL, PANAMA CITY, FL, INC.
KIRKLAND'S OF TOWN EAST MALL, MESQUITE, TX, INC.
KIRKLAND'S OF KENTUCKY OAKS MALL, PADUCAH, KY, INC.
5
<PAGE> 111
KIRKLAND'S OF CRABTREE VALLEY MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF OAK HOLLOW MALL, HIGH POINT, N.C., INC.
KIRKLAND'S OF FOX VALLEY MALL, CHICAGO, IL, INC.
KIRKLAND'S OF HAWTHRONE MALL, CHICAGO, IL, INC.
KIRKLAND'S OF STRAFTFORD SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF ORLAND SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF COASTLAND MALL, NAPLES, FL, INC.
KIRKLAND'S OF EDGEWATER MALL, BILOXI, MS, INC.
KIRKLAND'S OF TOWN CENTER PLAZA, KANSAS CITY, KS, INC.
KIRKLAND'S OF CASTLETON SQUARE, INDIANAPOLIS, IN, INC.
KIRKLAND'S OF CORDOVA MALL, PENSACOLA, FL, INC.
KIRKLAND'S OF UNIVERSITY PARK, SOUTH BEND IN, INC.
KIRKLAND'S OF WESTGATE MALL, AMARILLO, TX, INC.
KIRKLAND'S OF WESTGATE MALL, SPARTANBURG, SC, INC.
KIRKLAND'S OF MERIDIAN MALL, LANSING, MI, INC.
KIRKLAND'S OF COTTONWOOD MALL, ALBUQUERQUE, NM, INC.
KIRKLAND'S OF UNIVERSITY MALL, TAMPA, FL, INC.
ATTEST:
By:/s/ Robert E. Alderson By:/s/ Carl Kirkland
------------------------ -----------------------
Name: Name:
Title: Title:
LEHMAN COMMERCIAL PAPER INC.
By:/s/ Michelle Swanson
------------------------
Name: Michelle Swanson
Title: Authorized Signatory
6
<PAGE> 112
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Daniel P. Corcoran
______________________________
Name: Daniel P. Corcoran, Jr.
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ Mariah G. Lunderberg
______________________________
Name: Mariah G. Lunderberg
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
______________________________
Name: Troy J. Villafarra
Title: Vice President
MITSUI LEASING (U.S.A.) INC.
By: /s/ R. Wayne Hutton
______________________________
Name: R. Wayne Hutton
Title: Senior Vice President
PRIME INCOME TRUST
By: ______________________________
Name:
Title:
7
<PAGE> 113
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By: _______________________________
Name:
Title:
UNION PLANTERS BANK OF JACKSON, N.A.
By: /s/ Frank Hudacek
______________________________
Name: Frank Hudacek
Title: Vice President
VOLUNTEER BANK OF JACKSON, TENNESSEE
By: /s/ James N. Craft
______________________________
Name: James N. Craft
Title: Executive Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
______________________________
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
143110.d1
11/12/96
8
<PAGE> 114
- -------------------------------------------------------------------------------
SECOND AMENDMENT TO
CREDIT AGREEMENT
Dated as of May 2, 1997
Among
Kirkland Holdings L.L.C.
and
The Borrowers Specified Herein,
the Borrowers
and
The Several Lenders Party Hereto,
the Lenders
and
BankBoston, N.A., as Administrative Agent,
the Agent
- -------------------------------------------------------------------------------
<PAGE> 115
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT is entered into as of May 2,
1997, by and among KIRKLAND HOLDINGS L.L.C., a Delaware limited liability
company (the "Parent"), the Borrowers specified herein (the "Borrowers"), the
Lenders party hereto (the "Lenders") and BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston), as Administrative Agent (the "Agent") under the
Credit Agreement referred to below.
Recitals
The Parent, the Borrowers, the Lenders and the Agent are parties to a
Credit Agreement dated as of June 12, 1996 (as amended the "Credit Agreement").
The Parent and the Borrowers have requested that the Lenders (a) waive the
prepayment of the Term Loans required to be made under Section 2.12(c) of the
Credit Agreement from Excess Cash Flow for their fiscal year ended December 31,
1996, (b) waive the Borrower's premature payment of certain Management Fees and
(c) provide additional availability under the revolving credit facility during
the period from September 5, through December 5, 1997. The Lenders are willing
to amend the Credit Agreement to provide for such waiver and additional
revolving credit availability on the terms and conditions set forth herein. All
capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Credit Agreement.
NOW, THEREFORE, subject to the satisfaction of the conditions to
effectiveness specified in Section 5, the Parent, the Borrowers, the Lenders
and the Agent hereby agree as follows:
Section 1. Waiver of Excess Cash Flow Prepayment. The Lenders and the
Agent hereby waive the prepayment required under Section 2.12(c) of the Credit
Agreement with respect to the Excess Cash Flow for the fiscal year ending
December 31, 1996; provided, however, that this waiver shall not be deemed to
modify or amend any provisions of said Section 2.12(c) with respect to required
prepayments from Excess Cash Flow for future fiscal years.
Section 2. Waiver of Premature Payment of Management Fees. The Lenders
and the Agent hereby waive the Event of Default outstanding under the Credit
Agreement resulting from the Borrowers' payment of Management Fees to the
Management Shareholders prior to delivery to the Lenders of the Borrowers'
financial statements for their fiscal year ending December 31, 1996. The
Lenders and the Agent hereby consent to the payment to Robert Kirkland, in
connection with amendment of the Consulting Agreement, of an amount not be
exceed $8,500.
Section 3. Amendment of Schedules. Schedule 1.1A to the Credit
Agreement is hereby amended by adding at the end of said Schedule the
information contained on the Amendment to Schedule 1.1A attached hereto.
Schedule 1.1B to the Credit Agreement is hereby deleted in its entirety and the
new Schedule 1.1B attached hereto is substituted therefor.
<PAGE> 116
Section 4. Amendment and Extension Fee. The Borrowers, jointly and
severally, agree to pay to the Agent, for the account of the Lenders in
proportion to the (a) Revolving Credit Commitments of the Revolving Credit
Lenders and (b) the principal amount of the Obligations owing to each Term Loan
Lender, an amendment and extension fee of $76,000, which shall be due and
payable and deemed earned in full by the Lenders upon execution and delivery of
this Second Amendment. The Lenders hereby agree that the amendment and
extension fee shall be deducted from Combined Interest Expense for purposes of
determining the Combined Management Fee Ratio for the Borrower's current fiscal
year.
Section 5. Effectiveness; Conditions to Effectiveness. This Second
Amendment to Credit Agreement shall become effective as of the date hereof upon
execution hereof by the Parent, the Borrowers, the Lenders and the Agent and
satisfaction of the following conditions:
(a) Officers' Certificate. The Borrowers shall have delivered to
the Agent an Officers' Certificate in the form of Exhibit A hereto.
(b) Opinion of Counsel. The Borrowers shall have delivered to
the Agent an opinion of Baker, Donelson, Bearman & Caldwell, counsel to
the Borrowers, and an opinion from Pepper, Hamilton & Scheetz, counsel to
Parent and special counsel to the Borrowers, in form and substance
satisfactory to the Bank.
(c) Fee. The Borrowers shall have paid the fee referred to in
Section 4 above.
(d) Acknowledgment of Subordination. Carl Kirkland, Bruce
Moore, Robert Alderson, and Robert Kirkland shall have executed and
delivered to the Agent the Acknowledgments of Subordination in the form of
Exhibit B hereto.
Section 6. Representations and Warranties; No Default. The Borrowers
hereby confirm to the Agent and the Lenders, the representations and warranties
of the Borrowers set forth in Section 4 of the Credit Agreement (as amended
hereby) as of the date hereof, as if set forth herein in full. The Borrowers
hereby certify that, after giving effect hereto, no Default exists under the
Credit Agreement.
Section 7. Miscellaneous. The Borrowers agree to pay on demand all the
Agent's reasonable expenses in preparing, executing and delivering this Second
Amendment to Credit Agreement, and all related instruments and documents,
including, without limitation, the reasonable fees and out-of-pocket expenses
of the Agent's special counsel, Goodwin, Procter & Hoar LLP. This Second
Amendment to Credit Agreement shall be a Loan Document and shall be governed by
and construed and enforced under the laws of the State of New York.
2
<PAGE> 117
IN WITNESS WHEREOF, the Parent, the Borrowers, the Lenders and the Agent
have caused this Second Amendment to Credit Agreement to be executed by their
duly authorized officers as of the date first set forth above.
KIRKLAND HOLDINGS L.L.C.
By: /s/ David Mussafer
------------------------------
Name: David Mussafer
Title: President
THE BORROWERS
KIRKLAND'S, INC.
KIRKLAND'S OF CAROLINA, INC.
KIRKLAND'S OF CHARLOTTE, EASTLAND MALL, INC.
KIRKLAND'S OF TENNESSEE, INC.
K.C. CORP. INC.
KIRKLAND'S OF GREENSBORO, FOUR SEASONS MALL, INC.
KIRKLAND'S OF FAYETTEVILLE, CROSS CREEK MALL, INC.
KIRKLAND'S OF WILMINGTON, INDEPENDENCE MALL, INC.
KIRKLAND'S III, JACKSON-METRO CENTER, INC.
KIRKLAND'S OF MEMPHIS, TENNESSEE, LAURELWOOD
SHOPPING CENTER, INC.
KIRKLAND'S OF RIDGELAND, MISSISSIPPI, NORTHPARK
MALL, INC.
KIRKLAND'S OF KNOXVILLE, EAST TOWNE MALL, INC.
KIRKLAND'S OF HUNTSVILLE, MADISON SQUARE MALL, INC.
KIRKLAND'S OF VALLEY VIEW MALL, ROANOKE, VA, INC.
KIRKLAND'S OF NASHVILLE, HICKORY HOLLOW MALL, INC.
KIRKLAND'S OF BIRMINGHAM, RIVERCHASE GALLERIA, INC.
KIRKLAND'S OF BRIARCLIFFE MALL, MYRTLE BEACH,
SOUTH CAROLINA, INC.
KIRKLAND'S OF PEACANLAND MALL, MONROE, LA. INC.
KIRKLAND'S OF TOWNE CENTER AT COBB, ATLANTA, GA,
INC.
KIRKLAND'S OF GWINNETT PLACE, ATLANTA, GA, INC.
KIRKLAND'S OF RIVERGATE MALL, NASHVILLE, TN, INC.
KIRKLAND'S OF PEACHTREE MALL, COLUMBUS, GA, INC.
KIRKLAND'S OF CUMBERLAND MALL, ATLANTA, GA, INC.
KIRKLAND'S OF HAMILTON PLACE MALL, CHATTANOOGA,
TN, INC.
KIRKLAND'S OF HOUSTON GALLERIA, HOUSTON, TX, INC.
KIRKLAND'S OF MALL OF MEMPHIS, MEMPHIS, TN, INC.
3
<PAGE> 118
KIRKLAND'S OF WOODLAND HILLS MALL, TULSA, OK, INC.
KIRKLAND'S OF DAYTON MALL, DAYTON, OH, INC.
KIRKLAND'S OF OXMOOR CENTER, LOUISVILLE, KY, INC.
KIRKLAND'S OF SOUTH SQUARE MALL, DURHAM, NC, INC.
KIRKLAND'S OF VALLEY VIEW CENTER, DALLAS, TX, INC.
KIRKLAND'S OF CHESTERFIELD TOWNE CENTER, RICHMOND, VA, INC.
KIRKLAND'S OF PARK PLAZA, LITTLE ROCK, AR, INC.
KIRKLAND'S OF MONTGOMERY MALL, MONTGOMERY, AL, INC.
KIRKLAND'S OF SOUTHLAKE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF SOUTHPARK MALL, RICHMOND, VA, INC.
KIRKLAND'S OF EASTLAND MALL, EVANSVILLE, IN, INC.
KIRKLAND'S OF FAYETTE MALL, LEXINGTON, KY, INC.
KIRKLAND'S OF HICKORY RIDGE MALL, MEMPHIS, TN, INC.
KIRKLAND'S OF REGENCY SQUARE MALL, JACKSONVILLE, FL, INC.
KIRKLAND'S OF MCCAIN MALL, LITTLE ROCK, AR, INC.
KIRKLAND'S OF RIVER RIDGE MALL, LYNCHBURG, VA, INC.
KIRKLAND'S OF BEL AIR MALL, MOBILE, AL, INC.
KIRKLAND'S OF THE MALL AT BARNES CROSSING, TUPELO, MS, INC.
KIRKLAND'S OF CORTANA MALL, BATON ROUGE, LA, INC.
KIRKLAND'S OF BELLEVUE CENTER, NASHVILLE, TN, INC.
KIRKLAND'S OF TRI-COUNTY MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF THE MALL OF THE AVENUES, JACKSONVILLE, FL, INC.
KIRKLAND'S OF EASTWOOD MALL, BIRMINGHAM, AL, INC.
KIRKLAND'S OF LAKESIDE MALL, NEW ORLEANS, LA, INC.
KIRKLAND'S OF CAROLINA PLACE, CHARLOTTE, N.C., INC.
KIRKLAND'S OF CARY VILLAGE MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF COOL SPRINGS GALLERIA, NASHVILLE, TN, INC.
KIRKLAND'S OF KENWOOD TOWNE CENTRE, CINCINNATI, OH, INC.
KIRKLAND'S OF ST. LOUIS GALLERIA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WIREGRASS COMMONS MALL, DOTHAN, AL, INC.
KIRKLAND'S OF REGENCY MALL, RICHMOND, VA, INC.
KIRKLAND'S OF FLORENCE, FLORENCE, KY, INC.
KIRKLAND'S OF ACADIANA MALL, LAFAYETTE, LA, INC.
KIRKLAND'S OF PADRE STAPLES MALL, CORPUS CHRISTI, TX, INC.
KIRKLAND'S OF BELDEN VILLAGE, CANTON, OH, INC.
4
<PAGE> 119
KIRKLAND'S OF WEST OAKS MALL, HOUSTON, TX, INC.
KIRKLAND'S OF CHARLESTON TOWN CENTER, CHARLESTON, W. VA, INC.
KIRKLAND'S OF CRESTWOOD PLAZA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WHITE MARSH MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF COLLIN CREEK MALL, DALLAS, TX, INC.
KIRKLAND'S OF BAYBROOK MALL, HOUSTON, TX, INC.
KIRKLAND'S OF GOVERNOR'S SQUARE MALL, TALLAHASSEE, FL, INC.
KIRKLAND'S OF BARTON CREEK MALL, AUSTIN, TX, INC.
KIRKLAND'S OF HIGHLAND MALL, AUSTIN, TX, INC.
KIRKLAND'S OF BATTLEFIELD MALL, SPRINGFIELD, MO, INC.
KIRKLAND'S OF PENN SQUARE MALL, OKLAHOMA CITY, OK, INC.
KIRKLAND'S OF OAK PARK MALL, KANSAS CITY, KS, INC.
KIRKLAND'S OF MALL ST. VINCENT, SHREVEPORT, LA, INC.
KIRKLAND'S OF OWINGS MILLS MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF OAKWOOD CENTER, NEW ORLEANS, LA, INC.
KIRKLAND'S OF THE MALL AT JOHNSON CITY, JOHNSON CITY, TN, INC.
KIRKLAND'S OF GLENBROOK MALL, FT. WAYNE, IN, INC.
KIRKLAND'S OF NORTH POINTE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF NORTHPARK MALL, JOPLIN, MO, INC.
KIRKLAND'S OF ORLANDO FASHION SQUARE, ORLANDO, FL, INC.
KIRKLAND'S OF THE MALL AT FAIRFIELD COMMONS, DAYTON, OH, INC.
KIRKLAND'S OF ST. CHARLES TOWNE CENTER, WALDORF, MD, INC.
KIRKLAND'S OF REGENCY MALL, FLORENCE, AL, INC.
KIRKLAND'S OF SOUTH PLAINS MALL, LUBBOCK, TX, INC.
KIRKLAND'S OF THE PARKS AT ARLINGTON, FT. WORTH, TX, INC.
KIRKLAND'S OF PARMA TOWN MALL, CLEVELAND, OH, INC.
KIRKLAND'S OF ST. CLAIR SQUARE, ST. LOUIS, MO, INC.
KIRKLAND'S OF TURTLE CREEK MALL, HATTIESBURG, MS, INC.
KIRKLAND'S OF THE WOODLANDS, HOUSTON, TX, INC.
KIRKLAND'S OF BRANDON TOWN CENTER, TAMPA, FL, INC.
KIRKLAND'S OF MEMORIAL CITY MALL, HOUSTON, TX, INC.
KIRKLAND'S OF UNIVERSITY MALL, TUSCALOOSA, AL, INC.
KIRKLAND'S OF SANTA ROSA MALL, FORT WALTON, FL, INC.
5
<PAGE> 120
KIRKLAND'S OF PANAMA CITY MALL, PANAMA CITY, FL, INC.
KIRKLAND'S OF TOWN EAST MALL, MESQUITE, TX, INC.
KIRKLAND'S OF KENTUCKY OAKS MALL, PADUCAH, KY, INC.
KIRKLAND'S OF CRABTREE VALLEY MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF OAK HOLLOW MALL, HIGH POINT, N.C., INC.
KIRKLAND'S OF FOX VALLEY MALL, CHICAGO, IL, INC.
KIRKLAND'S OF HAWTHORNE MALL, CHICAGO, IL, INC.
KIRKLAND'S OF STRATFORD SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF ORLAND SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF COASTLAND MALL, NAPLES, FL, INC.
KIRKLAND'S OF EDGEWATER MALL, BILOXI, MS, INC.
KIRKLAND'S OF TOWN CENTER PLAZA, KANSAS CITY, KS, INC.
KIRKLAND'S OF CASTLETON SQUARE, INDIANAPOLIS, IN, INC.
KIRKLAND'S OF CORDOVA MALL, PENSACOLA, FL, INC.
KIRKLAND'S OF UNIVERSITY PARK, SOUTH BEND, IN, INC.
KIRKLAND'S OF WESTGATE MALL, AMARILLO, TX, INC.
KIRKLAND'S OF WESTGATE MALL, SPARTANBURG, SC, INC.
KIRKLAND'S OF MERIDIAN MALL, LANSING, MI, INC.
KIRKLAND'S OF COTTONWOOD MALL, ALBUQUERQUE, NM, INC.
KIRKLAND'S OF UNIVERSITY MALL, TAMPA, FL, INC.
KIRKLAND'S OF NORTHWEST ARKANSAS MALL, FAYETTEVILLE, AR, INC.
KIRKLAND'S OF INDIAN RIVER MALL, VERO BEACH, FL, INC.
KIRKLAND'S OF TYRONE SQUARE, ST. PETERSBURG, FL, INC.
KIRKLAND'S OF NORTHGATE MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF WEST OAKS MALL, ORLANDO, FL, INC.
KIRKLAND'S OF PARK CITY CENTER, LANCASTER, PA, INC.
KIRKLAND'S OF PERIMETER MALL, ATLANTA, GA, INC.
KIRKLAND'S OF WOLFCHASE GALLERIA, MEMPHIS, TN, INC.
KIRKLAND'S OF NORTHPARK MALL, DAVENPORT, IA, INC.
KIRKLAND'S OF LINDALE MALL, CEDAR RAPIDS, IA, INC.
KIRKLAND'S OF CORONADO MALL, ALBUQUERQUE, NM, INC.
KIRKLAND'S OF WILLOWBROOK MALL, HOUSTON, TX, INC.
By: /s/ Robert E. Alderson
- --------------------------
Name: Robert E. Alderson
Title: Vice President/Secretary
6
<PAGE> 121
BANKBOSTON, N.A.,
as Administrative Agent and as a Lender
By: /s/ Daniel P. Corcoran, Jr.
-----------------------------------
Name: Daniel P. Corcoran, Jr.
Title: Director
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
-----------------------------------
Name: Michele Swanson
Title: Authorized Signatory
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
-----------------------------------
Name: Troy J. Villafarra
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ Mariah G. Lundberg
-----------------------------------
Name: Mariah G. Lundberg
Title: Assistant Vice President
MITSUI LEASING (U.S.A.) INC.
By: /s/ R. Wayne Hutton
-----------------------------------
Name: R. Wayne Hutton
Title: Senior Vice President
UNION PLANTERS BANK OF JACKSON, TENNESSEE
By: /s/ Frank Hudacek, VP
-----------------------------------
Name: Frank Hudacek
Title: Vice President
7
<PAGE> 122
VOLUNTEER BANK OF JACKSON, TENNESSEE
By: /s/ James N. Craft
--------------------------------------
Name: James N. Craft
Title: Executive Vice President
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By: Justin Driscoll
--------------------------------------
Name: Justin Driscoll
Title: Vice President
INDOSUEZ CAPITAL FUNDING II, LTD.
By Indosuez Capital as Portfolio Advisor
By: /s/ Francoise Berthelot
--------------------------------------
Name: FRANCOISE BERTHELOT
Title: VICE PRESIDENT
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST
By: [Illegible Signature]
--------------------------------------
Name:
Title:
The ING CAPITAL Senior Secured High
Income Fund, L.P.
By: ING CAPITAL ADVISORS, INC. AS INVESTMENT ADVISOR
By: /s/ Michael P. McAdams
--------------------------------------
Name: MICHAEL P. MCADAMS
Title: MANAGING DIRECTOR
8
<PAGE> 123
Amendment of Schedule 1.1A
1. Additional Borrowers. The following additional Borrowers have been
added to the Credit Agreement:
Kirkland's of Northwest Arkansas Mall, Fayetteville, AR, Inc.
Kirkland's of Indian River Mall, Vero Beach, FL, Inc.
Kirkland's of Tyrone Square, St. Petersburg, FL, Inc.
Kirkland's of Northgate Mall, Cincinnati, OH, Inc.
Kirkland's of West Oaks Mall, Orlando, FL, Inc.
Kirkland's of Park City Center, Lancaster, PA, Inc.
Kirkland's of Perimeter Mall, Atlanta, GA, Inc.
Kirkland's of Wolfchase Galleria, Memphis, TN, Inc.
Kirkland's of Northpark Mall, Davenport, IA, Inc.
Kirkland's of Lindale Mall, Cedar Rapids, IA, Inc.
Kirkland's of Coronado Mall, Albuquerque, NM, Inc.
Kirkland's of Willowbrook Mall, Houston TX, Inc.
2. Additional Subsidiaries. The following Persons are additional
Subsidiaries of the Parent, which have been formed in anticipation of the
opening of new stores but which have not yet commenced any operations. Section
4.14 of the Credit Agreement shall be modified to include reference to these
Persons as additional Subsidiaries of the Parent:
Kirkland's of Honey Creek Mall, Terre Haute, IN, Inc.
Kirkland's of Southpark Mall, Moline, IL, Inc.
Kirkland's of Valley West Mall, Des Moines, IA, Inc.
Kirkland's of Greenbrier Mall, Chesapeake, VA, Inc.
Kirkland's of Cielo Vista Mall, El Paso, TX, Inc.
Kirkland's of Tuttle Crossing, Columbus, OH, Inc.
Kirkland's of Leigh Mall, Columbus, MS, Inc.
Kirkland's of North Shore Square, Slidell, LA, Inc.
Kirkland's of Post Oak Mall, College Station, TX, Inc.
Kirkland's of Bonita Lakes Mall, Meridian, MS, Inc.
Kirkland's of Huntington Mall, Huntington, WV, Inc.
Kirkland's of Mall of Louisiana, Baton Rouge, LA, Inc.
Kirkland's of Mill Creek Mall, Erie, PA, Inc.
Kirkland's of Volusia Mall, Daytona Beach, FL, Inc.
Kirkland's of Gateway Mall, Lincoln, NB, Inc.
9
<PAGE> 124
- -----------------------------------------------------------------------------
THIRD AMENDMENT TO
CREDIT AGREEMENT
Dated as of January 5, 1998
Among
Kirkland Holdings L.L.C.
and
The Borrowers Specified Herein,
the Borrowers
and
The Several Lenders Party Hereto,
the Lenders
and
BankBoston, N.A., as Administrative Agent,
the Agent
- -----------------------------------------------------------------------------
<PAGE> 125
THIRD AMENDMENT TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT is entered into as of January 5,
1998, by and among KIRKLAND HOLDINGS L.L.C., a Delaware limited liability
company (the "Parent"), the Borrowers specified herein (the "Borrowers"), the
Lenders party hereto (the "Lenders") and BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston), as Administrative Agent (the "Agent") under the Credit
Agreement referred to below.
Recitals
The Parent, the Borrowers, the Lenders and the Agent are parties to a
Credit Agreement dated as of June 12, 1996 (as amended, the "Credit Agreement").
All capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Credit Agreement. The Parent and the Borrowers have
requested that the Lenders (a) waive the restrictions under Sections 7.7, 7.10
and 7.11 of the Credit Agreement to permit the redemption by the Borrowers from
Bruce Moore pursuant to and in accordance with the Redemption Agreement dated
December __, 1997 by and among Bruce Moore, Kirkland's, Inc. and the other
corporations party thereto (the "Moore Redemption Agreement") of all of his
stock of the Borrowers and as set forth on Schedule 1 hereto (the "Redeemed
Moore Stock") representing not more than seven million one hundred forty-seven
thousand five hundred sixty-six dollars ($7,147,566) aggregate value (the "Moore
Redemption"), and (b) provide an additional seven million dollars ($7,000,000)
under the Tranche B Term Loan facility, the proceeds of which are to be used for
the Moore Redemption. The Lenders are willing to amend the Credit Agreement to
provide for such waiver and additional Tranche B Term Loans on the terms and
conditions set forth herein.
NOW, THEREFORE, subject to the satisfaction of the conditions to
effectiveness specified in Section 4, the Parent, the Borrowers, the Lenders and
the Agent hereby agree as follows:
Section 1. Waiver. The Lenders and the Agent hereby waive (a) the
limitation on Restricted Payments under Section 7.7 of the Credit Agreement, (b)
the limitation on optional payments and modifications of debt instruments and
preferred stock, etc. under Section 7.10 of the Credit Agreement and (c) the
limitation on transactions with affiliates under Section 7.11 of the Credit
Agreement to the extent required to permit the Moore Redemption and the payment
to Bruce Moore, in connection with the Moore Redemption and pursuant to and in
accordance with the Moore Redemption Agreement, of an amount not to exceed seven
million one hundred forty-seven thousand five hundred sixty-six dollars
($7,147,566). Additionally, the Lenders and the Agent hereby release Bruce Moore
as a Pledgor under the Management Pledge Agreement and the New Management Pledge
Agreement and the Agent will return the certificates representing the Redeemed
Moore Stock to the Borrowers. The Parent and the Borrowers hereby acknowledge
that pursuant to Section 7.6 of the Credit Agreement, the Parent, the Borrowers
and their respective Subsidiaries may not, directly or indirectly, issue,
<PAGE> 126
convey, sell, lease, assign, transfer or otherwise dispose of the Redeemed Moore
Stock redeemed pursuant to the Moore Redemption.
Section 2. Amendment of Schedules. Schedule 1.1A to the Credit Agreement is
hereby amended by adding at the end of said Schedule the information contained
on the Amendment to Schedule 1.1A attached hereto. Schedules 1.1B and 1.1E to
the Credit Agreement are hereby deleted in their entirety and the new Schedules
1.1B and 1.1E attached hereto are substituted therefor.
Section 3. Amendment of Capital Expenditures Covenant. Section 7.8 of the
Credit Agreement is hereby amended by deleting the number "$5,000,000" appearing
in the second line of the chart for Fiscal Year 1997 and substituting therefor
the number "$5,800,000".
Section 4. Effectiveness: Conditions to Effectiveness. This Third Amendment
to Credit Agreement shall become effective as of January 7, 1998 upon execution
hereof by the Parent, the Borrowers, the Lenders and the Agent and satisfaction
of the following conditions:
(a) Officers' Certificate. The Borrowers shall have delivered to
the Agent an Officers' Certificate in the form of Exhibit A hereto.
(b) Opinion of Counsel. The Borrowers shall have delivered to the
Agent an opinion of Baker, Donelson, Bearman & Caldwell, counsel to the
Borrowers, and an opinion from Pepper, Hamilton & Scheetz, counsel to
Parent and special counsel to the Borrowers, in form and substance
satisfactory to the Agent.
(c) Financials. The Borrowers shall have delivered to the Agent,
and the Lenders shall have reviewed and approved, the following financial
information, in form and substance satisfactory to the Lenders:
(i) Unaudited financial information required under Sections
6.1(c) and 6.2(d) of the Credit Agreement for November 1997.
(ii) Unaudited, internally prepared, pro forma financial
information for fiscal year 1997 consisting of the combined balance
sheet and income statement of the Borrowers and their Subsidiaries.
Such pro forma financial information to contain actual results through
December 23, 1997 and projected results from December 24, 1997 through
December 31, 1997.
(iii) Analysis for fiscal year 1997, pro forma for actual
results through December 23, 1997 and projected results from December
24, 1997 through December 31, 1997, showing each Loan Party has
observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in the Credit Agreement and the
other Loan
2
<PAGE> 127
Documents to which it is a party to be observed, performed or
satisfied by it, including showing all calculations in determining
compliance with each covenant.
(d) Consent of Subordinated Debt Holders. The Borrowers shall have
delivered to the Agent evidence of the consent of the Subordinated Debt
Holders to this Third Amendment to the Credit Agreement, including the
$7,000,000 increase of the Trance B Term Loan in form and substance
satisfactory to the Agent.
(e) Moore Redemption. All conditions precedent to the consummation of
the Moore Redemption, except for payment of the redemption price, shall
have been satisfied without waiver.
(f) Moore Redemption Agreement. The Borrowers shall have delivered to
the Agent a certified copy of the Moore Redemption Agreement evidencing the
Moore Redemption as duly executed by all the parties thereto, which Moore
Redemption Agreement shall be on terms and conditions acceptable to the
Agent.
(g) Amendment to Management Pledge Agreement and New Management Pledge
Agreement. The Borrowers shall have delivered to the Agent an amendment to
the Management Pledge Agreement and the New Management Pledge Agreement,
dated as of January 5, 1998, in the form of Exhibit B hereto.
Section 5. Representations and Warranties; No Default. The Borrowers hereby
confirm to the Agent and the Lenders, the representations and warranties of the
Borrowers set forth in Section 4 of the Credit Agreement (as amended) as of the
date hereof, as if set forth herein in full. The Borrowers hereby certify that,
after giving effect hereto, no Default exists under the Credit Agreement.
Section 6. Miscellaneous. The Borrowers agree to pay on demand all the
Agent's reasonable expenses in preparing, executing and delivering this Third
Amendment to Credit Agreement, and all related instruments and documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
the Agent's special counsel, Goodwin, Procter & Hoar LLP. This Third Amendment
to Credit Agreement shall be a Loan Document and shall be governed by and
construed and enforced under the laws of the State of New York.
3
<PAGE> 128
IN WITNESS WHEREOF, the Parent, the Borrowers, the Lenders and Agent have
caused this Third Amendment to Credit Agreement to be executed by their duly
authorized officers as of the date first set forth above.
KIRKLAND HOLDINGS L.L.C.
By: /s/ David Mussafer
---------------------------
Name: David Mussafer
Title: President
THE BORROWERS
-------------
KIRKLAND'S, INC.
KIRKLAND'S OF CAROLINA, INC.
KIRKLAND'S OF CHARLOTTE, EASTLAND MALL, INC.
KIRKLAND'S OF TENNESSEE, INC.
K.C. CORP, INC.
KIRKLAND'S OF GREENSBORO, FOUR SEASONS MALL, INC.
KIRKLAND'S OF FAYETTEVILLE, CROSS CREEK MALL, INC.
KIRKLAND'S OF WILMINGTON, INDEPENDENCE MALL, INC.
KIRKLAND'S III, JACKSON-METRO CENTER, INC.
KIRKLAND'S OF MEMPHIS, TENNESSEE, LAURELWOOD
SHOPPING CENTER, INC.
KIRKLAND'S OF RIDGELAND, MISSISSIPPI, NORTHPARK
MALL, INC.
KIRKLAND'S OF KNOXVILLE, EAST TOWNE MALL, INC.
KIRKLAND'S OF HUNTSVILLE, MADISON SQUARE MALL, INC.
KIRKLAND'S OF VALLEY VIEW MALL, ROANOKE, VA, INC.
KIRKLAND'S OF NASHVILLE, HICKORY HOLLOW MALL, INC.
KIRKLAND'S OF BIRMINGHAM, RIVERCHASE GALLERIA, INC.
KIRKLAND'S OF BRIARCLIFFE MALL, MYRTLE BEACH,
SOUTH CAROLINA, INC.
KIRKLAND'S OF PEACANLAND MALL, MONROE, LA, INC.
KIRKLAND'S OF TOWNE CENTER AT COBB, ATLANTA, GA, INC.
KIRKLAND'S OF GWINNETT PLACE, ATLANTA, GA, INC.
KIRKLAND'S OF RIVERGATE MALL, NASHVILLE, TN, INC.
KIRKLAND'S OF PEACHTREE MALL, COLUMBUS, GA, INC.
KIRKLAND'S OF CUMBERLAND MALL, ATLANTA, GA, INC.
KIRKLAND'S OF HAMILTON PLACE MALL, CHATTANOOGA,
TN, INC.
KIRKLAND'S OF HOUSTON GALLERIA, HOUSTON, TX, INC.
KIRKLAND'S OF MALL OF MEMPHIS, MEMPHIS, TN, INC.
4
<PAGE> 129
KIRKLAND'S OF WOODLAND HILLS MALL, TULSA, OK, INC.
KIRKLAND'S OF DAYTON MALL, DAYTON, OH, INC.
KIRKLAND'S OF OXMOOR CENTER, LOUISVILLE, KY, INC.
KIRKLAND'S OF SOUTH SQUARE MALL, DURHAM, NC, INC.
KIRKLAND'S OF VALLEY VIEW CENTER, DALLAS, TX, INC.
KIRKLAND'S OF CHESTERFIELD TOWNE CENTER,
RICHMOND, VA, INC.
KIRKLAND'S OF PARK PLAZA, LITTLE ROCK, AR, INC.
KIRKLAND'S OF MONTGOMERY MALL, MONTGOMERY, AL, INC.
KIRKLAND'S OF SOUTHLAKE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF SOUTHPARK MALL, RICHMOND, VA, INC.
KIRKLAND'S OF EASTLAND MALL, EVANSVILLE, IN, INC.
KIRKLAND'S OF FAYETTE MALL, LEXINGTON, KY, INC.
KIRKLAND'S OF HICKORY RIDGE MALL, MEMPHIS, TN, INC.
KIRKLAND'S OF REGENCY SQUARE MALL, JACKSONVILLE,
FL, INC.
KIRKLAND'S OF MCCAIN MALL, LITTLE ROCK, AR, INC.
KIRKLAND'S OF RIVER RIDGE MALL, LYNCHBURG, VA, INC.
KIRKLAND'S OF BEL AIR MALL, MOBILE, AL, INC.
KIRKLAND'S OF THE MALL AT BARNES CROSSING, TUPELO,
MS, INC.
KIRKLAND'S OF CORTANA MALL, BATON ROUGE, LA, INC.
KIRKLAND'S OF BELLEVUE CENTER, NASHVILLE, IN, INC.
KIRKLAND'S OF TRI-COUNTY MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF THE MALL OF THE ANENUES,
JACKSONVILLE, FL, INC.
KIRKLAND'S OF EASTWOOD MALL, BIRMINGHAM, AL, INC.
KIRKLAND'S OF LAKESIDE MALL, NEW ORLEANS, LA, INC.
KIRKLAND'S OF CAROLINA PLACE, CHARLOTTE, N.C., INC.
KIRKLAND'S OF CARY VILLAGE MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF COOL SPRINGS GALLERIA, NASHVILLE, TN,
INC.
KIRKLAND'S OF KENWOOD TOWNE CENTRE, CINCINNATI,
OH, INC.
KIRKLAND'S OF ST. LOUIS GALLERIA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WIREGRASS COMMONS MALL, DOTHAN, AL,
INC.
KIRKLAND'S OF REGENCY MALL, RICHMOND, VA, INC.
KIRKLAND'S OF FLORENCE, FLORENCE, KY, INC.
KIRKLAND'S OF ACADIANA MALL, LAFAYETTE, LA, INC.
KIRKLAND'S OF PADRE STAPLES MALL, CORPUS CHRISTI, TX,
INC.
KIRKLAND'S OF BELDEN VILLAGE, CANTON, OH, INC.
5
<PAGE> 130
KIRKLAND'S OF WEST OAKS MALL, HOUSTON, TX, INC.
KIRKLAND'S OF CHARLESTON TOWN CENTER, CHARLESTON,
W. VA, INC.
KIRKLAND'S OF CRESTWOOD PLAZA, ST. LOUIS, MO, INC.
KIRKLAND'S OF WHITE MARSH MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF COLLIN CREEK MALL, DALLAS, TX, INC.
KIRKLAND'S OF BAYBROOK MALL, HOUSTON, TX, INC.
KIRKLAND'S OF GOVERNOR'S SQUARE MALL, TALLAHASSEE,
FL, INC.
KIRKLAND'S OF BARTON CREEK MALL, AUSTIN, TX, INC.
KIRKLAND'S OF HIGHLAND MALL, AUSTIN, TX, INC.
KIRKLAND'S OF BATTLEFIELD MALL, SPRINGFIELD, MO, INC.
KIRKLAND'S OF PENN SQUARE MALL, OKLAHOMA CITY, OK,
INC.
KIRKLAND'S OF OAK PARK MALL, KANSAS CITY, KS, INC.
KIRKLAND'S OF MALL ST. VINCENT, SHREVEPORT, LA, INC.
KIRKLAND'S OF OWINGS MILLS MALL, BALTIMORE, MD, INC.
KIRKLAND'S OF OAKWOOD CENTER, NEW ORLEANS, LA,
INC.
KIRKLAND'S OF THE MALL AT JOHNSON CITY, JOHNSON
CITY, TN, INC.
KIRKLAND'S OF GLENBROOK MALL, FT. WAYNE, IN, INC.
KIRKLAND'S OF NORTH POINTE MALL, ATLANTA, GA, INC.
KIRKLAND'S OF NORTHPARK MALL, JOPLIN, MO, INC.
KIRKLAND'S OF ORLANDO FASHION SQUARE, ORLANDO, FL,
INC.
KIRKLAND'S OF THE MALL AT FAIRFIELD COMMONS,
DAYTON, OH, INC.
KIRKLAND'S OF ST. CHARLES TOWNE CENTER, WALFDORF,
MD, INC.
KIRKLAND'S OF REGENCY MALL, FLORENCE, AL, INC.
KIRKLAND'S OF SOUTH PLAINS MALL, LUBOCK, TX, INC.
KIRKLAND'S OF THE PARKS AT ARLINGTON, FT. WORTH, TX,
INC.
KIRKLAND'S OF PARMA TOWN MALL, CLEVELAND, OH, INC.
KIRKLAND'S OF ST. CLAIR SQUARE, ST. LOUIS, MO, INC.
KIRKLAND'S OF TURTLE CREEK MALL, HATTIESBURG, MS,
INC.
KIRKLAND'S OF THE WOODLANDS, HOUSTON, TX, INC.
KIRKLAND'S OF BRANDON TOWN CENTER, TAMPA, FL, INC.
KIRKLAND'S OF MEMORIAL CITY MALL, HOUSTON, TX, INC.
KIRKLAND'S OF UNIVERSITY MALL, TUSCALOOSA, AL, INC.
KIRKLAND'S OF SANTA ROSA MALL, FORT WALTON, FL, INC.
6
<PAGE> 131
KIRKLAND'S OF PANAMA CITY MALL, PANAMA CITY, FL, INC.
KIRKLAND'S OF TOWN EAST MALL, MESQUITE, TX, INC.
KIRKLAND'S OF KENTUCKY OAKS MALL, PADUCAH, KY, INC.
KIRKLAND'S OF CRABTREE VALLEY MALL, RALEIGH, N.C., INC.
KIRKLAND'S OF OAK HOLLOW MALL, HIGH POINT, N.C., INC.
KIRKLAND'S OF FOX VALLEY MALL, CHICAGO, IL, INC.
KIRKLAND'S OF HAWTHORNE MALL, CHICAGO, IL, INC.
KIRKLAND'S OF STRATFORD SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF ORLAND SQUARE, CHICAGO, IL, INC.
KIRKLAND'S OF COASTLAND MALL, NAPLES, FL, INC.
KIRKLAND'S OF EDGEWATER MALL, BILOXI, MS, INC.
KIRKLAND'S OF TOWN CENTER PLAZA, KANSAS CITY, KS, INC.
KIRKLAND'S OF CASTLETON SQUARE, INDIANAPOLIS, IN., INC.
KIRKLAND'S OF CORDOVA MALL, PENSACOLA, FL, INC.
KIRKLAND'S OF UNIVERSITY PARK, SOUTH BEND, IN, INC.
KIRKLAND'S OF WESTGATE MALL, AMARILLO, TX, INC.
KIRKLAND'S OF WESTGATE MALL, SPARTANBURG, SC, INC.
KIRKLAND'S OF MERIDIAN MALL, LANSING, MI, INC.
KIRKLAND'S OF COTTONWOOD MALL, ALBUQUERQUE, NM, INC.
KIRKLAND'S OF UNIVERSITY MALL, TAMPA, FL, INC.
KIRKLAND'S OF NORTHWEST ARKANSAS MALL, FAYETTEVILLE, AR, INC.
KIRKLAND'S OF INDIAN RIVER MALL, VERO BEACH, FL, INC.
KIRKLAND'S OF TYRONE SQUARE, ST. PETERSBURG, FL, INC.
KIRKLAND'S OF NORTHGATE MALL, CINCINNATI, OH, INC.
KIRKLAND'S OF WEST OAKS MALL, ORLANDO, FL, INC.
KIRKLAND'S OF PARK CITY CENTER, LANCASTER, PA, INC.
KIRKLAND'S OF PERIMETER MALL, ATLANTA, GA, INC.
KIRKLAND'S OF WOLFCHASE GALLERIA, MEMPHIS, TN, INC.
KIRKLAND'S OF NORTHPARK MALL, DAVENPORT, IA, INC.
KIRKLAND'S OF LINDALE MALL, CEDAR RAPIDS, IA, INC.
KIRKLAND'S OF CORONADO MALL, ALBUQUERQUE, NM, INC.
KIRKLAND'S OF WILLOWBROOK MALL, HOUSTON, TX, INC.
KIRKLAND'S OF HONEY CREEK MALL, TERRE HAUTE, IN, INC.
KIRKLAND'S OF SOUTHPARK MALL, MOLINE, IL, INC.
KIRKLAND'S OF VALLEY WEST MALL, DES MOINES, IA, INC.
KIRKLAND'S OF GREENBRIER MALL, CHESAPEAKE, VA, INC.
7
<PAGE> 132
KIRKLAND'S OF CIELO VISTA MALL, EL PASO, TX, INC.
KIRKLAND'S OF TUTTLE CROSSING, COLUMBUS, OH, INC.
KIRKLAND'S OF LEIGH MALL, COLUMBUS, MS, INC.
KIRKLAND'S OF NORTH SHORE SQUARE, SLIDELL, LA, INC.
KIRKLAND'S OF POST OAK MALL, COLLEGE STATION, TX, INC.
KIRKLAND'S OF BONITA LAKES MALL, MERIDIAN, MS, INC.
KIRKLAND'S OF HUNTINGTON MALL, HUNTINGTON, WV, INC.
KIRKLAND'S OF MALL OF LOUISIANA, BATON ROUGE, LA, INC.
KIRKLAND'S OF MILL CREEK MALL, ERIE, PA, INC.
KIRKLAND'S OF VOLUSIA MALL, DAYTONA BEACH, FL, INC.
KIRKLAND'S OF GATEWAY MALL, LINCOLN, NE, INC.
KIRKLAND'S OF GRAPEVINE MILLS, GRAPEVINE, TX, INC.
By: /s/ R. E. Alderson
---------------------------------------
Name: R. E. Alderson
Title: VP/Sec
BANKBOSTON, N.A.,
as Administrative Agent and as a Lender
By: /s/ Christopher S. Allen
---------------------------------------
Name: Christopher S. Allen
Title: Director
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
---------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
---------------------------------------
Name: Troy J. Villafarra
Title: Vice President
8
<PAGE> 133
FIRST AMERICAN NATIONAL BANK
By: /s/ John W. Teasley
---------------------------------------
Name: John W. Teasley
Title: Assistant Vice President
MITSUI LEASING CAPITAL CORPORATION
By: /s/ R. Wayne Hutton
---------------------------------------
Name: R. Wayne Hutton
Title: Senior Vice President
UNION PLANTERS BANK OF JACKSON, TENNESSEE
By: /s/ Frank Hudacek
---------------------------------------
Name: Frank Hudacek
Title: Vice President
VOLUNTEER BANK OF JACKSON, TENNESSEE
By:
---------------------------------------
Name:
Title:
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By:
---------------------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING II, LTD.
By:
---------------------------------------
Name:
Title:
9
<PAGE> 134
HIBERNIA NATIONAL BANK
By:
------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By:
------------------------------
Name:
Title:
MITSUI LEASING CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
UNION PLANTERS BANK OF JACKSON, TENNESSEE
By:
------------------------------
Name:
Title:
VOLUNTEER BANK OF JACKSON, TENNESSEE
By: /s/ James N. Craft
------------------------------
Name: James N. Craft
Title: Executive Vice President
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By: /s/ Justin L. Driscoll
------------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
10
<PAGE> 135
FIRST AMERICAN NATIONAL BANK
By: ______________________________
Name:
Title:
MITSUI LEASING CAPITAL CORPORATION
By: ______________________________
Name:
Title:
UNION PLANTERS BANK OF JACKSON, TENNESSEE
By: ______________________________
Name:
Title:
VOLUNTEER BANK OF JACKSON, TENNESSEE
By: ______________________________
Name:
Title:
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By:______________________________
Name:
Title:
INDOSUEZ CAPITAL FUNDING II, LTD.
By: /s/ Francoise Berthelot
______________________________
Name: Francoise Berthelot
Title: Vice President
11
<PAGE> 136
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
______________________________
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
12
<PAGE> 137
SCHEDULE 1
SHARES OF STOCK
<TABLE>
<CAPTION>
- ------------------------------------------------------
Corporation Shares Class of Stock Certificate
- ------------------------------------------------------
<S> <C> <C> <C>
Group A and 7,250 Common 4
B Companies (Voting)
- ------------------------------------------------------
650 Common 1
(Non-Voting)
---------------------------------------
7,900 Class B 3
Preferred
---------------------------------------
2,878 Class C 3
Preferred
- ------------------------------------------------------
Group C 7,900 Common 1
Companies (Non-Voting)
- ------------------------------------------------------
3,000 Class B 3
Preferred
(Voting)
---------------------------------------
4,900 Class B 1
Preferred
(Non-Voting)
- ------------------------------------------------------
Group D 7,900 Common 4
Companies (Voting)
---------------------------------------
7,900 Class B 3
Preferred
- ------------------------------------------------------
Group E 79 Common 4
Companies
- ------------------------------------------------------
</TABLE>
The listing of Group A, B, C, D, and E Companies begins on the next page
(Schedule 1-2).
Schedule 1-1
<PAGE> 138
A
Kirkland's, Inc.
Kirkland's of Pecanland Mall, Monroe, LA, Inc.
Kirkland's of Town Center at Cobb, Atlanta, GA, Inc.
Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
Kirkland's of Peachtree Mall, Columbus, GA, Inc.
Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
Kirkland's of Houston Galleria, Houston, TX, Inc.
Kirkland's of Mall of Memphis, Memphis, TN, Inc.
Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
Kirkland's of Dayton Mall, Dayton, OH, Inc.
Kirkland's of Oxmoor Center, Louisville, KY, Inc.
Kirkland's of South Square Mall, Durham, NC, Inc.
Kirkland's of Valley View Center, Dallas, TX, Inc.
Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
Kirkland's of Park Plaza Mall, Little Rock, AR, Inc.
Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
Kirkland's of Southlake Mall, Atlanta, GA, Inc.
Kirkland's of Southpark Mall, Richmond, VA, Inc.
Kirkland's of Eastland Mall, Evansville, IN, Inc.
Kirkland's of Fayette Mall, Lexington, KY, Inc.
Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
Kirkland's of McCain Mall, Little Rock, AR, Inc.
Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
Kirkland's of Bel Air Mall, Mobile, AL, Inc.
Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
Kirkland's of Bellevue Center, Nashville, TN, Inc.
Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
Kirkland's of Carolina Place, Charlotte, N.C., Inc.
Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
Kirkland's of Regency Mall, Richmond, VA, Inc.
Kirkland's of Florence Mall, Florence, KY, Inc.
Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
Kirkland's of Belden Village, Canton, OH, Inc.
Kirkland's of West Oaks Mall, Houston, TX, Inc.
Kirkland's of Charleston Town Center, Charleston, W. VA. Inc.
Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
Schedule 1-2
<PAGE> 139
Kirkland's of Baybrook Mall, Houston, TX, Inc.
Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
Kirkland's of Barton Creek Mall, Austin, TX, Inc.
Kirkland's of Highland Mall, Austin, TX, Inc.
Kirkland's of Battlefield Mall, Springfield, MO, Inc.
Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
Kirkland's of Oakwood Center, New Orleans, LA, Inc.
Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
Kirkland's of Northpark Mall, Joplin, MO, Inc.
Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
Kirkland's of St. Charles Towne Center, Waldorf, MD, Inc.
Kirkland's of Regency Mall, Florence, AL, Inc.
Kirkland's of South Plains Mall, Lubbock, TX, Inc.
Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
Kirkland's of St. Clair Square, St. Louis, MO, Inc.
Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
Kirkland's of The Woodlands, Houston, TX, Inc.
Kirkland's of Brandon Town Center, Tampa, FL, Inc.
Kirkland's of Memorial City Mall, Houston, TX, Inc.
Kirkland's of University Mall, Tuscaloosa, AL, Inc.
Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
Kirkland's of Panama City Mall, Panama City, FL, Inc.
B
Kirkland's of Town East Mall, Mesquite, TX, Inc.
Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
Kirkland's of Oak Hollow Mall, Highpoint, N.C., Inc.
Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
Kirkland's of Stratford Square, Chicago, IL, Inc.
Kirkland's of Orland Square, Chicago, IL, Inc.
Kirkland's of Coastland Mall, Naples, FL, Inc.
C
Kirkland's of Carolina, Inc.
Kirkland's of Charlotte, Eastland Mall, Inc.
Kirkland's of Tennessee, Inc.
K. C. Corp., Inc.
Kirkland's of Greensboro, Four Seasons Mall, Inc.
Schedule 1-3
<PAGE> 140
Kirkland's of Fayetteville, Cross Creek Mall, Inc.
Kirkland's of Wilmington, Independence Mall, Inc.
Kirkland's III, Jackson-Metro Center, Inc.
Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center, Inc.
Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
Kirkland's of Knoxville, East Towne Mall, Inc.
Kirkland's of Huntsville, Madison Square Mall, Inc.
Kirkland's of Valley View Mall, Roanoke, VA, Inc.
Kirkland's of Nashville, Hickory Hollow Mall, Inc.
Kirkland's of Birmingham, Riverchase Galleria, Inc.
Kirkland's of Briar Cliffe Mall, Myrtle Beach, South Carolina, Inc.
Kirkland's of Rivergate Mall, Nashville, TN, Inc.
D
Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
Kirkland's of Castleton Square, Indianapolis, IN, Inc.
Kirkland's of Cordova Mall, Pensacola, FL, Inc.
Kirkland's of University Park, South Bend, IN, Inc.
Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
Kirkland's of Westgate Mall, Amarillo, TX, Inc.
Kirkland's of Meridian Mall, Lansing, MI,
Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
Kirkland's of University Mall, Tampa, FL, Inc.
E
Kirkland's of Northwest Arkansas Mall, Fayetteville, Ar, Inc.
Kirkland's of Indian River Mall, Vero Beach, Fl, Inc.
Kirkland's of Tyrone Square, St. Petersburg, Fl, Inc.
Kirkland's of Northgate Mall, Cincinnati, Oh, Inc.
Kirkland's of West Oaks Mall, Orlando, Fl, Inc.
Kirkland's of Park City Center, Lancaster, Pa, Inc.
Kirkland's of Northpark Mall, Davenport, Ia, Inc.
Kirkland's of Perimeter Mall, Atlanta, Ga, Inc.
Kirkland's of Wolfchase Galleria, Memphis, Tn, Inc.
Kirkland's of Lindale Mall, Cedar Rapids, Ia, Inc.
Kirkland's of Coronado Mall, Albuquerque, Nm, Inc.
Kirkland's of Willowbrook Mall, Houston, Tx, Inc.
Schedule 1 - 4
<PAGE> 141
Amendment of Schedule 1.1A
1. Additional Borrowers. The following additional Borrowers have been
added to the Credit Agreement:
Kirkland's of Honey Creek Mall, Terre Haute, IN, Inc.
Kirkland's of Southpark Mall, Moline, IL, Inc.
Kirkland's of Valley West Mall, Des Moines, IA, Inc.
Kirkland's of Greenbrier Mall, Chesapeake, VA, Inc.
Kirkland's of Cielo Vista Mall, El Paso, TX, Inc.
Kirkland's of Tuttle Crossing, Columbus, OH, Inc.
Kirkland's of Leigh Mall, Columbus, MS, Inc.
Kirkland's of North Shore Square, Slidell, LA, Inc.
Kirkland's of Post Oak Mall, College Station, TX, Inc.
Kirkland's of Bonita Lakes Mall, Meridian, MS, Inc.
Kirkland's of Huntington Mall, Huntington, WV, Inc.
Kirkland's of Mall of Louisiana, Baton Rouge, LA, Inc.
Kirkland's of Mill Creek Mall, Erie, PA, Inc.
Kirkland's of Volusia Mall, Daytona Beach, FL, Inc.
Kirkland's of Gateway Mall, Lincoln, NE, Inc.
Kirkland's of Grapevine Mills, Grapevine, TX, Inc.
2. Additional Subsidiaries. The following Persons are additional
Subsidiaries of the Parent, which have been formed in anticipation of the
opening of new stores but which have not yet commenced any operations. Section
4.14 of the Credit Agreement shall be modified to include reference to these
Persons as additional Subsidiaries of the Parent:
Kirkland's of Southland Mall, Houma, LA, Inc.
Kirkland's of First Colony Mall, Houston, TX, Inc.
Kirkland's of Oviedo Marketplace, Orlando, FL, Inc.
Kirkland's of Coral Springs, Coral Springs, FL, Inc.
11
<PAGE> 1
EXHIBIT 10.2
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM. THIS NOTE IS SUBJECT TO A SUBORDINATION AND INTERCREDITOR AGREEMENT
DATED ON OR ABOUT THE DATE HEREOF BY AND AMONG CAPITAL RESOURCE LENDERS II,
L.P., ALLIED CAPITAL CORPORATION, ALLIED CAPITAL CORPORATION II, THE MARLBOROUGH
CAPITAL INVESTMENT FUND, L.P., CAPITAL TRUST INVESTMENTS, LTD. AND THE
BORROWERS.
SENIOR SUBORDINATED NOTE DUE 2003
$8,000,000.00 June 12, 1996
FOR VALUE RECEIVED, each of the entities listed on the signature pages
hereto (hereinafter, together with their successors in title and assigns, called
the "Borrowers" and each individually a "Borrower"), hereby jointly and
severally promise to pay to Capital Resource Lenders II, L.P. or assigns
(hereinafter referred to as the "Payee"), on or before June 30, 2003, the
principal sum of EIGHT MILLION DOLLARS ($8,000,000.00) or such part thereof as
then remains unpaid, and to pay interest from the date hereof on the whole
amount of said principal sum remaining from time to time unpaid at the rate of
twelve and one-quarter percent (12.25%) per annum, such interest to be payable
quarterly in arrears on the last day of March, June, September and December in
each year, the first such payment to be due and payable on June 30, 1996 until
the whole amount of the principal hereof remaining unpaid shall become due and
payable. Notwithstanding the foregoing, beginning July 1, 1998 this Note shall
bear interest at the rate of twelve and one-half percent (12.50%) per annum.
Under certain circumstances as indicated in Section 2.06 of the Agreement (as
defined), this Note shall bear interest at the rate of thirteen and one-half
percent (13.50%) per annum. Principal, premium, if any, and interest shall be
payable in lawful money of the United States of America, in immediately
available funds, by wire transfer of funds to the account or accounts designated
in writing by the Payee or in such other manner as the Payee may designate from
time to time in writing to the Borrowers. Interest shall be computed on the
basis of a 360-day year for the actual number of days elapsed. Nothing in this
Note shall require the Borrowers to pay interest at a rate in excess of the
maximum rate permitted by applicable law.
If an Event of Default, as defined in the Agreement, has occurred and
is continuing, from and after the date such Event of Default occurred any
outstanding unpaid principal hereof and any unpaid interest thereon shall bear
interest, payable on demand, at the rate of (i) fourteen and one-quarter percent
(14.25%) per annum if such Event of Default exists prior to July 1, 1998, (ii)
fourteen and one-half percent (14.50%) per annum if such Event of Default exists
on or after July 1, 1998, and (iii) fifteen and one-half percent (15.50%) per
annum if such Event of Default exists following a Liquidity IPO (as defined in
the Agreement), if upon the closing of such Liquidity IPO this Note has not been
repaid in full, or such lower rate as then may be the maximum rate permitted by
applicable law; provided, however, that upon the cessation or cure of such Event
of Default, if no other Event of Default is then continuing, this Note shall
again bear interest at the rate of twelve and one-quarter percent (12.25%) per
annum, 12.50% per annum or 13.50% per annum, as applicable, as set forth in the
Agreement.
<PAGE> 2
This Note is issued pursuant to and is entitled to the benefits of a
certain Senior Subordinated Note and Warrant Purchase Agreement, dated as of the
date hereof, by and among the Borrowers and Capital Resource Lenders II, L.P.,
Allied Capital Corporation, Allied Capital Corporation II, The Marlborough
Capital Investment Fund, L.P., and Capital Trust Investments, Ltd. (as the same
may be amended from time to time, referred to herein as the "Agreement"), and
each holder of this Note, by his acceptance hereof, agrees to be bound by the
provisions of the Agreement. The Borrowers and the Payee further acknowledge and
agree that (i) this Note is subject to prepayment, in whole or in part, and to
certain mandatory redemption payments, as specified in the Agreement, (ii) the
principal of and interest on this Note is subordinated to certain Senior Debt
(as defined in the Agreement) of the Borrowers pursuant to the Subordination
Agreement (as defined in the Agreement) and (iii) in case of an Event of Default
(as defined in the Agreement), the principal of this Note may become or may be
declared due and payable in the manner and with the effect provided in the
Agreement.
As further provided in the Agreement, upon surrender of this Note for
transfer or exchange, a new Note or new Notes of the same tenor dated the date
to which interest has been paid on the surrendered Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so surrendered
will be issued to the transferee or transferees.
In case any payment herein provided for shall not be paid when due,
each Borrower jointly and severally promises to pay all costs of collection,
including all reasonable attorneys' fees.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts.
Except as expressly set forth in the Agreement, each Borrower and all
endorsers and guarantors of this Note hereby waive presentment, demand, notice
of nonpayment, protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement of this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 3
IN WITNESS WHEREOF, each Borrower has executed this Note under seal as
of the date first written above.
Kirkland's Inc.
Kirkland's of Carolina, Inc.
Kirkland's of Charlotte, Eastland Mall, Inc.
Kirkland's of Tennessee, Inc.
K.C. Corp. Inc.
Kirkland's of Greensboro, Four Seasons Mall, Inc.
Kirkland's of Fayetteville, Cross Creek Mall, Inc.
Kirkland's of Wilmington, Independence Mall, Inc.
Kirkland's III, Jackson-Metro Center, Inc.
Kirkland's of Memphis, Tennessee, Laurelwood
Shopping Center, Inc.
Kirkland's of Ridgeland, Mississippi, Northpark
Mall, Inc.
Kirkland's of Knoxville, East Towne Mall, Inc.
Kirkland's of Huntsville, Madison Square Mall, Inc.
Kirkland's of Valley View Mall, Roanoke, VA, Inc.
Kirkland's of Nashville, Hickory Hollow Mall, Inc.
Kirkland's of Birmingham, Riverchase
Galleria, Inc.
Kirkland's of BriarCliffe Mall, Myrtle Beach,
South Carolina, Inc.
Kirkland's of Pecanland Mall, Monroe, LA, Inc.
Kirkland's of Towne Center at Cobb,
Atlanta, GA, Inc.
Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
Kirkland's of Rivergate Mall, Nashville, TN, Inc.
Kirkland's of Peachtree Mall, Columbus, GA, Inc.
Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
Kirkland's of Hamilton Place Mall,
Chattanooga, TN, Inc.
Kirkland's of Houston Galleria, Houston, TX, Inc.
Kirkland's of Mall of Memphis, Memphis, TN, Inc.
Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
Kirkland's of Dayton Mall, Dayton, OH, Inc.
Kirkland's of Oxmoor Center, Louisville, KY, Inc.
Kirkland's of South Square Mall, Durham, NC, Inc.
Kirkland's of Valley View Center, Dallas, TX, Inc.
Kirkland's of Chesterfield Towne Center,
Richmond, VA, Inc.
Kirkland's of Park Plaza, Little Rock, AR, Inc.
<PAGE> 4
Kirkland's of Montgomery Mall,
Montgomery, AL, Inc.
Kirkland's of Southlake Mall, Atlanta, GA, Inc.
Kirkland's of Southpark Mall, Richmond, VA, Inc.
Kirkland's of Eastland Mall, Evansville, IN, Inc.
Kirkland's of Fayette Mall, Lexington, KY, Inc.
Kirkland's of Hickory Ridge Mall,
Memphis, TN, Inc.
Kirkland's of Regency Square Mall,
Jacksonville, FL, Inc.
Kirkland's of McCain Mall, Little Rock, AR, Inc.
Kirkland's of River Ridge Mall,
Lynchburg, VA, Inc.
Kirkland's of Bel Air Mall, Mobile, AL, Inc.
Kirkland's of The Mall at Barnes Crossing,
Tupelo, MS, Inc.
Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
Kirkland's of Bellevue Center, Nashville, TN, Inc.
Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
Kirkland's of The Mall of the Avenues,
Jacksonville, FL, Inc.
Kirkland's of Eastwood Mall,
Birmingham, AL, Inc.
Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
Kirkland's of Carolina Place, Charlotte, N.C., Inc.
Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
Kirkland's of Cool Springs Galleria,
Nashville, TN, Inc.
Kirkland's of Kenwood Towne Centre,
Cincinnati, OH, Inc.
Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
Kirkland's of Wiregrass Commons Mall,
Dothan, AL, Inc.
Kirkland's of Regency Mall, Richmond, VA, Inc.
Kirkland's of Florence, Florence, KY, Inc.
Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
Kirkland's of Padre Staples Mall,
Corpus Christi, TX, Inc.
Kirkland's of Belden Village, Canton, OH, Inc.
Kirkland's of West Oaks Mall, Houston, TX, Inc.
Kirkland's of Charleston Town Center,
Charleston, W. VA, Inc.
Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
<PAGE> 5
Kirkland's of White Marsh Mall,
Baltimore, MD, Inc.
Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
Kirkland's of Baybrook Mall, Houston, TX, Inc.
Kirkland's of Governor's Square Mall,
Tallahassee, Fl, Inc.
Kirkland's of Barton Creek Mall, Austin, TX, Inc.
Kirkland's of Highland Mall, Austin, TX, Inc.
Kirkland's of Battlefield Mall,
Springfield, MO, Inc.
Kirkland's of Penn Square Mall,
Oklahoma City, OK, Inc.
Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
Kirkland's of Owings Mills Mall,
Baltimore, MD, Inc.
Kirkland's of Oakwood Center,
New Orleans, LA, Inc.
Kirkland's of The Mall at Johnson City,
Johnson City, TN, Inc.
Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
Kirkland's of Northpark Mall, Joplin, MO, Inc.
Kirkland's of Orlando Fashion Square,
Orlando, FL, Inc.
Kirkland's of The Mall at Fairfield Commons,
Dayton, OH, Inc.
Kirkland's of St. Charles Towne Center,
Waldorf, MD Inc.
Kirkland's of Regency Mall, Florence, AL, Inc.
Kirkland's of South Plains Mall, Lubbock, TX, Inc.
Kirkland's of The Parks at Arlington,
Ft. Worth, TX, Inc.
Kirkland's of Parma Town Mall,
Cleveland, OH, Inc.
Kirkland's of St. Clair Square, St. Louis, MO, Inc.
Kirkland's of Turtle Creek Mall,
Hattiesburg, MS, Inc.
Kirkland's of The Woodlands, Houston, TX, Inc.
Kirkland's of Brandon Town Center,
Tampa, FL, Inc.
Kirkland's of Memorial City Mall,
Houston, TX, Inc.
Kirkland's of University Mall, Tuscaloosa, AL, Inc.
<PAGE> 6
Kirkland's of Santa Rosa Mall,
Fort Walton, FL, Inc.
Kirkland's of Panama City Mall
Panama City, FL, Inc.
Kirkland's of Town East Mall, Mesquite, TX, Inc.
Kirkland's of Kentucky Oaks Mall,
Paducah, KY, Inc.
Kirkland's of Crabtree Valley Mall,
Raleigh, N.C., Inc.
Kirkland's of Oak Hollow Mall,
High Point, N.C., Inc.
Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
Kirkland's of Stratford Square, Chicago, IL, Inc.
Kirkland's of Orland Square, Chicago, IL, Inc.
Kirkland's of Coastland Mall, Naples, FL, Inc.
Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
Kirkland's of Town Center Plaza,
Kansas City, KS, Inc.
Kirkland's of Castleton Square,
Indianapolis, IN., Inc.
Kirkland's of Cordova Mall, Pensacola, FL, Inc.
Kirkland's of University Park, South Bend, IN, Inc.
Kirkland's of Westgate Mall, Amarillo, TX, Inc.
Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
Kirkland's of Meridian Mall, Lansing, MI, Inc.
Kirkland's of Cottonwood Mall,
Albuquerque, NM, Inc.
Kirkland's of University Mall, Tampa, FL, Inc.
By: /s/ Carl Kirkland
-------------------
Name:
Title:
ATTEST:
By: /s/ Robert E. Alderson
--------------------------
Name:
Title: Vice President & Secretary
<PAGE> 1
EXHIBIT 10.3
KIRKLAND'S, INC.
P.O. BOX 7222
JACKSON, TN 38303-7222
June 12, 1996
Advent International Corporation
101 Federal Street
Boston, MA 02110
RE: Transaction Fees
Gentlemen:
Kirkland's, Inc., a corporation incorporated under Tennessee
law ("Kirkland's"), and the other corporations listed on the signature pages
hereto (such other corporations, together with Kirkland's, collectively the
"Companies") hereby agree to pay to Advent International Corporation ("Advent"),
on the date hereof, an amount equal to One Million Dollars ($1,000,000) (the
"Fee") in consideration for the services which have been provided by Advent to
the Companies in connection with the structuring of the transactions
contemplated by that certain Recapitalization Agreement, dated April 26, 1996,
among Kirkland Holdings L.L.C. ("Holdings"), the Companies, Carl Kirkland,
Robert Kirkland, Bruce Moore and Robert Alderson, as amended on or about the
date hereof (as amended, the "Recapitalization Agreement").
The Fee shall be payable $500,000 in cash and $500,000 through
a reduction in the purchase price for the purchase of common stock and Class A
Preferred Stock being purchased by Holdings pursuant to the Recapitalization
Agreement.
This agreement may be signed in counterparts which when taken
together will constitute the entire agreement.
Please acknowledge your receipt of the sum specified above by
signing where indicated below.
Sincerely,
ATTEST: KIRKLAND'S, INC.
By: /s/Robert E. Alderson By: /s/ Carl Kirkland
--------------------- ------------------
Robert E. Alderson Carl Kirkland
Vice-President President
<PAGE> 2
Corporate Name
- --------------
101 Kirkland's of Carolina, Inc.
102 Kirkland's of Charlotte, Eastland Mall, Inc.
103 Kirkland's of Tennessee, Inc.
104 K. C. Corp. Inc.
107 Kirkland's of Greensboro, Four Seasons Mall, Inc.
109 Kirkland's of Fayetteville, Cross Creek Mall, Inc.
110 Kirkland's of Wilmington, Independence Mall, Inc.
111 Kirkland's III, Jackson-Metro Center, Inc.
114 Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center, Inc.
115 Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
116 Kirkland's of Knoxville, East Towne Mall, Inc.
117 Kirkland's of Huntsville, Madison Square Mall, Inc.
118 Kirkland's of Valley View Mall, Roanoke, VA, Inc.
119 Kirkland's of Nashville, Hickory Hollow Mall, Inc.
120 Kirkland's of Birmingham, Riverchase Galleria, Inc.
122 Kirkland's of BriarCliffe Mall, Myrtle Beach, South Carolina, Inc.
123 Kirkland's of Pecanland Mall, Monroe, LA, Inc.
125 Kirkland's of Towne Center at Cobb, Atlanta, GA, Inc.
126 Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
127 Kirkland's of Rivergate Mall, Nashville, TN, Inc.
128 Kirkland's of Peachtree Mall, Columbus, GA, Inc.
129 Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
130 Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
131 Kirkland's of Houston Galleria, Houston, TX, Inc.
132 Kirkland's of Mall of Memphis, Memphis, TN, Inc.
134 Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
135 Kirkland's of Dayton Mall, Dayton, OH, Inc.
136 Kirkland's of Oxmoor Center, Louisville, KY, Inc.
137 Kirkland's of South Square Mall, Durham, NC, Inc.
138 Kirkland's of Valley View Center, Dallas, TX, Inc.
139 Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
140 Kirkland's of Park Plaza, Little Rock, AR, Inc.
141 Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
142 Kirkland's of Southlake Mall, Atlanta, GA, Inc.
143 Kirkland's of Southpark Mall, Richmond, VA, Inc.
144 Kirkland's of Eastland Mall, Evansville, IN, Inc.
145 Kirkland's of Fayette Mall, Lexington, KY, Inc.
146 Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
148 Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
149 Kirkland's of McCain Mall, Little Rock, AR, Inc.
150 Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
151 Kirkland's of Bel Air Mall, Mobile, AL, Inc.
152 Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
153 Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
154 Kirkland's of Bellevue Center, Nashville, TN, Inc.
155 Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
156 Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
157 Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
158 Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
159 Kirkland's of Carolina Place, Charlotte, N.C., Inc.
160 Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
161 Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
162 Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
<PAGE> 3
# Corporate Name
- - --------------
163 Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
164 Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
165 Kirkland's of Regency Mall, Richmond, VA, Inc.
166 Kirkland's of Florence, Florence, KY, Inc.
167 Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
168 Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
169 Kirkland's of Belden Village, Canton, OH, Inc.
170 Kirkland's of West Oaks Mall, Houston, TX, Inc.
171 Kirkland's of Charleston Town Center, Charleston, W. VA, Inc.
172 Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
173 Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
174 Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
175 Kirkland's of Baybrook Mall, Houston, TX, Inc.
176 Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
178 Kirkland's of Barton Creek Mall, Austin, TX, Inc.
179 Kirkland's of Highland Mall, Austin, TX, Inc.
180 Kirkland's of Battlefield Mall, Springfield, MO, Inc.
181 Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
182 Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
183 Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
184 Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
185 Kirkland's of Oakwood Center, New Orleans, LA, Inc.
186 Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
187 Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
188 Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
189 Kirkland's of Northpark Mall, Joplin, MO, Inc.
190 Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
191 Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
192 Kirkland's of St. Charles Towne Center, Waldorf, MD Inc.
193 Kirkland's of Regency Mall, Florence, AL, Inc.
194 Kirkland's of South Plains Mall, Lubbock, TX, Inc.
195 Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
196 Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
197 Kirkland's of St. Clair Square, St. Louis, MO, Inc.
198 Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
199 Kirkland's of The Woodlands, Houston, TX, Inc.
200 Kirkland's of Brandon Town Center, Tampa, FL, Inc.
201 Kirkland's of Memorial City Mall, Houston, TX, Inc.
202 Kirkland's of University Mall, Tuscaloosa, AL, Inc.
203 Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
204 Kirkland's of Panama City Mall, Panama City, FL, Inc.
205 Kirkland's of Town East Mall, Mesquite, TX, Inc.
206 Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
207 Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
208 Kirkland's of Oak Hollow Mall, High Point, N.C., Inc.
209 Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
210 Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
211 Kirkland's of Stratford Square, Chicago, IL, Inc.
212 Kirkland's of Orland Square, Chicago, IL, Inc.
214 Kirkland's of Coastland Mall, Naples, FL, Inc.
215 Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
<PAGE> 4
216 Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
217 Kirkland's of Castleton Square, Indianapolis, IN., Inc.
218 Kirkland's of Cordova Mall, Pensacola, FL, Inc.
219 Kirkland's of University Park, South Bend, IN, Inc.
220 Kirkland's of Westgate Mall, Amarillo, TX, Inc.
221 Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
222 Kirkland's of Meridian Mall, Lansing, MI, Inc.
223 Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
224 Kirkland's of University Mall, Tampa, FL, Inc.
ATTEST:
By: By: /s/ Carl Kirkland
-------------------- ---------------------
Title: Carl Kirkland
President
Accepted:
ADVENT INTERNATIONAL CORPORATION
By: /s/ David M. Mussafer
------------------------------
David M. Mussafer
President
<PAGE> 1
EXHIBIT 10.4
EXECUTION
REGISTRATION RIGHTS AGREEMENT
among
KIRKLAND HOLDINGS L.L.C.,
KIRKLAND'S, INC.,
AFFILIATES OF KIRKLAND,s INC.,
CAPITAL RESOURCE LENDERS II, L.P.,
ALLIED CAPITAL CORPORATION,
ALLIED CAPITAL CORPORATION II,
THE MARLBOROUGH CAPITAL INVESTMENT FUND, L.P.,
CAPITAL TRUST INVESTMENTS, LTD.,
CARL KIRKLAND,
ROBERT KIRKLAND,
BRUCE MOORE,
AND
ROBERT ALDERSON
June 12, 1996
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of this 12th day of June, 1996, by and among
- KIRKLAND HOLDINGS L.L.C., a Delaware limited
liability company ("Holdings"),
- KIRKLAND'S INC., a corporation incorporated under
Tennessee law ("Kirkland's" or the
"Representative"),
- the other corporations listed on the signature pages
hereto (such other corporations, together with
Kirkland's, being herein referred to individually as
a "Company" and collectively as the "Company" or the
"Companies" as the context requires),
- Capital Resource Lenders 11, L.P., a Delaware
limited partnership ("CRL"),
- Allied Capital Corporation and Allied Capital
Corporation II (collectively, "Allied"),
- The Marlborough Capital Investment Fund, L.P.
("Marlborough"),
- Capital Trust Investments, Ltd. ("CT" and together
with CRL, Allied and Marlborough, the "Mezzanine
Warrant Holders"),
- CARL KIRKLAND,
- ROBERT KIRKLAND,
- BRUCE MOORE and
- ROBERT ALDERSON (Carl Kirkland, Robert Kirkland,
Bruce Moore and Robert Alderson being herein referred
to collectively as the "Individual Investors").
WHEREAS, on April 26, 1996, Holdings, the Companies and the
Individual Investors executed a Recapitalization Agreement (the
"Recapitalization Agreement"). Capitalized terms used but not defined herein
have the meanings set forth in the Recapitalization Agreement;
WHEREAS, pursuant to the Recapitalization Agreement, the
Companies have filed amendments to their charters in Preparation for the
Preliminary Recapitalization and the Recapitalization. The amended charter of
each Company provides
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for the authorized capital of such Company as described in the Shareholders
Agreement.
WHEREAS, in connection with the Company's execution of the
Senior Subordinated Note and Warrant Purchase Agreement dated on or about the
date hereof (the "Mezzanine Purchase Agreement"), pursuant to which the
Mezzanine Warrant Holders have loaned a total of $20,000,000 in subordinated
debt to the Companies, the Mezzanine Warrant Holders have received (i) warrants
to purchase up to 11904.8 shares of Common Stock, subject to adjustment in
accordance with the terms of such warrants ("Mezzanine Warrants" and the shares
subject to the Mezzanine Warrants, the "Warrant Shares") and (ii) warrants to
purchase up to an additional 4335.1 shares of Common Stock, subject to
adjustment in accordance with the terms of such warrants, the exercisability of
which-is contingent upon the timing of certain events and the valuation of the
Companies as evidenced by such event (the "Mezzanine Contingent Warrants" and
the shares subject to the Mezzanine Contingent Warrants, the "Contingent Warrant
Shares"); and
WHEREAS, options to purchase 7,143 shares of Common Stock,
subject to adjustment in accordance with the terms of the option Agreements
governing such options, (the "Option Agreements"), have been granted to the
Management Investors, each having the option under the Option Agreements to
purchase one third of such shares (the "Option Shares"); and
WHEREAS, as an inducement to completion of the transactions
contemplated by the Recapitalization Agreement and the Mezzanine Purchase
Agreement, the Companies have agreed to provide certain registration rights
pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
terms and provisions hereof, the parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the rules and
regulations of the commission thereunder, all as the same shall be in effect
from time to time.
(b) "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time administering the
Act.
(c) "Common Stock" shall mean (i) the common stock,
par value $.Ol of each of the Companies and/or any
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successor Company, and (ii) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount per
share, either to all or to a share of the balance of current dividends and
liquidating distributions after the payment of dividends and distributions on
any shares entitled to preference in the Payment thereof, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the right so
to vote has been suspended by the happening of such a contingency), and (iii)
any other securities into which or for which any of the securities described in
(i) or (ii) above may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(d) "Company" shall mean the Companies, and
subsequently created affiliated companies, or any successor by merger or similar
corporate consolidation thereto, and shall include any subsidiaries thereof.
(e) "Counterpart" shall mean a counterpart to this
Agreement in the form of Exhibit A hereto, pursuant to the execution of which a
Person shall become bound by all of the terms and conditions to this Agreement.
(f) "Demand Piggybacker" shall have the meaning set
forth in Section 2(c) hereof.
(g) "Demand Registration" shall mean a Non-Mezzanine
Demand Registration or a Mezzanine Demand Registration.
(h) "Holder" shall mean each of the Shareholders if
such Shareholder holds Registrable Securities and any other person holding
Registrable Securities or such other securities to whom these registration
rights have been transferred pursuant to Section 12 of this Agreement; provided,
however, that any person who acquires any of the Registrable Securities in a
distribution pursuant to a registration statement filed by the Company under the
Act or pursuant to a sale under Rule 144 under the Act shall not be considered a
Holder.
(i) "Management Investors" shall mean Carl Kirkland,
Bruce Moore and Robert Alderson.
(j) "Mezzanine Demand Registration" shall have the
meaning set forth in Section 2(a) hereof.
(k) "Mezzanine Warrant Stock" shall mean, as of the
applicable date of determination, shares of Common Stock then issued or issuable
to the Mezzanine Warrant Holders upon exercise of the Mezzanine Warrants or
Contingent Mezzanine Warrants,
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assuming the maximum potential exercise of the Mezzanine Warrants or Contingent
Mezzanine Warrants as of such date of determination.
(l) "Non-Mezzanine Demand Registration" shall have
the meaning set forth in Section 2(b) hereof.
(m) "Person" shall mean an individual, partnership,
corporation, limited liability company, limited liability partnership, trust,
joint venture, unincorporated association, or other entity or association.
(n) "Piggyback Registration" shall have the meaning
set forth in Section 3.
(o) "Preferred Stock" shall mean shares of the Class
A Preferred Stock and Class B Preferred Stock of the Companies from time to time
outstanding.
(p) "Public Offering" shall mean an underwritten
public offering of Common Stock registered pursuant to the Act resulting in
gross proceeds to the Companies of at least Thirty Million Dollars
($30,000,000).
(q) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Act and the declaration or
ordering of effectiveness of such registration statement by the Commission.
(r) "Registered Holder" shall mean, with respect to a
registration statement, each Holder of Registrable Securities covered by such
registration statement.
(s) "Registered Securities" shall mean, with respect
to a registration statement, the Registrable Securities covered by such
registration statement.
(t) "Registrable Securities" shall mean (i) shares of
Common Stock held by the Shareholders from time to time and shall include shares
of Mezzanine Warrant Stock, provided the Mezzanine Warrants are converted or
exercised no later than the effective date of any registration with respect to
which the Holder of such Mezzanine Warrants demanded a Demand Registration, is a
Demand Piggybacker, or requested a Piggyback Registration as to the Common Stock
issuable upon conversion or exercise of such Mezzanine Warrants, (ii) shares of
Common Stock acquired by any Shareholder other than pursuant to a registration,
either from any other shareholder of the Company in compliance with the terms of
the Shareholders Agreement, or directly from the Company, and (iii) securities
issued or received in respect of, or in exchange or in substitution for any of
the foregoing, including, but not
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limited to, those arising from a stock dividend, stock split, reclassification,
reorganization, merger, consolidation/ sale of assets or other exchange of
securities.
(u) "Shareholder" shall mean any Person who holds,
from time to time, any Common Stock, Preferred Stock or Mezzanine Warrants or
Mezzanine Contingent Warrants, and who is or who becomes a party to this
Agreement pursuant to the terms hereof.
(v) "Shareholders Agreement" shall mean that certain
Shareholders Agreement dated the date hereof and among the parties hereto, as
amended from time to time.
(w) "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended, or any similar federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
2. Demand Registrations. The Holders may make a demand for registration
of Common Stock as provided in this Section 2 at any time after the earlier to
occur of (x) June 12, 1998 or (y) any time the Company becomes subject to
Section 13 or 15(d) of the 1934 Act.
(a) Mezzanine Demand. If the Company shall receive a
written request from Mezzanine Warrant Holders holding more than sixty-six and
two-thirds percent (66.67%) of the Mezzanine Warrant Stock (determined without
taking into account any shares of Common Stock previously sold to the public in
a public offering) that the Company file a registration statement under the Act
covering the registration for the offer and sale of all or part of the Mezzanine
Warrant Stock (determined without taking into account any shares of Common Stock
previously sold to the public in a public offering) (a "Mezzanine Demand
Registration"), then the Company shall promptly notify in writing all other
Holders of Registrable Securities (including other Mezzanine Warrant Holders) (a
"Company Mezzanine Demand Notice").
(b) Other Demand. If the Company shall receive a
written request from Holders of more than fifty percent (50%) of the Registrable
Securities other than the Mezzanine Warrant Stock, that the Company file a
registration statement under the Act covering the registration for the offer and
sale of all or part of such Holders' Registrable Securities (a "Non-Mezzanine
Demand Registration"), then the Company shall promptly notify in writing all
other Holders of Registrable Securities (including the Mezzanine Warrant
Holders) of such request (the "Company Non-Mezzanine Demand Notice"). Upon
receipt of the Company Non-Mezzanine Demand Notice, the Mezzanine Warrant
Holders holding more than sixty-six and two-thirds percent (66.67 %) of the
Mezzanine Warrant Stock (determined without taking into account
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any shares of Common Stock previously sold to the public in a public offering)
shall be entitled to render such demand for a Non-Mezzanine Demand Registration
ineffective, null and void by making a demand for registration under subsection
(a) of this Section 2 for a Mezzanine Demand Registration within thirty (30)
days after the Company Non-Mezzanine Demand Notice is given. In such event, (i)
the preempted Non-Mezzanine Demand Registration shall be treated for all
purposes, including for purposes of Section 2(d) hereof, as if it had never been
made, (ii) the Company shall give a Company Mezzanine Demand Notice to other
Holders contemplated by Section 2(a) (with all notices previously given by other
Holders in connection with such Non-Mezzanine Demand Registration pursuant to
Section 2(c) being void), and (iii) Holders other than the Mezzanine Warrant
Holders shall not be entitled to make a demand under this Section 2(b) until the
Mezzanine Demand Registration shall have been completed or abandoned and all
waiting periods required by this Agreement shall have been complied with.
(c) Procedure. Each request for a Mezzanine Demand
Registration or a Non-Mezzanine Demand Registration shall specify the number of
shares of Registrable Securities requested to be sold. Within thirty (30)
calendar days after a Company Mezzanine Demand Notice or Company Non-Mezzanine
Demand Notice has been given, any other Holder (a "Demand Piggybacker") may give
written notice to the Company of its intent to include its Registrable
Securities in the registration (including without limitation any Holder whose
demand is preempted under Section 2(b) above). As soon as practicable after the
expiration of such thirty (30) day period, the Company shall cause all
Registrable Securities that Holders have requested be registered to be
registered under the Act, subject to the limitations contained in this
Agreement.
(d) Number of Demands. Subject to the provisions of
Section 8 below, demand not be made unless the reasonably anticipated price to
the public of such public offering would exceed Five Million Dollars
($5,000,000), (ii) may be made under Section 2(a) hereof a total of one (1) time
and (iii) may be made under Section 2(b) hereof a total of two (2) times. An
effective Demand Registration will not count as a Demand Registration for
purposes of the preceding sentence if (a) the Holders whose Registrable
Securities are to be included in such registration have not registered for sale
at least seventy percent (70%) of the Registrable Securities requested to be
registered in the registration statement for such registration by such Holders,
or (b) the Holders have withdrawn their request for Demand Registration and have
paid all fees and expenses as provided in Section 8 hereof.
(e) Delay of Registration. If at the time of any
request to register Registrable Securities pursuant to Section
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2(a) or (b) the Company is preparing or within thirty (30) days thereafter
commences to prepare a registration statement for a public offering (other than
a registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable) which in fact is
filed and becomes effective within (90) days after the request, or is engaged in
any activity which, in the good faith determination of the Company's board of
directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of four (4) months from
the date of such request to register Registrable Securities, such right to delay
a request to be exercised by the Company not more than once in any one (1) year
period. Nothing in this Section 2(e) shall preclude a holder of Registrable
Securities from enjoying registration rights which it might otherwise possess
under Section 3 hereof.
3. Piggyback Registration. Subject to Section 9, if
at any time the company proposes to register any of its equity securities under
the Act, either for its own account or for the account of others (unless already
covered by Section 2 hereof) or pursuant to a request under Section 4 hereof, in
connection with the public offering of such equity securities solely for cash,
on a registration form that would also permit the registration of Registrable
Securities (other than registration statement on Form S-8 or any successor form,
or a registration in connection with any stock option, stock purchase or other
benefit plan or for the purpose of offering such securities to another business
entity or the shareholders of such entity in connection with the acquisition of
assets or shares of capital stock, respectively, of such entity), the Company
shall, each such time, promptly give each Holder written notice of such proposal
(a "Piggyback Registration Notice"). Within thirty (30) days after the piggyback
Registration Notice is given, the Holders shall give notice as to the number of
shares of Registrable Securities, if any, which such Holders request be
registered simultaneously with such registration by the Company ("Piggyback
Registration"). The Company shall use its best efforts to include any
Registrable Securities in such registration statement (or in a separate
registration statement concurrently filed) which the Holders thereof request to
be so included and to cause such registration statement to become effective with
respect to such Registrable Securities in accordance with the registration
procedures set forth in Section 5 hereof. Notwithstanding the foregoing, if at
any time after giving written notice of its intention to register equity
securities and before the effectiveness of the registration statement filed in
connection with such registration, the Company determines for any reason either
not to effect such registration or to delay such registration, the Company may,
at its election, by delivery of prior written notice to each Holder, (i) in the
case of a determination not to effect
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registration, relieve itself of its obligation to register the Registrable
Securities in connection with such registration or (ii) in the case of a
determination to delay registration, delay the registration of such Registrable
Securities for the same period as the delay in the registration of such other
equity securities. Each Holder requesting inclusion in a registration pursuant
to this Section 3 may, at any time before the effective date of the registration
statement relating to such registration, revoke such request by delivering
written notice of such revocation to the Company (which notice shall be
effective only upon receipt by the Company, notwithstanding the provisions of
Section 17 hereof); provided, however, that if the Company, in consultation with
its financial and legal advisors, determines that such revocation would require
a recirculation of the prospectus contained in the registration statement, then
such Holder shall have no right to revoke its request.
4. Registrations on Forms S-2 and S-3. After the conclusion by the
Company of an initial public offering of its Common Stock (which for purposes
hereof shall include any Registrable Securities sold pursuant to Section 2
above) pursuant to a registration under the Act, at such time as the Company
shall have qualified for the use of Forms S-2 and/or S-3 (as the case may be),
or any similar form or forms promulgated by the Commission, the Holders of
Registrable Securities shall each have the right to request an unlimited number
of registrations on Form S-2 and/or Form S-3 (as the case may be). Any such
request shall be in writing, shall specify the Registrable Securities intended
to be sold or disposed of by the Holders thereof, shall state the intended
method of disposition of such Registrable Securities by the Holder(s) requesting
such registration and shall relate to Registrable Securities (i) in an amount
exceeding two percent (2%) of all shares of Common Stock then outstanding, or
(ii) having proposed gross cash offering proceeds (prior to deduction of
underwriters commissions and expenses, if any) of Two Million Dollars
($2,000,000) or more for all Registrable Securities to be included, on the basis
of a reasonable (in light of the current market price) proposed per share
offering price. The Company shall be obligated to effect such registration or
registrations on Form S-2 or Form S-3 (as the case may be) as soon as
practicable after receipt of such a request; provided, however, that the Company
shall not be obligated to effect the filing of a registration pursuant to this
Section 4 (i) during the period starting with the date ninety (90) days prior to
the Company's estimated date of filing of, and ending on a date one hundred
eighty (180) days following the effective date of, a registration statement
pertaining to a public offering of Common Stock for the account of the Company,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that, in
the good faith judgment of the Company's underwriter for an underwritten
offering or of the Company's Board of Directors for any other
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offering, an offering pursuant to such a registration statement would interfere
in any material respect with the successful marketing (including pricing) of the
Common Stock to be included in the Company's proposed registration statement, or
(ii) if the Company's Board of Directors shall determine in good faith that such
filing will interfere in any material respect with a pending or contemplated
financing, merger, sale or assets, recapitalization or other similar corporate
action of the Company. In the event the Company's obligations are abated
pursuant to the foregoing proviso, and if any of the Holders on whose behalf the
requested registration statement would be filed and who were unable to have all
of the Registrable Securities included in the Company's registration statement
pursuant to Section 3 then want such registration statement to be filed, the
Company shall file such registration statement as promptly as practicable
following (x) one hundred eighty (180) days after the effective date of the
registration statement with respect to the offering referred to in clause (i)
above, or (y) the date on which the transactions referred to in clause (ii)
above shall have been completed or abandoned as the case may be); provided
further, however, that the Company shall not be obligated to file and cause to
become effective (a) more than two (2) registrations on Forms S-2 and/or S-3 in
any one twelve (12) month period or (b) any registration on Form S-2 and/or S-3
within six (6) months after the effective date of any previous registration
statement filed under Section 2 or Section 3, with respect to which all Holders
who had requested the inclusion of any such shares in a registration statement
were entitled to include in such registration statement all Registrable
Securities requested to be included therein. No registration pursuant to this
Section 4 shall count as a Demand Registration pursuant to Section 2.
5. Obligation of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use its best efforts to cause such
registration statement to be declared effective by the Commission and to keep
such registration effective until the earlier of (i) the date when all
Registrable Securities covered by the registration statement have been sold or
(ii) in the case of a registration under Section 2 or 3 hereof, nine (9) months
after the effective date of the registration statement or prospectus or any
amendments or supplements thereto, or (iii) in the case of a shelf registration,
the applicable period permitted under the Act. The Company will furnish to each
Holder of Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed
(excluding exhibits, unless any such person shall specifically request
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exhibits), which documents will be subject to the review (for a reasonable
Period of time in light of all facts and circumstances) of each Holder and the
underwriters, and the Company will not file such registration statement or any
amendment thereto or any prospectus or any Supplement thereto including any
documents incorporated by reference therein) with the Commission if (i) the
Holders of a majority of the Registrable Securities covered by such registration
statement or the underwriters, if any, shall reasonably object to such filing or
(ii) information in such registration statement or prospectus concerning a
particular Registered Holder is inaccurate.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be necessary to
keep such registration statement effective until the earlier of the dates
referred to in clauses (i) and (ii) of Section 5(a) hereof and to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed with the commission pursuant to Rule 424 under the Act.
(c) Furnish to the Registered Holders such number of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), each supplement
thereto and such other documents, as they may reasonably request in order to
facilitate the disposition of Registered Securities owned by them.
(d) Use its best efforts to register and qualify the Registered
Securities under such other securities laws of such jurisdictions as shall be
reasonably requested by any Registered Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable each Registered
Holder to consummate the disposition of the Registered Securities owned by such
Holder in such jurisdictions; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify generally to transact
business in any such states or jurisdictions; and provided further that
(anything in this Agreement to the contrary notwithstanding with respect to the
bearing of expenses) if any jurisdiction in which the Registered Securities
shall be qualified shall require that expenses incurred in connection with the
qualification of the Registered Securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by the Registered
Holders pro rata, to the extent required by such jurisdiction.
(e) Promptly notify each Registered Holder at any time when a
prospectus is required to be delivered under the Act
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relating to the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will promptly
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registered Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(f) Make available for inspection by any Registered Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
Registered Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company to supply all
information reasonably requested by any such Registered Holder, underwriter,
attorney, accountant or agent in connection with such registration statement,
which information shall be subject to reasonable restrictions concerning
confidentiality and non-disclosure.
(g) Promptly notify the Registered Holders and the underwriters, if
any, of the following events and (if requested by any such person) confirm such
notification in writing and provide copies of any relevant documents relating
to: (1) the filing of the prospectus or any prospectus supplement and the
registration statement and any amendment or Post-effective amendment thereto
and, with respect to the registration statement and any amendment or
post-effective amendment thereto, the declaration of the effectiveness of such
documents, (2) any comment letters from or requests by the Commission for
amendments or supplements to the registration statement or the prospectus or for
additional information, (3) the issuance or threat of issuance by the Commission
of any stop order suspending the effectiveness of the registration statement or
the initiation of any proceedings for that purpose and (4) the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registered Securities for sale in any jurisdiction or the initiation or
threat of initiation of any proceeding for such purpose.
(h) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and obtain the
withdrawal of any such order, if entered.
(i) If reasonably requested by any underwriter or a Registered
Holder in connection with any underwritten offering,
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incorporate in a prospectus supplement or post-effective amendment such
information as the underwriters and the Holders of a majority of the Registered
Securities agree should be included therein relating to the sale of the
Registered Securities, including, without limitation, information with respect
to the number of Registered Securities being sold to such underwriters, the
purchase price being paid therefor by such underwriters and any other terms of
the underwritten offering of the Registered Securities to be sold in such
offering, and make all required filings of such Prospectus Supplement or
Post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment.
(j) Cooperate with the Registered Holders and the underwriters, if
any, to facilitate the timely preparation and delivery of certificates
evidencing Registered Securities and not bearing any restrictive legends, and
enable such Registered securities to be in such lots and registered in such
names as the underwriters may request at least two (2) business days prior to
any delivery of Registered Securities to the underwriters.
(k) Provide a transfer agent, registrar and CUSIP number for all
Registrable Securities not later than the effective date of the registration
statement.
(l) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of any underwritten
offering, (i) make such representations and warranties to the Registered Holders
and the underwriters, if any, with respect to the Registered Securities and the
registration statement as are customarily made by issuers to underwriters in
primary underwritten offerings; (ii) obtain opinions of counsel to the Company
and updates thereof (which opinions shall be reasonably satisfactory to the
underwriters, if any, and to the Holders of a majority of the Registered
Securities) addressed to each Registered Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Holders
and underwriters or their counsel; (iii) obtain "cold comfort" letters and
updates thereof from the Company,s independent certified public accountants
addressed to the Registered Holders and the underwriters, if any, such letters
to be in customary form and covering matters of the type customarily covered in
*cold comfort" letters by underwriters in connection with primary underwritten
offerings; and (iv) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registered Securities being sold
and by the underwriters, if any, to evidence compliance with clause (i) above
and with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company.
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(m) Enter into such agreements and take all such other reasonable
actions in connection therewith in order to expedite or facilitate the
disposition of such Registered Securities and in such connection, in the case of
an underwritten offering, enter into an underwriting agreement or other similar
agreement in form, scope and substance as is customary in underwritten offerings
which underwriting agreement shall set forth in full the indemnification
provisions and procedures of Section 13 hereof with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent required
thereunder.
(n) Use its best efforts to cause all Registered Securities included
in such registration statement to be listed, by the date of first sale of
Registered Securities pursuant to such registration statement, on each
securities exchange on which shares of Common Stock are then listed or proposed
by the Company to be listed, if any.
(o) Provide such reasonable assistance in the marketing of the
Registered Securities as is customary of issuers in public offerings (including
participation by its senior management in "road shows"), subject to reasonable
time and expense constraints.
(p) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders earnings statements satisfying the provisions of Section 11(a)
of the Act, no later than forty-five (45) days after the end of any twelve (12)
month period (i) commencing at the end of any fiscal quarter in which Registered
Securities are sold to underwriters in a firm or best efforts underwritten
offering, or (ii) if not sold to underwriters in such an offering, beginning
with the first day of the first fiscal quarter of the Company commencing after
the effective date of the registration statement.
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 Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such Registrable Securities as the Company shall reasonably request and as shall
be required in connection with the action to be taken by the Company.
7. Suspension of Disposition of Registrable Securities. Each Registered
Holder agrees that, upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 5(e) or 5(g)(3) or (4) hereof,
such Registered Holder will forthwith discontinue disposition of
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<PAGE> 15
Registered Securities until such Registered Holder's receipt of copies of a
supplemented or amended prospectus contemplated by Section 5(e) hereof, or until
it is advised in 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 which are incorporated by reference in the prospectus, and,
if so directed by the Company, such Registered Holder will deliver to the
Company (at the expense of the company) all copies, other than permanent file
copies then in such Registered Holder's possession, of the prospectus covering
such Registered Securities at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period mentioned in Section
5(a) hereof 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 5(e) or
5(g)(3) or (4) hereof to and including the date when each Registered Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 5(e) hereof or the Advice.
8. Expenses of Registration.
(a) Except as provided in Section 8(b) through 8(d)
hereof, all expenses incurred in connection with a registration pursuant to
Sections 2, 3 or 4 (excluding underwriters' discounts and commissions),
including, without limitation all registration and qualification fees, fees and
disbursements of counsel for the Company, and, the reasonable fees and
disbursements of one (1) counsel chosen by the Registered Holders owning a
majority of the Registered Securities (or by the Registered Holders owning a
majority of the Mezzanine Warrant Stock constituting Registered Securities in
the case of a Mezzanine Demand Registration) shall be borne by the Company.
(b) If a registration proceeding is begun under
Section 2 but subsequently withdrawn at the request of the Registered Holders
owning a majority of the Registered Securities (or at the request of Registered
Holders owning a majority of the Mezzanine Warrant Stock constituting Registered
Securities in the case of a Mezzanine Demand Registration) such Registered
Holders shall have the option (exercisable by Registered Holders owning a
majority of the Registered Securities, or a majority of the Mezzanine Warrant
Stock constituting Registered Securities in the case of a Mezzanine Demand
Registration) of either (i) reserving their right to such Demand Registration
pursuant to Section 2, in which case the Registered Holders will pay all
expenses of such registration proceeding, or (ii) waiving their right to one (1)
Demand Registration under Section 2 (Section 2(a) if the registration proceeding
originated with a demand under Section 2(a) hereof), in which case the Company
will pay the expenses of such registration proceeding.
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<PAGE> 16
(c) Registered Holders may withdraw a request made
within forty-five (45) days after the end of the fiscal year if the audited
financial statements of the Company for such year and at such year-end
materially and adversely differ from the financial information furnished to such
Holders by the Company at the time of their request, in which event such
Registered Holders shall not be required to pay any of the expenses of such
withdrawn registration and such withdrawn registration shall be treated for all
purposes of this Agreement, including without limitation Section 2(d) hereof, as
if it had never occurred.
(d) All expenses incurred in connection with a
registration which are, under this Section 8. to be borne by Registered Holders
shall be borne pro rata by the Registered Holders on the basis of the number of
such Holder's Registered Securities (or Registrable Securities proposed to be
registered, as the case may be); Provided, however, that if any such cost or
expense is attributable solely to one Registered Holder and does not constitute
a normal cost or expense of such a registration, such cost or expense shall be
allocated to and borne by that Registered Holder.
9. Underwriting Requirements: Priorities.
(a) (i) With respect to a Mezzanine Demand
Registration pursuant to Section 2(a), the Registered Holders owning a majority
of the Mezzanine Warrant Stock included in the registration shall have the right
to select the investment banker(s) and manager(s), if any, to administer such
registration, subject to the approval of the Company, which will not be
unreasonably withheld. With respect to a Non-Mezzanine Demand Registration
pursuant to Section 2(b), the Registered Holders owning a majority of the
Registered Securities shall have the right to select the investment banker(s)
and manager(s) to administer such registration, subject to the approval of the
Company, which will not be unreasonably withheld.
(ii) The Registered Holders owning a majority of the
Registered Securities included in any registration under Section 4 shall have
the right to select the investment banker(s) and manager(s), if any, to
administer the offering, if any, subject to the approval of the Company, which
will not be unreasonably withheld.
(iii) The Company will have the right to select the
investment banker(s) and manager(s), if any, to administer any offering to which
Section 3 hereof is applicable.
(b) (i) if a registration under Section 2(a) hereof
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be registered by the
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<PAGE> 17
Mezzanine Warrant Holders and Demand Piggybackers exceeds the number of shares
which can be sold at the desired price in such offering, the Company will
include in such registration (i) first, the Mezzanine Warrant Stock demanded to
be registered under Section 2 (a) and the Mezzanine Warrant Stock held by Demand
piggybackers (pro rata among the Holders thereof based on the number of shares
of Mezzanine Warrant Stock such Holders have requested to be registered), (ii)
second, Registrable Securities other than Mezzanine Warrant Stock owned by
Demand Piggybackers (Pro rata among the Holders thereof on the basis of the
number of Registrable Securities such Holders have requested to be registered);
provided that, such aggregate Registered Securities shall not exceed the number
of Registrable Securities requested to be included which in the opinion of such
underwriters can be sold at the desired price.
(ii) If a registration under Section 2(b) hereof is
an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of shares of Common Stock requested to
be registered exceeds the number of shares which can be sold at the desired
price in such offering, then the Company will include in such registration
Registrable Securities owned by Holders requesting registration of Registrable
Securities with respect to such registration pro rata among such Holders on the
basis of the number of Registrable Securities such Holders have requested to be
registered; Provided that, such aggregate Registered Securities shall not exceed
the number of Registrable Securities requested to be included therein which in
the opinion of such underwriters can be sold at the desired price.
(iii) If a registration under Section 3 hereof is an
underwritten registration and the managing underwriters) advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell; (ii) second, the Registrable Securities
held by the Holders (other than Management Investors) requesting to be included
in such registration pursuant to Section 3 hereof (pro rata among the respective
Holders thereof on the basis of the number of Registered Securities such Holders
have requested to be registered); and (iii) third, the Registrable Securities
held by the Management Investors requesting to be included in such registration
pursuant to Section 3 hereof (pro rata among such Management Investors on the
basis of the number of Registered Securities such Management Investors have
requested to be registered).
(iv) If a registration under Section 4 hereof is an
underwritten offering and the managing underwriters advise
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<PAGE> 18
the Company in writing that in their opinion the number of Registrable
Securities requested to be registered exceeds the number of shares which can be
sold at the desired price in such offering, the.Company will include in such
registration the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold at the desired price.
Registrable Securities held by the Holders requesting to be included in such
registration shall be included Pro rata among the respective Holders thereof on
the basis of the number of Registrable Securities such Holders have requested to
be registered.
(c) Notwithstanding the priorities set forth in Section 9(b),
in the event Individual Investors request registration of Registrable Securities
under Sections 2(a) (as Demand Piggybackers), 2(b), 3 or 4 hereof, such
Management investors, or any one of them, shall be given priority over all other
holders of Registrable Securities (other than Mezzanine warrant Holders) to the
extent such priority is necessary to allow such Individual Investors to sell
enough Registrable Securities to qualify any redemption of other Company
securities from such Individual Investor occurring simultaneously with (or part
of a series of related transactions with) such offering for sale or exchange
treatment under Section 302(b)(2) of the Internal Revenue Code of 1986, as
amended; provided that the priority provided by this subparagraph (c) shall not
extend to Registrable Securities which constitute more than one and one-half
percent (1.5%) of the outstanding Common Stock of the Company at the time of
(and measured prior to) such redemption (the "Priority Inversion Percent"); and
provided further that the rights provided to Individual Investors pursuant to
this subparagraph (c) may be terminated by Holdings if Holdings shall, or shall
cause the Company to, purchase the Priority Inversion Percent from the
Individual Investor and thereby reduce the number of Individual Investors'
Registrable Securities requested to be registered.
(d) In the case of a non-underwritten Demand Registration, the
priorities provided in Section 9(b)(i) or (ii) shall apply in the event the
number of shares salable (in the opinion of the Board of Directors) is less than
the total number of Registrable Securities sought to be registered.
(e) No Holder may participate in any underwritten registration
hereunder unless such Holder (i) agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
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<PAGE> 19
(f) The Company shall not grant registration rights to any
person which impair in any way the priorities for inclusion in a registration
set forth in this Section 9, including, without limitation, by providing any
such person with higher priority than or equal priority to that provided to the
Parties herein with regard to any registration statement filed by be Company,
whether upon such person's demand or otherwise. In addition, in any demand
registration rights granted to any such person, the Company shall provide that
such demand registration rights shall be subject to a right of the Mezzanine
Warrant Holders to render such a demand thereunder ineffective by making demand
for registration under Section 2(a) of this Agreement in accordance with the
procedures set forth in Section 2(b) hereof. Notwithstanding anything to,the
contrary contained in this paragraph (f), nothing in this paragraph (f) shall
restrict the Company's ability to register on Form S-8 (or any successor form)
shares issuable upon exercise of options which may be granted pursuant to any
Stock Option Plan adopted by the Company after the date hereof, providing for
the issuance of shares of Common Stock to certain employees of the Company.
10. Rule 144.
(a) The Company shall not be obligated under Section
2, 3 or 4 hereof to register or include in any registration statement
Registrable Securities that any Holder has requested to be registered if the
Company shall furnish such Holder with a written opinion of counsel to the
Company, which opinion shall be reasonably satisfactory to such Holder, that all
Registrable Securities that such Holder holds may be publicly offered, sold and
distributed within a single ninety (90) day period without registration under
the Act pursuant to Rule 144 promulgated by the Commission under the Act;
provided, however, that the provisions of this Section 10(a) shall not apply if
such Holder requesting registration shall provide to the Company written advice
from a refutable investment banker reasonably satisfactory to such Holder and
the Company, that the per share price reasonably likely to be attainable in a
sale under Rule 144 (net of expenses of such sale) is not substantially as great
as the per share price reasonably likely to be attainable pursuant to a
Registration under the applicable section. The cost of obtaining a letter from
an investment banker containing such advice shall be borne by the Company.
(b) At such time as the Company becomes subject to
the reporting requirements of the 1934 Act, the Company will file the reports
required to be filed by it under the Act and the 1934 Act and the rules and
regulations adopted by the Commission thereunder, and will use its best efforts
to take such further action as any Holder of Registrable Securities may
reasonably deem to be necessary, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under the
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Act, as such Rule may be amended from time to time, or (ii) any similar rule or
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<PAGE> 20
regulation hereafter adopted by the Commission. Upon the request of any Holder
of Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such information and requirements.
11. Lockup Agreement.
(a) All Holders agree that, upon the request of and
to the extent required by the underwriter(s) managing (i) an initial
underwritten public offering of Common Stock, or (ii) any other registration of
Common Stock at the time of which such Holder is a Restricted Holder (as defined
in this section 11(a)), such Holders will not sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the Prior written consent o the Company or such underwriters), as the case may
be, during the seven (7) days prior to, and during the one hundred twenty (120)
day period beginning on, the effective date of such registration as the Company
or the underwriters) may specify. For purposes of this section 11(a),
"Restricted Holder shall mean any Holder who owns five Percent (5%) or more of
the then outstanding Common Stock ("5% Holder"), any director or officer of the
Company (without regard to his or her level of ownership of Common Stock), or
any Holder whose Registrable Securities are being included in the registration
(without regard to the amount of Registrable securities being registered): Any
lockup imposed on Holders pursuant to clause (i) of this Section 11(a) shall be
imposed on all Holders and any lockup imposed on Restricted Holders pursuant to
clause (ii) of this Section 11(a) shall be imposed on all Restricted Holders.
(b) The Company agrees (i) not to effect any public
sale or distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the seven (7)
days prior to and during the one hundred twenty (120) day period beginning on
the effective date of any registration statement related to an registered
underwritten public offering pursuant to which Registrable Securities are to be
sold (except as Part of such underwritten registration or pursuant to
registrations on Form S8 or any successor form), unless the underwriters)
managing the registered public offering otherwise agree, and (ii) to use its
best efforts to cause each holder of at least five percent (5%) (on a
fully-diluted basis) of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, in either case
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any sale or
distribution of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
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<PAGE> 21
12. Transfer of Registration Rights. Provided that the Company
is given written notice by the Holder at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to Which the rights under this Agreement are being assigned, the registration
rights under this Agreement may be transferred in whole or in part in connection
with the transfer of Registrable Securities. Notwithstanding the foregoing, if
such transfer is subject to covenants, agreements or other undertakings
restricting transferability thereof the registration rights under this Agreement
shall not be transferred in connection with such transfer unless such transfer
complies with all such covenants, agreements and other undertakings. In all
cases, such registration rights shall not be transferred unless the transferee
thereof executes a Counterpart.
13. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the full extent permitted by law, the Company will
and hereby does (i) indemnify and hold harmless each Holder, each director,
officer, partner, employee, or agent of or for such Holder, any underwriter (as
defined in the Act) for such Holder, and each person, if any, who controls such
Holder or underwriter within the meaning of the Act, against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act and applicable state securities laws insofar as such losses, claims,
damages or liabilities (or actions 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 in light of the circumstances under which it was
made or necessary to make the statements therein not misleading, or arise out of
any violation by the company of any securities law, rule or regulation
applicable to the Company and relating to action or inaction required of the
company in connection with any such registration; and (ii) will reimburse each
such person or entity for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 13(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 or
delayed) nor shall the Company be liable in any such case 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 an alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary Prospectus, final prospectus, or amendments or supplements
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<PAGE> 22
thereto in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of any
such Holder, underwriter or controlling person.
(b) To the full extent permitted by law, each Holder
requesting or joining in a registration under this Agreement will and hereby
does (i) indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, and any Underwriter (as
defined in the Act) for the Company, each other holder and each person, if any,
who controls such other Holder within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer, controlling person, other Holder or
underwriter may become subject, under the Act and applicable state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement 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 in
light of the circumstances, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
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 Holder expressly for use
in connection with such registration; and (ii) reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer, other
Holder, controlling person or underwriter attributable to investigating or
defending any loss, claim, damage, liability or action indemnified by such
Holder pursuant to clause (i); provided however, that the indemnity agreement
contained in this Section 13(b) 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 such Holder (which consent shall not be unreasonably
withheld or delayed).
In no event shall the liability of any Registered Holder be
greater than the dollar amount of the proceeds received by such Registered
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Promptly after receipt by an indemnified party under
this Section 13 of notice of the commencement of any action or knowledge of a
claim that would, if asserted, give rise to a claim for indemnity hereunder,
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 13, notify the indemnifying
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<PAGE> 23
party in writing of the commencement thereof or knowledge thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an indemnifying party
promptly of the commencement of any such action or of the knowledge of any such
claim, if prejudicial to any material extent to his ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 13 to the extent so prejudiced, but the
omission so to notify the indemnifying party will not relieve him of any
liability that he may have to any indemnified party otherwise than under this
Section 13.
(d) If the indemnification provided for in this Section 13
is for any reason, other than pursuant to the terms thereof, held to be
unavailable to an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the indemnifying and indemnified parties from the offering of Common Stock.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or otherwise results in a materially inequitable
result (as determined by the Board of Directors of the Company in its reasonable
discretion), then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying and indemnified parties in connection with the statements) or
omissions) which resulted in such losses, claims, damages, liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by a party shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by such party bears to the total net proceeds from
the offering received by all parties. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company or a Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation or by any
other method of allocation take into account the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed
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<PAGE> 24
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. 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.
14. Remedies. In addition to being entitled to exercise all
rights provided in this Agreement as well as all rights granted by law,
including recovery of damages, each Holder of Registrable Securities will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees not to raise the defense in any action for specific performance
that a remedy at law would be adequate.
15. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of all of
the Holders; provided, however, that any such waiver or consent will be
effective against any Holder actually executing a written waiver or consent
whether or not other Holders of the outstanding Registrable Securities grant
such waiver or consent.
16. Filing Notices and Copies. The Company shall provide to
each Holder of Registrable Securities such number of copies of any registration
statement, amendment thereto (including post-effective amendments) or other
report, document or notice that is filed with the Securities and Exchange
Commission or other authority under the securities laws, as may be reasonably
requested by such Holder of Registrable Securities. in addition, the Company
shall provide prior notice to any Holder of Registrable Securities of any such
filing of a registration statement or amendment thereto, provided that the
foregoing notice provision shall not shorten any other advance notice provision
contained in this Agreement.
17. Notices. All notices and other communications hereunder
shall be in writing and shall be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answerback
received) or courier services, charges prepaid, or by telecopier, to such
party's address (or to such party's telex, TWX, telecopier or telephone number).
If the notice is sent by mail, it shall be deemed to have been given to the
person entitled thereto five (5) business days after being deposited in the
United States mail, and if the notice is sent by telegraph or courier services,
it shall be deemed to have been given to the person entitled thereto one (1)
business day after deposited with a telegraph office or
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<PAGE> 25
courier service for delivery to that person or, in the case of telex, TWX, or
telecopy when dispatched.
If to Holdings, to:
Kirkland Holdings L.L.C.
101 Federal Street
Boston, MA 02110
Attention: David M. Mussafer
Telecopy No.: (617) 951-0566
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Julia D. Corelli, Esq.
Telecopy No.: (215) 981-4750
If to the Management Investors or any Company (including the
Representative), to:
Kirkland's, Inc.
P.O. Box 7222
Jackson, TN 38303-7222
Attention: Carl Kirkland
Telecopy No.: (901) 664-9345
With a copy to:
Baker, Donelson, Bearman & Caldwell
20th Floor
First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: Robert Walker, Esq.
Telecopy No.: (901)577-2303
If to Robert Kirkland, to:
CBK, Ltd.
600 East Sherwood
Union City, Tennessee 38261
Attention: Robert Kirkland
Telecopy No.: (901) 885-3857
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<PAGE> 26
With a copy to:
Wyatt, Tarrant & combs
6075 Poplar Avenue, Suite 650
Memphis, Tennessee 38119
Attention: Nash Neyland, Esquire
Telecopy No.: (901) 537-1010
If to Mezzanine Warrant Holders, to:
Capital Resource Lenders II, L.P.
85 Merrimac Street
Suite 200
Boston, MA 02114
Attention: Alexander S. McGrath
Telecopy No.: (617) 723-9819
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<PAGE> 27
Allied Capital Corporation
and
Allied Capital Corporation II
1666 K Street, N.W.
Suite 901
Washington, D.C. 20006
Attention: Susan Gallagher
Telecopy No.: (202) 659-2053
The Marlborough Capital Investment Fund, L.P.
399 Boylston Street
Boston, MA 02116
Attention: Margaret Laroix
Telecopy No.: (617)421-9631
Capital Trust Investments, Ltd.
575 Fifth Avenue, 40th Floor
New York, NY 10017
Attention: John P. Oswald
Telecopy No.: (212) 490-6950
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Andrew E. Taylor, Jr., Esquire
Telecopy No.: (617) 248-7100
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
18. 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.
19. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
20. Governing Law. This Agreement shall be governed by and
construes in accordance with the laws of the State of Delaware.
21. 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 imp herein shall not be affected or impaired thereby.
-26-
<PAGE> 28
22. Entire Agreement. This 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 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 Registrable Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
23. Parties Benefitted. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities.
24. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns including, without limitation,
subsequent Holders of Registrable Securities agreeing to be bound by all and the
terms and conditions of this Agreement.
[SPACE INTENTIONALLY LEFT BLANK]
-27-
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this
Shareholders Agreement under seal on the date first above written.
CAPITAL RESOURCE LENDERS II, L.P., by
CAPITAL RESOURCE PARTNERS II, L.P., its
General Partner
By: /s/ Robert C. Ammerman
-----------------------------------
Title: General Partner
ALLIED CAPITAL CORPORATION
By: /s/ Susan Gallagher
-----------------------------------
Title: SVP
--------------------------------
ALLIED CAPITAL CORPORATION II
By: /s/ Susan Gallagher
-----------------------------------
Title: SVP
--------------------------------
THE MARLBOROUGH CAPITAL INVESTMENT FUND,
L.P., by MARLBOROUGH CAPITAL MANAGEMENT,
L.P., its general partner,
By: /s/ Margaret Lanoix
-----------------------------------
Name: Margaret Lanoix, its authorized
partner
CAPITAL TRUST INVESTMENTS, LTD.
By: /s/ John Oswald
-----------------------------------
Title: Attorney-in-fact
-------------------------------
KIRKLAND HOLDINGS L.L.C.
By:/s/ David M. Mussafer
-----------------------------------
Title:
--------------------------------
ATTEST: KIRKLAND'S, INC.
By: /s/ Robert S. Alderson By: /s/ Carl Kirkland
----------------------- -------------------------------------
Title: VP/Sec Title: President
-------------------------------
-28-
<PAGE> 30
Corporate Name
--------------
101 Kirkland's of Carolina, Inc.
102 Kirkland's of Charlotte, Eastland Mall, Inc.
103 Kirkland's of Tennessee, Inc.
104 K. C. Corp, Inc.
107 Kirkland's of Greensboro, Four Seasons Mall, Inc.
109 Kirkland's of Fayetteville, Cross Creek Mall, Inc.
110 Kirkland's of Wilmington, Independence Mall, Inc.
111 Kirkland's III, Jackson-Metro Center, Inc.
114 Kirkland's of Memphis, TN, Laurelwood Shopping Center, Inc.
115 Kirkland's of Ridgeland, MS, Northpark Mall, Inc.
116 Kirkland's of Knoxville, East Towne Mall, Inc.
117 Kirkland's of Huntsville, Madison Square Mall, Inc.
118 Kirkland's of Valley View Mall, Roanoke, VA, Inc.
119 Kirkland's of Nashville, Hickory Hollow Mall, Inc.
120 Kirkland's of Birmingham, Riverchase Galleria, Inc.
121 Kirkland's of Chattanooga, Eastgate Center Mall, Inc.
122 Kirkland's of Briarcliffe Mall, Myrtle Beach, South Carolina, Inc.
123 Kirkland's of Pecanland Mall, Monroe, LA, Inc.
125 Kirkland's of Towne Center at Cobb, Kennesaw, GA, Inc.
126 Kirkland's of Gwinnett Place, Duluth, GA, Inc.
127 Kirkland's of Rivergate Mall, Nashville, TN, Inc.
128 Kirkland's of Peachtree Mall, Columbus, GA, Inc.
129 Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
130 Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
131 Kirkland's of Houston Galleria, Houston, TX, Inc.
132 Kirkland's of Mall of Memphis, Memphis, TN, Inc.
134 Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
135 Kirkland's of Dayton Mall, Dayton, OH, Inc.
136 Kirkland's of Oxmoor Center, Louisville, KY, Inc.
137 Kirkland's of South Square Mall, Durham, NC, Inc.
138 Kirkland's of Valley View Center, Dallas, TX, Inc.
139 Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
140 Kirkland's of Park Plaza, Little Rock, AR, Inc.
141 Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
142 Kirkland's of Southlake Mall, Atlanta, GA, Inc.
143 Kirkland's of Southpark Mall, Richmond, VA, Inc.
144 Kirkland's of Eastland Mall, Evansville, IN, Inc.
145 Kirkland's of Fayette Mall, Lexington, KY, Inc.
146 Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
148 Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
149 Kirkland's of McCain Mall, Little Rock, AR, Inc.
150 Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
151 Kirkland's of Bel Air Mall, Mobile, AL, Inc.
152 Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
153 Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
154 Kirkland's of Bellevue Center, Nashville, TN, Inc.
155 Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
156 Kirkland's of The Mall of the Avenues, Jacksonville, FL,
Inc.
157 Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
158 Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
159 Kirkland's of Carolina Place, Charlotte, NC, Inc.
-29-
<PAGE> 31
# Corporate Name
- - --------------
160 Kirkland's of Cary Village Mall, Raleigh, NC, Inc.
161 Kirkland's of CoolSprings Galleria, Nashville, TN, Inc.
162 Kirkland's of Kenwood Town Center, Cincinnati, OH, Inc.
163 Kirkland's of Saint Louis Galleria, St. Louis, MO, Inc.
164 Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
166 Kirkland's of Florace, Florace, KY, Inc.
167 Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
168 Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
169 Kirkland's of Belden Village, Canton, OH, Inc.
170 Kirkland's of West Oaks Mall, Houston, TX, Inc.
171 Kirkland's of Charleston Towne Center, Charleston, W.VA,
Inc.
172 Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
173 Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
174 Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
175 Kirkland's of Baybrook Mall, Houston, TX, Inc.
176 Kirkland's of Governor's Square, Tallahassee, FL, Inc.
178 Kirkland's of Barton Creek Mall, Austin, TX, Inc.
179 Kirkland's of Highland Mall, Austin, TX, Inc.
180 Kirkland's of Battlefield Mall, Springfield, MO, Inc.
181 Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
182 Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
183 Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
184 Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
185 Kirkland's of Oakwood Center, New Orleans, LA, Inc.
186 Kirkland's of The Mall at Johnson City, Johnson City, TN,
Inc.
187 Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
188 Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
189 Kirkland's of Northpark Mall, Joplin, MO, Inc.
190 Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
191 Kirkland's of The Mall at Fairfield Commons, Dayton, OH,
Inc.
192 Kirkland's of St. Charles Towne Center, Waldorf, MD Inc.
193 Kirkland's of Regency Mall, Florence, AL, Inc.
194 Kirkland's of South Plains Mall, Lubbock, TX, Inc.
195 Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
196 Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
197 Kirkland's of St. Clair Square, St. Louis, MO, Inc.
198 Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
199 Kirkland's of The Woodlands, Houston, TX, Inc.
200 Kirkland's of Brandon Town Center, Tampa, FL, Inc.
201 Kirkland's of Memorial City Mall, Houston, TX, Inc.
202 Kirkland's of University Mall, Tuscaloosa, AL, Inc.
203 Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
204 Kirkland's of Panama City Mall, Panama City, FL, Inc.
205 Kirkland's of Town East Mall, Mesquite, TX, Inc.
206 Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
207 Kirkland's of Crabtree Valley Mall, Raleigh, NC, Inc.
208 Kirkland's of Oak Hollow Mall, High Point, NC, Inc.
209 Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
210 Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
-30-
<PAGE> 32
# Corporate Name
- --- --------------
212 Kirkland's of Orland Square, Chicago, IL, Inc.
214 Kirkland's of Coastland Mall, Naples, FL, Inc.
215 Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
216 Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
217 Kirkland's of Castleton Square, Indianapolis, IN., Inc.
218 Kirkland's of Cordova Mall, Pensacola, FL, Inc.
219 Kirkland's of University Park, South Bend, IN, Inc.
220 Kirkland's of Westgate Mall, Amarillo, TX, Inc.
221 Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
222 Kirkland's of Meridian Mall, Lansing, MI, Inc.
223 Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
224 Kirkland's of University Mall, Tampa, FL, Inc.
By: /s/ Carl Kirkland
-------------------------------
Title: President
-------------------------------
ATTEST:
By: /s/ Robert E. Alderson
-------------------------------
Title: VP/Sec
-------------------------------
-31-
<PAGE> 33
/s/ Carl Kirkland
-----------------------
Carl Kirkland
/s/ Robert Kirkland
-----------------------
Robert Kirkland
/s/ Bruce Moore
-----------------------
Bruce Moore
/s/ Robert Alderson
-----------------------
Robert Alderson
[END OF SIGNATURES]
-32-
<PAGE> 34
Exhibit A
COUNTERPART
THIS INSTRUMENT forms part of the Registration Rights Agreement (the
"Agreement") made as of the 11th day of June, 1996, among Kirkland Holdings
L.L.C., Kirkland's, Inc., affiliates of Kirkland's, Inc., Carl Kirkland, Robert
Kirkland, Bruce Moore, Robert Alderson, Capital Resource Lenders II, L.P.,
Allied Capital Corporation, Allied Capital Corporation II, The Marlborough
Capital Investment Fund, L.P. and Capital Trust Investments, Ltd., and any
additional Shareholders of the Companies (as defined in the Agreement), from
time to time, which Agreement permits execution by counterpart. The undersigned
hereby acknowledges having received a copy of the said Agreement (which is
annexed hereto as Schedule I) and having read the said Agreement in its
entirety, and for good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, hereby agrees that the terms and conditions of
the said Agreement shall be binding upon the undersigned as a Shareholder and
such terms and conditions shall inure to the benefit of and be binding upon the
undersigned and its successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
___ day of _________, 199__.
-------------------------
(Signature of Shareholder)
-------------------------
(Name in block letters)
33
<PAGE> 1
EXHIBIT 10.5
KIRKLAND'S, INC.
P.O. Box 7222
Jackson, TN 38303-7222
June 12, 1996
Mr. Robert E. Kirkland
CBK, Ltd.
600 East Sherwood
Union City, Tennessee 38261
Dear Mr. Kirkland:
In recognition of your contribution to the growth and success of
Kirkland's, Inc. and its related companies (the "Company"), we are pleased to
offer to retain you ("Consultant") as a consultant to the Company, subject to
the following terms of this letter agreement (the "Agreement").
1. Term and Duties. The term of this agreement shall commence on the
date hereof and expire on the seventh anniversary of the date hereof (the
"Term"). During the Term, Consultant shall provide consulting services and
advice to the Company, with regard to the purchasing and marketing of
merchandise, leasing, store selection and location, operations, internal
management, and such other areas as may be mutually agreed between the Company
and Consultant, as shall be directed from time to time by the Company's Board of
Directors or the President of the Company (the "Consulting Services"). Any
out-of-town travel required in connection with the performance of the Consulting
Services shall be scheduled so as not to interfere with other scheduled
obligations of Consultant.
2. Independent Contractor Status. Nothing herein shall be construed
as evidence of an employment relationship between the Company and Consultant.
Consultant shall be treated as an independent contractor for all purposes,
including without limitation, federal, state and local withholding, employment
and payroll tax purposes.
3. Consulting Fee. The Company shall pay Consultant, and Consultant
hereby agrees to accept, as compensation for the Consulting Services rendered
hereunder, an annual consulting fee during the Term of $679,000 (the "Consulting
Fee") commencing on the date hereof. The Consulting Fee shall be payable in
annual installments of $679,000 on April 15 of each year during the Term (each,
a "Consulting Payment"). The first Consulting Payment,
<PAGE> 2
payable on April 15, 1997, shall be equal to a prorated portion of $679,000
based on the number of days between the date hereof and April 15, 1997.
4. Expenses. The Company shall reimburse Consultant for all
pre-approved expenses incurred in connection with the performance of the
Consulting Services.
5. Confidential Information. Consultant agrees that, during and after
the Term, Consultant shall keep secret and retain in strictest confidence, and
shall not use for Consultant's benefit or the benefit of others any proprietary,
confidential or secret matters relating to the Company including, without
limitation, financial information, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of manufacture,
technical processes, designs and design projects, inventions and research
projects of the Company, its affiliates or any other entity which may hereafter
become an affiliate thereof, learned, acquired or developed by Consultant while
retained by the Company.
6. Termination.
6.1. Change in Control, etc. Upon the occurrence of a Change in
Control, Qualified Public Offering, Sale or Refinancing (such terms being used
herein as they are defined in the Recapitalization Agreement dated April 26,
1996 among the Company, Kirkland Holdings L.L.C. and the Company's former
majority shareholders, including Consultant (the "Recapitalization Agreement"))
during the Term, this Agreement shall terminate and Consultant shall be paid a
pro-rated portion of the applicable Consulting Payment through such termination
date.
6.2. Death or Disability. In recognition of Consultant's past
services to the Company, the Consulting Payments provided for hereunder shall
continue to be made to Consultant or his estate notwithstanding the death or
disability of Consultant during the Term, subject to early termination as
provided in Section 6.1.
6.3. Continuing Obligation. The Company's obligation to pay the
compensation to Consultant under this Agreement may be terminated only as
provided in Section 6.1, and shall not be terminated for any other reason.
2
<PAGE> 3
7. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Consultant and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Consultant nor the Company may make any assignments of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other party, except that, without such consent,
the Company may assign this Agreement to any successor to all or substantially
all of its assets and business by means of liquidation, dissolution, merger,
consolidation, transfer of assets, or otherwise.
8. Subordination. The obligations of the Company set forth in this
letter agreement with respect to the Consulting Fee are intended to be and are
subordinated in all respects to the Bank Debt and Mezzanine Debt, as such terms
are defined in the Recapitalization Agreement. In the event that any payment of
the Annual Salary is deferred by reason of this Section 8, payment shall be made
to Consultant as soon as allowable under the terms of the Bank Debt and
Mezzanine Debt and the payment shall be increased by nine percent (9%) per
annum, compounded semi-annually from the date originally due until the date
paid. Except as otherwise required by law, the Company agrees not to treat the
Consultant for any purpose as having received any payment of compensation any
earlier than the date actually paid to the Consultant by cash or check if the
Consultant's compensation is reduced because of subordination under this Section
8 or because of any other reason whatsoever.
9. Notice. Any notice or communication required or permitted under
this Agreement shall be made in writing and (i) sent by overnight courier, (ii)
mailed by certified or registered mail, return receipt requested or (iii) sent
by telecopier, addressed to the addresses of the parties set forth herein (and,
in the case of the Company, with a copy to Pepper, Hamilton & Scheetz, 3000 Two
Logan Square, 18th and Arch Streets, Philadelphia, PA 19103, Attention: Cary S.
Levinson, Esquire); or to such other address as either party may from time to
time duly specify by notice given to the other party in the manner specified
above.
10. Entire Agreement; Amendments. This Agreement contains the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the terms of this Agreement. This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the parties
hereto.
3
<PAGE> 4
11. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee. This provision shall survive
the termination of the Agreement.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
Please indicate your acceptance of this offer and your agreement
to render Consulting Services to the Company subject to the terms set forth
above by executing and returning the enclosed copy of this letter.
Sincerely,
ATTEST: KIRKLAND'S, INC.
By: /s/ Robert E. Alderson By: /s/ Carl Kirkland
------------------------- -------------------------
Title: VP/Sec Name:
Title: President
Agreed to and Accepted:
/s/ Robert E. Kirkland
- -----------------------------
Robert Kirkland
4
<PAGE> 1
EXHIBIT 10.6
KIRKLAND'S, INC.
P.O. Box 7222
Jackson, TN 38303-7222
June 12, 1996
Mr. Carl Kirkland
President
Kirkland's, Inc.
805 North Parkway
Jackson, Tennessee 38305
Dear Mr. Kirkland:
In recognition of your contribution to the growth and success of
Kirkland's, Inc. and its related companies (the "Company"), we are pleased to
offer to you ("Executive") continued employment with the Company as Chairman and
Chief Executive Officer, subject to the following terms of this letter agreement
(the "Agreement").
1. Term and Duties. Executive shall be employed for a term commencing
on the date hereof and expiring on the fourth anniversary of the date hereof
(the "Term"). During the Term, Executive shall devote his best efforts and
substantially all of his business time and services to the Company, subject to
the direction of and reporting to the Board of Directors of the Company (the
"Board").
2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and for the
Restrictive Covenants made by Executive in Section 6 hereof, an annual salary at
the rate of $987,500 (the "Annual Salary") commencing on the date hereof and
continuing until expiration or termination of the Term. The Annual Salary shall
be inclusive of all applicable income, social security and other taxes and
charges which are required by law to be withheld by the Company. The Annual
Salary will be paid in the following manner: (a) a minimum of $275,000 in 12
equal monthly installments in arrears and (b) $712,500 payable annually in
arrears on April 15 of each year. This minimum amount may be increased from time
to time by the approval of the Company's Board of Directors. The annual payment
to be made on April 15, 1997 shall be a prorated portion of $712,500 based on
the portion of a year which has elapsed from the Closing Date (as defined in the
Recapitalization Agreement, dated April 26, 1996 among the Company, Kirkland
Holdings L.L.C. and the Company's former
<PAGE> 2
majority shareholders, including Executive (the "Recapitalization Agreement")
through April 15, 1997. The annual payment to be made with respect to any period
during which the Term terminated prior to the applicable April 15 payment date
will be prorated based on the portion of a year which has elapsed from April 15
of the prior year until the termination or expiration of the Term.
3. Annual Bonus. Executive will be eligible to receive with respect
to each fiscal year of the Company during the Term (each, a "Fiscal Year")
commencing with the Fiscal Year ending December 31, 1996, a bonus ("Annual
Bonus") consisting of: (i) an annual performance bonus of either (A) $175,000.00
if the Company achieves at least ninety-five (95%) of its Performance Target (as
defined below), or (B) $175,000.00 multiplied by the product of (i) the actual
percentage of Performance Target achieved minus eighty-five (85%) percent, but
not less than zero, times (ii) ten (10); and (ii) up to an additional
$75,000.00, subject to the discretion of the Board, which may take performance
measures into consideration, including but not limited to team leadership, new
store openings, existing store performance and/or customer satisfaction. For
purposes of this Agreement, "Performance Target" means the Company's projected
annual operating profit, as established by the Board for each Fiscal Year during
the Term. The Annual Bonus shall be payable within 30 days after completion of
the audit of the Company's financial statements for the prior Fiscal Year.
4. Benefits. Executive shall be entitled to the benefits (the
"Benefits") set forth on Schedule A attached hereto.
5. Incentive Stock Options. Simultaneously with the execution of this
Agreement, the Company has granted stock options to Executive to purchase two
percent (2%) of the Company's common stock (determined on a fully diluted
basis), pursuant to and subject to the terms of the 1996 Incentive and
Non-Qualified Stock Option Plan of the Kirkland Companies adopted on the date
hereof by the Board of Directors of the Company, and further subject to the
terms and provisions contained in that certain Stock Option Agreement between
the Company and Executive.
6. Non-Compete; Confidentiality; Non-Solicitation.
6.1. Restrictive Covenants.
(a) Non-Compete. Executive shall not, during the Term and for
a period of three (3) years thereafter (the "Restricted Period"), in the United
States, Canada or any other place where the Company, its subsidiaries or
affiliates conduct business, directly or indirectly (except in Executive's
capacity as an officer of the Company or its subsidiaries or affiliates)
-2-
<PAGE> 3
do any of the following directly or indirectly without the prior written consent
of the Company:
(i) engage or participate in any business activity
competitive with the Company's business, or in any business activity which sells
to or supplies goods or products to a business that is competitive with the
Company's business, or in either case, the business of any of the Company's
subsidiaries or affiliates ("Competing Business"), as the same are conducted by
the Company or its subsidiaries or affiliates at any time during the Restricted
Period;
(ii) become interested in (as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any person, firm, corporation, association or other entity engaged in
any Competing Business. Notwithstanding the foregoing, Executive may hold up to
one percent (1%) of the outstanding securities of any class of any
publicly-traded securities of any company;
(iii) solicit or call on, either directly or indirectly, (A)
for purposes of selling goods or products competitive with goods or products
sold by the Company, any customer with whom the Company shall have dealt at any
time during the two year period immediately preceding the termination of
Executive's employment hereunder; or (B) any supplier with whom the Company
shall have dealt at any time during the two year period immediately preceding
the termination of Executive's employment hereunder;
(iv) except by reason of and in his capacity as an officer
of the Company, and in the best interests of the Company, directly or
indirectly, influence or attempt to influence any supplier, customer or
potential customer of the Company to terminate or modify any written or oral
agreement or course of dealing with the Company; or
(v) except by reason of and in his capacity as an officer
of the Company, and in the best interests of the Company, influence or attempt
to influence any person to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company, or
(ii) employ or retain, or arrange to have any other person or entity employ or
retain, any person who has been employed or retained by the Company as an
employee, consultant, agent or distributor of the Company at any time during the
one year period immediately preceding the termination of Executive's employment
hereunder.
-3-
<PAGE> 4
7. Termination.
7.1. Change in Control. Upon the occurrence of a Change in
Control, Qualified Public Offering, Sale or Refinancing (such terms being used
herein as defined in the Recapitalization Agreement) during the Term (or any
renewal of the Term), this Agreement shall terminate and the Executive and the
Company shall enter into a new employment agreement which shall be coextensive
with the remaining Term hereunder and which shall provide for an annual salary
at the rate of $275,000, a bonus equivalent to that provided for in Section 3
hereof, and a non-competition provision equivalent to that provided for in
Section 6 hereof which continues until three years following the end of the
remaining Term hereunder.
7.2. Disability. In the event of the disability of the Executive
during the Term (or any renewal of the Term), such that Executive is unable to
perform his duties and responsibilities hereunder to the full extent required by
this Agreement by reasons of illness, injury or incapacity for a period of more
than sixty (60) consecutive days or more than ninety (90) days, in the
aggregate, during any one hundred twenty (120) day period ("Disability"), the
Term will terminate and the Company will cease to pay the Annual Salary and
Bonus and will, in recognition of Executive's past services to the Company, pay
to Executive: (i) the sum of $712,500 per annum (prorated for any partial year)
until the seventh anniversary of the date of this Agreement; provided that such
annual payments shall terminate upon the occurrence of a Change in Control,
Qualified Public Offering, Sale or Refinancing and (ii) a pro rata portion of
his Annual Bonus for the Fiscal Year in which such termination occurs, if the
Performance Targets applicable to that Fiscal Year are achieved.
7.3. Death. In the event that Executive dies during the Term (or
any renewal of the Term), the Term will terminate and the Company will cease to
pay the Annual Salary and Bonus and will, in recognition of Executive's past
services to the Company, pay Executive's executors, legal representatives or
administrators: (i) a death benefit of $712,500 per annum (prorated for any
partial year) until the seventh anniversary of the date of this Agreement;
provided that such payments shall terminate upon the occurrence of a Change in
Control, Qualified Public Offering, Sale or Refinancing and (ii) a pro rata
portion of Executive's Annual Bonus for the Fiscal Year in which the
-4-
<PAGE> 5
death occurs, if the Performance Targets applicable to that Fiscal Year are
achieved.
7.4. Continuing Obligation. The Company's obligation to pay the
compensation to Executive under this Agreement may be terminated only to the
extent provided in Sections 7 and 8 of this Agreement, and shall not be
terminated for any other reason.
-5-
<PAGE> 6
Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.
Sincerely,
ATTEST: KIRKLAND'S, INC.
By: /s/ Illegible Signature By: /s/ Bruce Moore
------------------------- ---------------------------
Title: VP/Sec Name:
Title: V.P.
Agreed to and Accepted:
/s/ Carl Kirkland
- -----------------------------
Carl Kirkland
-6-
<PAGE> 7
SCHEDULE A
EMPLOYEE BENEFITS
1. Automobile. An allowance of $600 per month during the Term for an
automobile.
2. Life Insurance. The Company shall purchase term life insurance in the face
amount of $500,000.00 for Executive (with a person designated by Executive as
named beneficiary of such insurance) for the period of the Term. The policy for
the life insurance shall (i) contain a waiver of premium in the event of
Disability (to the extent available at commercially reasonable rates) and (ii)
provide for transfer to Executive in the event of Executive's termination under
the terms of the Agreement so that Executive may then continue coverage under
such policy after such termination.
3. Expense Reimbursement. Executive shall be entitled to receive reimbursement
from the Company for all reasonable out-of-pocket expenses incurred by Executive
in performing his duties under the Agreement, without regard to applicable
deductions available to the Company, upon presentation of expense statements or
vouchers and such other supporting information as may be required pursuant to
any expense reimbursement policy adopted by the Company and in force from time
to time.
4. Vacation. Executive shall be entitled to reasonable vacation time as
determined by the Board consistent with past practices of the Company.
5. Other Benefits. Executive shall be permitted, if and to the extent
eligible, to participate in any group life, hospitalization or disability
insurance plan, health program, pension plan, similar benefit plan or other
so-called "fringe benefits" of the Company, which may be no less favorable to
Executive than the terms offered to such other senior executives of the Company
during the Term.
6. Extended Benefits. Following the expiration or termination of the Term,
Executive and his immediate family members shall be permitted to continue to
participate, at his own expense, in the Company's health insurance programs, to
the extent permitted by the insurance company (if any) then providing such
programs for the Company's executives and their immediate family members.
-7-
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into to be effective as of February 1,
1997, between STEVEN J. COLLINS ("Employee") and KIRKLAND'S, INC., a Tennessee
corporation with principal offices in Jackson, Tennessee ("Employer").
RECITALS
1. Employer desires to hire Employee as its Director of Finance and Chief
Financial Officer ("CFO").
2. The parties have agreed concerning the terms of Employee's employment.
NOW, THEREFORE, in consideration of the premises and the parties' mutual
covenants, it is agreed:
1. Employment: Move Date. Employer hereby employs Employee, and Employee
accepts employment as CFO in accordance herewith. Employee hereby agrees that he
will commence employment on the effective date and promptly establish his
permanent residence in Jackson, Tennessee. Employee understands and agrees that
periodic travel may be required in the exercise of his duties as Chief Financial
Officer.
2. Scope of Duties. Employee shall serve as CFO for Employer and for its
affiliated companies. As CFO, Employee shall perform those duties as from time
to time assigned by the President, Senior Vice Presidents, and Board of
Directors of Employer.
3. Term. The term of this Agreement shall commence on the Effective Date
hereinafter provided and continue until termination as herein provided.
4. Compensation. Employee's compensation for the services rendered
hereunder to Employer and its affiliated companies shall include (a) an annual
salary of $75,000.00, paid twice monthly, in arrears; (b) an annual year-end
bonus up to $35,000.00 based on performance criteria from time to time
established by senior management of Kirkland's and the Board of Directors;(1)
(c) in the event of implementation of Employer's anticipated stock option
plan and completion of six (6) months continuous employment, the award of fully
vested options to purchase 9,000 shares of Employer's stock at $.50 per share,
in accordance with the terms and conditions of any such stock option plan; (d)
in the event of the implementation of Employer's anticipated stock option plan
and if Employee is satisfactorily employed continuously for eighteen (18)
months, the award of fully
- -----------------------
(1) Assumes 10,000,000 fully diluted shares upon issuance of both sets of
options referenced in 4.(c) and 4.(d). These option amounts will be adjusted as
necessary if the fully diluted shares differs from such to convey the same
percentage ownership as inceded with 10,000,000 fully diluted shares
outstanding.
1
<PAGE> 2
vested options to purchase 9,000 shares of Employer's stock at $4.00 per share,
in accordance with the other terms and conditions of any such stock option
plan; and (e) the right to participate in such stock option plan, as
implemented by Employer, in the future. Provided, however, Employee understands
and agrees that the establishment and implementation of an Employee Stock
Option Plan or other benefit plan of any type is within the absolute discretion
of the Board of Directors of Employer, and the failure to enact such plan(s)
and provide stock or stock options to Employee shall not constitute a breach of
this Agreement or constitute the basis of any claim whatsoever by Employee
against the stock of Employer, its shareholders, officers, directors and
employees.
Employee shall also be eligible for "individual coverage" (or "family
coverage", if applicable), subject to applicable caps on Employer's
contribution to the premium as from time to time established by employer, under
any group health insurance policy from time to time in force, having such
benefits as from time to time provided by Employer in its absolute discretion,
together with any life insurance coverage available with such policy (up to
such limit as from time to time set by Employer in Employer's absolute
discretion). Employee understands and agrees that it is Employee's
responsibility to promptly fill out and submit any insurance application(s)
necessary for such coverage and that Employer has no control over the assigned
effective date of the coverage or the requirement by the insurer for medical
"underwriting". Employer shall have no liability to Employee resulting from
denial of coverage by the insurer. Employee is solely responsible to make valid
claims for benefits thereunder.
Employee shall have such other benefits as from time to time provided by
Employer in Employer's absolute discretion, including but not limited to paid
vacation, in an amount from time to time provided to Kirkland's employees in
accordance with existing policies, which shall not accrue in the event of
termination.
5. Expense Reimbursement.
(a) Moving Expenses. Upon presentation of receipts therefor, Employer
agrees to reimburse Employee for customary and reasonable relocation expenses
from Boston. Employee hereby agrees to repay this amount to Employer, if
Employee voluntarily leaves the employ of Employer at any time during the first
year of this agreement.
(b) Course of Business Expense. Employee shall be reimbursed for those
reasonable expenses (as determined by Employer in accordance with then existing
policies) necessarily incurred by Employee in the performance of the duties
herein as are specifically approved by Employer and as verified by vouchers,
receipts, or other evidence of expenditure and business necessity as from time
to time required by Employer.
(c) Travel Allowance. Employer agrees to reimburse Employee for travel
expenses to the Northeastern United States in amounts not to exceed $3,500.00
per year.
6. Other Employment; Conduct. Employee agrees to devote all working time
and efforts to performance of the duties required hereunder so as to maximize
the success of the Employer and
2
<PAGE> 3
its affiliated companies. Employee shall not engage in other employment or
become involved in other business ventures requiring Employee's time, absent
the prior written consent of the Chief Executive Officer/President of Employer.
Employee shall at all times conduct such duties and employee's personal affairs
in a manner as is satisfactory to Employer and so as to not in any manner
injure or unfavorably reflect upon the Kirkland's organization or any store or
element thereof or any member thereof or third persons or entities connected
therewith.
7. Termination. Employee understands and agrees that this Agreement is
an "at will" employment agreement and may be terminated without "cause" of any
type by either party upon notice, either written or oral. In the event of
termination of employment by either party, Employee shall be entitled only to
base salary, expense reimbursement, options already awarded, and insurance
coverage (as available) up to and including the last day worked as the entire
compensation due and owing to Employee. No further payments or benefits shall
accrue to or be paid or owing to Employee. Upon termination of employment,
Employee will return all property of Kirkland's to Employer or other designated
person prior to receiving final compensation for wages and expenses.
8. Confidentiality: Restrictive Covenant. Employee understands and
agrees that the financial, operational, leasing and merchandising information
used by Employee in the performance of duties hereunder (collectively, the
"Information") is proprietary to the Kirkland's chain of retail stores and
represents highly confidential and valuable information, the loss of which
would be economically injurious to the Kirkland retail stores, individually and
as a whole, including Employer. Accordingly, in consideration of this
Agreement, and the work experience provided to Employee by reason hereof,
Employee agrees not to divulge in any manner, at any time, for any purpose, for
any consideration, whether financial or otherwise, to any person or entity, any
of the Information. In order to allow Employer to enforce such covenant or
confidentiality, Employee agrees, additionally, that for a period of six (6)
months after termination hereof, Employee will not, directly or indirectly,
own, manage, operate, control, be employed by, participate in, lend money,
furnish services to, be compensated in any matter by, or be connected in any
way with the management, ownership, or control of any business similar to the
type of business conducted by the Employer or as operated by the Kirkland
retail stores at the time of termination of this Agreement. Employee
understands and acknowledges that the type of business conducted by Employer is
national in scope, and Kirkland's business competition is typically national or
regional chain retail operations specializing in or having a substantial
inventory mix involving "gift and decorative accessories" and related items.
During the term of this agreement and for a period of three (3) years following
the termination, for whatever reason, of employment, Employee agrees not to
enter into or engage in any discussion or negotiation, or assist in such
actions to encourage present employees of Kirkland's to disassociate their
employment relationship with Kirkland's and induce such present employees to go
into the employment of an entity engaged in any competing retail business.
Employee understands and agrees that, to enforce the covenants of this
paragraph, injunctive relief, in addition to the other remedies available at
law or in equity, is necessary since the monetary damage to Employer and the
Kirkland's organization may be difficult or impossible to determine.
3
<PAGE> 4
9. Waiver of Breach. Any waiver by Employer of a breach of any
provision hereof shall not operate as or constitute a waiver of any of the
terms hereof with regard to any subsequent breach.
10. Assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned except by Employer to a business entity which is a
successor to Employer by merger, stock exchange, consolidation, or other
reorganization, or to an entity which results from a purchase or sale or other
transfer or transaction involving third parties, or except to an entity owned
or controlled by the principals of Employer. This Agreement (nor any rights or
benefits thereunder) on the part of the Employee is for Employee's personal
services and is, therefore, not assignable by Employee.
11. Entire Agreement; Modification. This Agreement is the entire
agreement of the parties with regard to Employee's employment and all other
agreements and understandings, whether written or oral, if prior hereto, are
merged herein so that the provisions of any Prior Agreement(s) are void and of
no further force and effect. This Agreement may not be modified except by a
writing signed by both parties.
12. Applicable Law; Venue. This Agreement shall be construed in
accordance with the laws of the State of Tennessee, even if Employee executed
this Agreement outside Tennessee or Madison County, Tennessee, and Employee's
services are to be rendered without Tennessee. All legal disputes between the
parties shall have a venue in the courts of Madison County, Tennessee.
13. Notices. All notices required to be sent to Employer shall be in
writing and effective upon mailing, postage prepaid, by certified mail, return
receipt requested, to the addresses indicated herein, or as from time to time
modified by notice.
Kirkland's, Inc.
ATTN: Chief Administrative Officer
P.O. Box 7222
Jackson, TN 38308
14. Provisions Severable. Any provision hereof adjudged void or voidable
by a court of competent jurisdiction shall be deemed severable such that the
remaining provisions are in full force and effect.
15. Parties Bound. This Agreement shall bind the parties' respective
heirs, legal representatives, successors and assigns.
16. Effective Date. The Effective Date hereof for all purposes shall be
February 1, 1997.
4
<PAGE> 5
EXECUTED by the parties as provided below.
EMPLOYEE: EMPLOYER:
KIRKLAND'S, INC.
/s/ Steven J. Collins BY: /s/ Carl Kirkland
- ------------------------ -----------------------
Steven J. Collins
TITLE: President
DATE: 1-19-97 --------------------
- ------------------------
DATE: 1/20/97
--------------------
5
<PAGE> 1
EXHIBIT 10.9
KIRKLAND'S, INC. 1996 EXECUTIVE INCENTIVE AND
NON-QUALIFIED STOCK OPTION PLAN
Section 1. Purposes.
The purposes of the Plan are to recognize the accomplishments
of and compensate selected employees who contribute to the development and
success of Kirkland's, Inc. (the "Company") and certain of its affiliates
(collectively with Kirkland's, Inc., the "Companies") and to encourage stock
ownership by such employees by issuing options to such persons to acquire or
increase their proprietary interest in the Companies. The options issued
pursuant to this Plan are intended to constitute either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified stock options, at the discretion of the
Board of Directors, as determined at the time of grant.
Because this Plan is intended to apply with respect to all of
the Companies, references in this Plan to "shares of Common Stock" refer to an
equal number of shares of common stock in each of the Companies. Options may not
be granted except for an equal number of shares of common stock in each of the
Companies.
In the event that a new corporation is formed or acquired by
the Company (or otherwise becomes affiliated with the Company) and adopts this
Plan, each Option granted under this Plan that is unexercised at the time of
such adoption shall automatically include rights with respect to an equal number
of shares of common stock of such corporation. Such corporation shall thereafter
be considered one of the Companies for all purposes of the Plan.
Section 2. Definitions.
"Aggregate Number" means, with respect to an Option, the
number of shares of Common Stock issuable by the Company upon exercise of the
Option (whether or not then vested), as such number may be adjusted from time to
time pursuant to Section 6(h) hereof.
"Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
"Change of Control" means the sale, transfer, assignment or
other disposition (including by merger or consolidation, but excluding pursuant
to a Public Offering) by Stockholders of the Company, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the then outstanding Stock to one or more Persons other
than any such sales, transfers, assignments or
<PAGE> 2
other dispositions by the Stockholders to (i) other persons who are then
Stockholders of the Company pursuant to exercise (in their own right or as
assignee) of rights of first refusal with respect to such Shares, (ii) any
person the transfer to whom or which is not restricted by the terms of the
Shareholders Agreement because such transferee is an Affiliate or Permitted
Transferee of such transferor (as such terms are defined in the Shareholders
Agreement).
"Common Stock" means common stock of each of the
Companies.
"Convertible Securities" means securities convertible into or
exchangeable for shares of Common Stock.
"Disabled" means, with respect to an Optionee, (i) when the
Optionee is determined to be disabled within the meaning of any long-term
disability policy or program sponsored by the Company covering the Optionee, as
in effect as of the date of such determination, or (ii) if no such policy or
program shall be in effect, when the Optionee is prevented by a physical or
mental impairment from engaging in any substantial gainful activity for a period
of at least six (6) months or when such physical or mental impairment is likely
to result in death. The determination of whether an Optionee is Disabled
pursuant to (ii) above shall be determined by the Board of Directors, whose
determination shall be conclusive; provided that, (i) if an Optionee is bound by
the terms of an Employment Agreement between the Optionee and the Company,
whether the Optionee is "Disabled" for purposes of the Plan shall be determined
in accordance with the procedures set forth in said Employment Agreement, if
such procedures are therein provided; and (ii) an Optionee bound by such an
Employment Agreement shall not be determined to be Disabled under the Plan any
earlier than he would be determined to be disabled under his Employment
Agreement.
"Fair Market Value Per Share" means the fair market value per
share of Common Stock as determined by the Option Committee or the Board of
Directors in good faith.
"Option" means an option to purchase Common Stock that is
granted pursuant to this Plan.
"Optionee" means an employee to whom an Option is
granted.
"Person" means an individual, partnership, corporation, joint
venture, association, trust, limited liability company, limited liability
partnership, unincorporated association, other entity or association.
"Plan" means this Kirkland's, Inc. 1996 Executive
Incentive and Non-Qualified Stock Option Plan.
<PAGE> 3
"Sale of the Company" means a sale, transfer, assignment or
other disposition (including by merger or consolidation) of all of the Stock of
the Company, or of all or substantially all of the assets of the Company, or a
liquidation or dissolution of the Company.
"Stock" means the Common Stock issued by the Company and from
time to time outstanding.
"Stock Option Agreement" means the agreement evidencing the
grant of an Option, which is more fully described in Section 6 hereof.
"Stockholders" mean the holders of Stock from time to
time outstanding.
"Shareholders Agreement" shall mean the Shareholders Agreement
dated as of June 12, 1996 among the Company and its shareholders, which
agreement restricts the transferability of the Stock as well as affords certain
rights and imposes certain obligations on the holders thereof.
Section 3. Administration.
(a) The Plan shall be administered by the Board
of Directors or a committee appointed by the Board of Directors (the "Option
Committee"). The Option Committee shall be composed of three members of the
Board of Directors and shall be appointed by the Board of Directors. Every
member of the Option Committee shall be a "disinterested person" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934.
(b) Except as provided in the last sentence of
this subparagraph (b), all determinations under the Plan shall be made by a
majority of the Option Committee or the Board of Directors at a duly convened
meeting where at least a quorum is present (including by telephone contact). Any
decision or determination reduced to writing and signed by all of the members of
the Option Committee or the Board of Directors shall be fully effective as if it
had been made by a majority vote at a meeting duly called and convened.
(c) Except to the extent otherwise provided in
the Plan, the Option Committee or the Board of Directors shall have the
authority to interpret the Plan, to prescribe, amend and rescind rules regarding
it, and to make all other determinations necessary or advisable for the
administration of the Plan. Any determination made pursuant to this provision
shall be final.
(d) Notwithstanding anything herein to the
contrary, no member of the Option Committee or the Board of Directors shall be
liable for any good faith determination, action, or failure to act in connection
with the Plan or any grant hereunder.
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<PAGE> 4
Section 4. Eligibility.
Options may be granted to any employee (including an employee
who is also an officer or a member of the Board of Directors) of the Company.
Optionees shall be selected by the Option Committee or the Board of Directors.
Section 5. Common Stock Subject to Option.
The Stock subject to an Option shall be authorized but
unissued shares of Common Stock. Options shall not be issued with respect to
more than Twelve Thousand Three Hundred Four (12,304) shares of Common Stock,
subject, however, to adjustment as provided in Section 6(h)(i) hereof.
Section 6. Terms and Conditions of Options.
Each Option granted pursuant to this Plan shall be authorized
by the Option Committee or the Board of Directors and shall be evidenced and
governed by a Stock Option Agreement in such form as the Option Committee or the
Board of Directors may from time to time determine. Each Stock Option Agreement
shall include the information required in subsections (a) through (f), (g)(i)
and (h)(ii) of this Section 6, may include information contained in other
subsections of this Section 6, and shall otherwise be in conformity with and
shall incorporate by reference the other terms and conditions of the Plan.
(a) Number of Shares. The number of shares of
Common Stock subject to the Option shall be stated in the Stock Option
Agreement.
(b) Option Price. The price per share of Common
Stock payable on the exercise of the Option shall be stated in the Stock Option
Agreement. In the case of the grant of an incentive stock option, the exercise
price shall not be less than the fair market value of the stock at the time such
Option is granted; except that, in the event an Option is granted to a person
who is a "10-percent shareholder" within the meaning of Section 422 of the Code,
the Option price shall not be less than one hundred ten percent (110%) of the
fair market value of the Common Stock subject to the Option at the time such
Option is granted. The fair market value of Common Stock of the Company shall be
determined in good faith by the Option Committee or the Board of Directors.
(c) Form of Option. The Stock Option Agreement
shall state whether the Option granted is an incentive stock option or a
non-qualified stock option.
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<PAGE> 5
(d) Vesting. The Options granted shall mature
and become exercisable in whole or in part in accordance with a vesting schedule
set forth in the Stock Option Agreement. Notwithstanding the above, and subject
to such vesting conditions as may be set forth in the Stock Option Agreement, in
the event of a Sale of the Company or a Change in Control, all Options which
have not yet vested shall vest, mature and become exercisable in whole or in
part immediately prior to the event constituting the Sale of the Company or
Change of Control, provided that such accelerated vesting shall occur
sufficiently prior to any such event so as to allow Optionee to exercise any
rights he may have in respect of such Options and the stock obtainable upon
exercise thereof which rights arise by reason of such event. Furthermore, each
Option shall vest, mature and become exercisable eight (8) years from the date
it was granted, if such Option has not already become vested or been terminated
or forfeited prior to that date.
(e) Payment. The price payable on the exercise
of the Option in whole or in part shall be equal to the purchase price per Share
(provided pursuant to clause (b) above) multiplied by the number of shares as to
which the Option is exercised, and shall be paid in full upon exercise of any
Option in cash, by check or by delivery to the Company of shares of the
Company's Stock having a fair market value equal to the aggregate exercise price
of the shares of Common Stock being purchased upon exercise of the Option;
provided that shares of Common Stock acquired upon exercise of incentive stock
Options may not be so used without the express written consent of the Board of
Directors (or Option Committee) and this Optionee if to do so would violate the
holding period requirements for such Stock under Section 422 of the Code.
(f) Term and Exercise of Options.
(i) Options granted hereunder shall be
exercisable at such times as the Option Committee or the Board of Directors
shall designate in accordance with the terms and provisions of this Plan, such
designation to be reflected in the Option Agreement.
(ii) An Option shall be exercisable by
written notice which shall state the number of shares of Common Stock in respect
of which the Option is being exercised. Such notice shall be addressed to the
Secretary of the Company and shall be accompanied by a check for the aggregate
amount of the exercise price payable to the Company. An Option shall be treated
as exercised on the date that proper notice of exercise accompanied by the
aggregate exercise price is received by the Company.
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<PAGE> 6
(g) Termination of Options.
(i) Except as otherwise provided in
Subsection 6(g)(ii) of this Plan, Options granted hereunder shall terminate at
such time as the Option Committee or the Board of Directors shall designate,
such designation to be reflected in the Stock Option Agreement; provided,
however, that if a Stock Option Agreement does not specify the time at which an
Option will terminate, such Option shall terminate three (3) months following
the date as of which the Optionee ceases to be employed by the Company for
reasons other than the Optionee's death or becoming Disabled.
(ii) Upon the death of an Optionee while
in the employ of the Company, or if an Optionee becomes Disabled while in the
employ of the Company, Options held by such Optionee shall terminate on the date
that is twelve (12) months after the date the Optionee dies or becomes Disabled;
provided, however, that an Optionee of incentive stock options shall be
considered to be Disabled for purposes of this sentence only if he is Disabled
within the meaning of Section 22(e)(3) of the Code. If an Optionee of incentive
stock options is Disabled within the meaning of this Plan, but not within the
meaning of Section 22(e)(3), the incentive stock options held by such Optionee
shall terminate three (3) months after the Optionee is terminated from his
employment by reason of having become Disabled. Options which are exercisable on
the date the Optionee dies or becomes Disabled shall be exercisable by the
Optionee, his or her executor(s) or administrator(s) or legal representative for
a period of twelve (12) months (in the event of death) or three (3) months (in
the event of disability) from the date such Optionee dies or becomes Disabled,
subject to the Optionee's, executor's or administrator's obligation to sell the
Common Stock acquired upon such exercise to the Company pursuant to the terms of
the Shareholders Agreement.
(h) Anti-Dilution Adjustments to Aggregate
Number.
(i) Subject to required action by the
stockholders, if any, the number of Shares as to which Options may be awarded
under this Plan and the number of Shares subject to outstanding Options and the
option prices thereof shall be adjusted proportionately for any increase or
decrease in the number of outstanding shares of Common Stock of the Company
resulting from stock splits, reverse stock splits, stock dividends,
reclassifications and recapitalizations.
(ii) The Aggregate Number shall be
subject to any anti-dilution protection adjustments set forth in the Stock
Option Agreement.
(i) Other Terms. Notwithstanding any other
provision of this Plan:
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<PAGE> 7
(i) No Option shall be granted under
this Plan after ten (10) years after the date the Plan is adopted.
(ii) No Option granted under this Plan
shall be exercisable after ten (10) years from the date it is granted.
(iii) No Option granted under this Plan
that is an incentive stock option shall be exercisable later than five (5) years
from the date it is granted if the Optionee thereof is a "10-percent
shareholder" within the meaning of Section 422 of the Code.
(iv) No Option granted to any Optionee
shall be treated as an incentive stock option to the extent such Option would
cause the aggregate fair market value (determined as of the date of grant of
each such Option) of the shares of Common Stock with respect to which incentive
stock options are exercisable by such Optionee for the first time during any
calendar year to exceed one hundred thousand dollars ($100,000). For purposes of
determining whether an incentive stock option would cause the aggregate fair
market value of the shares to exceed the one hundred thousand dollars ($100,000)
limitation, such incentive stock options shall be taken into account in the
order granted. For purposes of this subsection (iv), incentive stock options
include all incentive stock options granted to Optionees under this Plan and all
other plans of the Company.
(v) Options granted pursuant to this
Plan may be exercised in any order elected by the Optionee whether or not the
Optionee holds any unexercised Options under this Plan or any other plan of the
Company.
(j) Rights as a Stockholder. The Optionee shall
have no rights as a Stockholder with respect to any shares of Common Stock
subject to an Option until such Option has been exercised and a certificate
evidencing the shares purchased upon exercise has been issued to him and the
condition of Section 6(m) hereof are satisfied.
(k) Modification, Extension and Renewal of
Option. Subject to the terms and conditions of this Plan, the Board of Directors
may modify, extend or renew an Option, or accept the surrender of an unexercised
Option, provided that no incentive stock option may be modified, extended, or
renewed if such action would cause it to cease to be an incentive stock option.
Notwithstanding the foregoing, no modification of an Option shall be made to the
extent it adversely affects the Optionee without such Optionee's consent.
(l) Purchase for Investment. The issuance of
shares of Common Stock on exercise of an Option shall (i) be conditioned on
obtaining appropriate representations and warranties of the Optionee that the
purchase of shares thereunder will be for investment, and not with a view to the
public resale
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<PAGE> 8
or distribution thereof, unless the shares subject to the Option are registered
under the Securities Act of 1933, as amended (the "Act"), and (ii) comply with
any other law, regulation or rule applicable thereto. Unless the shares subject
to the Option are registered under the Act, the Optionee shall acknowledge that
the shares purchased on exercise of the Option are not registered under the Act
and may not be sold or otherwise transferred unless the shares have been
registered under the Act, or unless counsel satisfactory to the Company provides
a written opinion that the sale or other transfer is exempt from registration
under the Act, and is in compliance with any other applicable law, including all
applicable state securities laws. Certificates evidencing shares of Common Stock
purchased upon exercise of Options shall contain a legend in substantially the
following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE NOT
BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY
NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT
OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE LAWS, OR A
SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO KIRKLAND'S,
INC. THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND
UNDER APPLICABLE STATE LAWS. MOREOVER, THE SHARES EVIDENCED BY
THIS CERTIFICATE ARE SUBJECT TO AND RESTRICTED BY THE
PROVISIONS OF THE SHAREHOLDERS AGREEMENT DATED JUNE 12, 1996,
COPIES OF WHICH WILL BE FURNISHED BY KIRKLAND'S, INC. UPON
WRITTEN REQUEST AND WITHOUT CHARGE, AND ALL OF THE PROVISIONS
OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE.
(m) Stockholders Agreement. Notwithstanding any
other provision of this Plan, the Company shall not issue any shares of Common
Stock upon the exercise of an Option unless the Optionee executes (i) a
counterpart to the Shareholders Agreement, and (ii) a counterpart to the
Registration Rights Agreement, in each case among the Company, its stockholders
and holders of warrants.
Section 7. No Right to Employment.
No individual shall have the right to continue in the
employment of the Company by reason of the grant of any Option under this Plan.
An Optionee whose employment is terminated
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<PAGE> 9
shall have no rights against the Company by reason of the termination of such
Option.
Section 8. Term of Plan.
Options may be granted from time to time within a period of
ten (10) years after the date the Plan is effective.
Section 9. No Obligation to Exercise Option.
The granting of an Option does not impose any obligation upon
the Optionee to exercise such Option.
Section 10. Amendment of the Plan.
Insofar as permitted by law and the Plan, the Board of
Directors may from time to time suspend or discontinue the Plan or revise or
amend it in any respect whatsoever; provided, however, that no such suspension,
discontinuance, revision or amendment that would constitute a diminution in
rights with respect to any Option then outstanding may be accomplished without
the consent of the Optionee; and provided further, that no suspension,
discontinuance, revision or amendment may change the aggregate number of shares
for which Options may be granted, change the designation of the class of
individuals eligible to receive Options or decrease the price at which Options
may be granted without the approval of the Stockholders.
Section 11. Approval of Stockholders.
This Plan shall become effective on the date that it is
adopted by the Board of Directors; provided, however, that the Plan and all
Options and Stock Option Agreements granted under the Plan shall become null and
void, ab initio, if the Plan is not approved by a majority of the holders of the
Company's outstanding Common Stock within one year (365 days) of its adoption by
the Board of Directors.
Section 12. Forfeiture.
Notwithstanding any other provision of this Plan, if the Board
of Directors makes a finding, after full consideration of the facts presented on
behalf of both the Company and the Optionee, that the Optionee (i) has engaged
in conduct involving any type of disloyalty to the Company or willful misconduct
with respect to the Company, including without limitation, fraud, embezzlement,
theft, or proven dishonesty in the course of his employment, (ii) has been
convicted of a felony, or (iii) has disclosed, without the prior written consent
of the Company, to any third party or used for his benefit, or for any purpose
other than the exclusive benefit of the Company, any confidential, proprietary,
business and technical information or trade secrets of the Company or of any
subsidiary or Affiliate of the Company, which is revealed, obtained or developed
in the course of
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Optionee's employment with the Company, then all unexercised Options shall
terminate on the date of such finding. In the event of such a finding, in
addition to immediate termination of all unexercised Options, the Optionee shall
forfeit all Option shares for which the Company has not yet delivered share
certificates to the Optionee and the Company shall refund to the Optionee the
purchase price therefor paid to it upon exercise of the Option, if any.
Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in forfeiture.
Section 13. Transferability.
No Option shall be assignable or transferable otherwise than
by will or by the laws of descent and distribution. During the lifetime of the
Optionee, his Options shall be exercisable only by him, or, in the event such
Optionee is Disabled, by his legal representative.
Section 14. Application of Funds.
The proceeds received by the Company from the sale of shares
pursuant to the exercise of Options shall be used for general corporate
purposes.
Section 15. Withholding.
Anything to the contrary herein notwithstanding, all payments
required to be made or Stock required to be issued by the Company hereunder to
an Optionee, his legal representative, heir or devisee shall be subject to the
withholding of such amounts as the Company may determine that it is required to
withhold pursuant to any applicable federal, state or local law or regulation.
Optionee may, at his option, pay to Company cash in the amount of such
withholding in lieu of shares being withheld upon Optionee's exercise to pay
such withholding.
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EXHIBIT 10.10
KIRKLAND'S, INC.
1998 INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS. The purpose of the Kirkland's, Inc.
1998 Incentive Plan (the "Plan") is to offer to certain employees, consultants
and Directors of Kirkland's, Inc. (the "Company"), a Tennessee corporation, and
its subsidiaries, equity interests in the Company, options to acquire equity
interests in the Company, and other performance-based incentive awards, thereby
attracting, retaining and motivating such persons, and strengthening the
mutuality of interests between such persons and the Company's shareholders.
For purposes of the Plan, the following initially capitalized
words and phrases shall be defined as set forth below, unless the context
clearly requires a different meaning:
a. "Affiliate" means, with respect to a person or entity, a
person that directly or indirectly controls, or is controlled by, or is under
common control with such person or entity.
b. "Award" means a grant of Options, SARs or Restricted Shares
to an employee, consultant or Director of the Company or a Subsidiary pursuant
to the provisions of this Plan.
c. "Board" means the Board of Directors of the Company, as
constituted from time to time; provided, however, that if the Board appoints a
Committee to perform some or all of the Board's administrative functions
hereunder pursuant to Section 2, references in this Plan to the "Board" will be
deemed to also refer to that Committee in connection with administrative matters
to be performed by that Committee.
d. "Cause" exists when the Participant (as determined by the
Board, (in its sole discretion):
(i) engages in any type of disloyalty to the Company,
including without limitation, fraud, embezzlement,
theft, or dishonesty in the course of his employment
or engagement, or otherwise breaches any fiduciary
duty owed to the Company;
(ii) is convicted of a felony or a misdemeanor involving
moral turpitude;
(iii) enters a plea of guilty or nolo contendere to a
felony or a misdemeanor involving moral turpitude.
(iv) discloses any Proprietary Information without the
consent of the Company; or
(iv) breaches any agreement with or duty to the Company
regarding confidentiality, non-disclosure,
non-competition or otherwise.
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e. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
f. "Committee" shall mean a committee appointed by the Board
in accordance with Section 2 of this Plan.
g. "Director" means a member of the Board.
h. "Disability" shall mean a disability which renders
individual unable to perform the full extent of his duties and responsibilities
to the Company or its subsidiaries by reason of his illness or incapacity which
would entitle that employee or Director to receive Social Security Disability
Income under the Social Security Act, as amended, and the regulations
promulgated thereunder. "Disabled" shall mean having a Disability. The
determination of whether a Participant is Disabled shall be made by the Board,
whose determination shall be conclusive; provided that, if a Participant is
bound by the terms of an employment or consulting agreement between the
Participant and the Company, whether the Participant is "Disabled" for purposes
of the Plan shall be determined in accordance with the procedures set forth in
said employment agreement, if such procedures are therein provided.
i. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
j. "Fair Market Value" means, as of any date: (i) the closing
price of the Shares as reported on the principal nationally recognized stock
exchange on which the Shares are traded on such date, or if no Share prices are
reported on such date, the closing price of the Shares on the next preceding
date on which there were reported Share prices; or (ii) if the Shares are not
listed or admitted to unlisted trading privileges on a nationally recognized
stock exchange, the closing price of the Shares as reported by The Nasdaq Stock
Market on such date, or if no Share prices are reported on such date, the
closing price of the Shares on the next preceding date on which there were
reported Share prices; or (3) if the Shares are not listed or admitted to
unlisted trading privileges on a nationally recognized stock exchange or traded
on The Nasdaq Stock Market, then the Fair Market Value shall be determined by
the Board acting in its discretion, which determination shall be conclusive.
k. "Incentive Stock Option" means any Option intended to be
and designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
l. "Non-Qualified Stock Option" means any Option that is not
an Incentive Stock Option.
m. "Participant" means an employee, consultant or Director of
the Company or a Subsidiary to whom an award is granted pursuant to the Plan.
n. "Proprietary Information" shall mean any and all
confidential, proprietary, business and technical information or trade secrets
of the Company or of any Subsidiary or affiliate of the Company revealed,
obtained or developed in the course of Participant's employment with or
engagement by the Company. Such Proprietary Information shall include
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<PAGE> 3
but shall not be limited to, methods of production and manufacture, research,
marketing and development plans and efforts, cost information, pricing
information, marketing methods and plans, identities of customers and suppliers,
the Company's relationship with actual or potential customers and the needs and
requirements of any such actual or potential customers, and any other
confidential information relating to the business of the Company. Proprietary
Information shall not include (i) such information as may be necessary or
appropriate for an Participant to disclose in the course of his employment or
engagement for the effective and efficient discharge of his duties to the
Company or as may be required by law to be disclosed; and (ii) such information
as is readily available to the general public, so long as such information did
not become available to the general public as a direct or indirect result of
Participant's breach of his obligation to maintain confidentiality.
o. "Qualified Retirement" means a Retirement that occurs (i)
on or after the date the Participant attains ages 62 or (ii) on or after the
date the Participant completes ten (10) years of service with the Company or a
Subsidiary and attains age 60.
p. "Restricted Shares" means Shares that are subject to
restrictions pursuant to Section 8 hereof.
q. "Retirement" means termination of the employment of a
Participant with the Company or Subsidiary other than (i) a termination effected
by or at the direction of the Company or Subsidiary (whether or not the Company
effects such termination for Cause), (ii) termination on account of Disability,
or (iii) termination on account of death. With respect to a Director who is not
also an employee of the Company, Retirement shall occur at such time as the
individual ceases to be a Director. Retirement will not be deemed to occur with
respect to a consultant.
r. "SAR" means a share appreciation right granted under the
Plan and described in Section 6 hereof.
s. "Share" means a common share of common stock, no par value,
of the Company, subject to substitution or adjustment as provided in Section
3(c) hereof.
t. "Stock Option" or "Option" means any option to purchase
Shares (including Restricted Shares, if the Committee so determines) granted
pursuant to Section 5 hereof.
u. "Subsidiary" means, in respect of the Company, a subsidiary
company, whether now or hereafter existing, as defined in Sections 424(f) and
(g) of the Code.
SECTION 2. ADMINISTRATION. The Plan shall be administered by the Board;
provided, however, that the Board may at any time appoint a Committee to perform
some or all of the Board's administrative functions hereunder; and provided
further, that the authority of any Committee appointed pursuant to this Section
2 will be subject to such terms and conditions as the Board may prescribe and
will be coextensive with, and not in lieu of, the authority of the Board
hereunder.
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<PAGE> 4
Any Committee established under this Section 2 will be composed of not
fewer than two members, each of whom will serve for such period of time as the
Board determines. From time to time the Board may increase the size of the
Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
Members of the Board or the Committee who are eligible for Awards or
have received Awards may vote on any matters affecting the administration of the
Plan or the grant of Awards, except that no such member shall act upon the grant
of an Award to himself or herself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board or Committee
during which action is taken with respect to the grant of Awards to himself or
herself.
The Board shall have full authority to grant Awards under this Plan. In
particular, the Board shall have the authority:
a. to select the persons to whom Awards may from time to time
be granted hereunder (consistent with the eligibility conditions set forth in
Section 4);
b. to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, SARs and Restricted Shares, or any
combination thereof, are to be granted hereunder;
c. to determine the number of Shares, if any, to be covered by
each such Award;
d. to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award, including, but not limited to, the
exercise price, any restriction or limitation, any vesting provisions, or any
vesting acceleration or forfeiture waiver regarding any Option or other Award
and/or the Shares relating thereto, or the length of the period following
termination of employment of any Participant during which any Option or SAR may
be exercised (which, in the case of an Incentive Stock Option, shall be no
longer than one year in the case of the termination of employment of a
Participant by reason of death or Disability, or three months in the case of the
termination of employment of a Participant for any reason other than death or
Disability), based on such factors as the Board shall determine, in its sole
discretion;
e. to determine whether and under what circumstances an Option
may be exercised without a payment of cash under Section 5(f); and
f. to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an Award may be
deferred either automatically or at the election of the Participant.
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<PAGE> 5
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
to amend the terms of any agreement relating to any Award, provided that the
Participant consents to such amendment; and to otherwise supervise the
administration of the Plan. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent it shall deem necessary to carry out the intent of the
Plan.
All decisions made by the Board pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and
Participants. No member of the Board shall be liable for any good faith
determination, act or omission in connection with the Plan or any Award.
SECTION 3. SHARES SUBJECT TO THE PLAN.
a. Shares Subject to the Plan. The Shares to be subject or
related to awards under the Plan shall be authorized and unissued Shares of the
Company, whether or not previously issued and subsequently acquired by the
Company. The maximum number of Shares that may be the subject of awards under
the Plan is 8,000 and the Company shall reserve for the purposes of the Plan,
out of its authorized and unissued Shares, such number of Shares.
Notwithstanding the foregoing, no individual shall receive, over the term of the
Plan, awards for more than an aggregate of 2,667 Shares, or SARs with respect to
such Shares, authorized for grant under the Plan.
b. Effect of the Expiration or Termination of Awards. If and
to the extent that an Award expires, terminates or is canceled or forfeited for
any reason without having been exercised in full, the Shares associated with the
expired, terminated, canceled or forfeited portion of the Award shall again
become available for grant under the Plan.
c. Other Adjustment. In the event of any merger,
reorganization, consolidation, recapitalization, Share distribution or dividend,
Share split or combination, or other change in entity structure affecting the
Shares, substitutions or adjustments may be made to the aggregate number, type
and issuer of the securities reserved for issuance under the Plan, in the number
and exercise price of securities subject to outstanding Options granted under
the Plan and in the number and price of securities subject to other Awards made
under the Plan, as may be determined to be appropriate by the Board, in its sole
discretion. The Board, in its sole discretion, may also make appropriate
anti-dilution adjustments to the number of then-outstanding SARs, and to the
Fair Market Value upon which the value of such SARs is based.
d. Change Control. In addition, upon or in anticipation of any
change of control of the Company (as determined by the Board), the Board, in its
sole and absolute
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<PAGE> 6
discretion and without the need for consent of any Participant (and contingent
upon the occurrence of the change of control, if the change of control has not
yet occurred), may take other action with respect to outstanding Awards,
including, but not limited to: (i) acceleration of the vesting of Options and
SARs and the expiration date of Options and SARs, (ii) cancellation of Options
in exchange for options to purchase common stock in a successor corporation,
(iii) cancellation of Restricted Shares in exchange for restricted shares of the
common stock of any successor corporation, or (iv) cancellation of Options in
conjunction with causing the Company to distribute cash and/or other property in
an amount equal to and in the same form as would have been received from a
successor corporation by an Option holder if that Option holder would have owned
the Shares subject to the Option (rather than the Option) at the time of the
change of control, provided that any such amount paid to an Participant shall be
net of the exercise price the Participant would have paid to exercise such
Options.
SECTION 4. ELIGIBILITY. Employees, directors, consultants, and other
individuals who provide services to the Company or its Subsidiaries are eligible
to be granted awards under the Plan; provided, however, that any employee who is
covered by a collective bargaining agreement shall not be eligible to be granted
Awards, exercise outstanding Awards, receive shares or cash pursuant to
outstanding Awards, or have any restrictions lapse with respect to any
restricted stock Awards under the Plan, unless such collective bargaining
agreement, by specific reference to the Plan, expressly provides for
participation in the Plan. Persons who are not employees of the Company or a
Subsidiary are eligible to be granted Awards, but are not eligible to be granted
Incentive Stock Options.
SECTION 5. OPTIONS. Options granted under the Plan may be of two types:
(i) Incentive Stock Options or (ii) Non-Qualified Stock Options. Options may be
granted alone, in addition to or in tandem with other Awards. Any Option granted
under the Plan shall be in such form as the Board may from time to time approve.
The Board shall have the authority to grant any Participant eligible
under Section 4 Incentive Stock Options, Non-Qualified Stock Options, or both
types of Options (in each case with or without SARs). To the extent that any
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Board shall deem appropriate;
provided, however, that the provisions of Option Awards need to be the same with
respect to each Participant:
a. Option Price. The exercise price per Share purchasable
under a Non-Qualified Stock Option shall be determined by the Board. The
exercise price per Share purchasable under an Incentive Stock Option shall be
100% of the Fair Market Value of the Share on the date of the grant. However,
any Incentive Stock Option granted to any Participant who, at the time the
Option is granted, owns more than 10% of the voting power of all classes of
shares of the Company or of a Subsidiary shall have an exercise price per Share
of not less than 110% of Fair Market Value per Share on the date of the grant.
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<PAGE> 7
b. Option Term. The term of each Option shall be fixed by the
Board, but no Option shall be exercisable more than ten years after the date the
Option is granted. However, any Incentive Stock Option granted to any
Participant who, at the time such Option is granted, owns more than 10% of the
voting power of all classes of shares of the Company or of a Subsidiary may not
have a term of more than five years. No Option may be exercised by any person
after expiration of the term of the Option.
c. Exercisability. Options shall vest and be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Board at the time of grant. If the Board provides, in its
discretion, that any Option is exercisable only in installments, the Board may
waive such installment exercise provisions at any time at or after grant, in
whole or in part, based on such factors as the Board shall determine, in its
sole discretion.
d. Method of Exercise. Subject to the exercise provisions
under Section 5(c) and the termination provisions set forth in Section 7,
Options may be exercised in whole or in part at any time and from time to time
during the term of the Option, by giving written notice of exercise to the
Company specifying the number of Shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified or
bank check, or such other instrument as the Board may accept. As determined by
the Board, in its sole discretion, at or after grant, payment in full or in part
of the exercise price of an Option may be made in the form of unrestricted
Shares based on the Fair Market Value of the Shares on the date the Option is
exercised; provided, however, that, in the case of an Incentive Stock Option,
the right to make a payment in the form of already owned Shares may be
authorized only at the time the Option is granted.
No Shares shall be issued upon exercise of an Option until
full payment therefor has been made. A Participant shall not have the right to
distributions or dividends or any other rights of a shareholder with respect to
Shares subject to the Option until the Participant has given written notice of
exercise, has paid in full for such Shares, and, if requested, has given the
representation described in Section 11(a) hereof.
e. Incentive Stock Option Limitations. To the extent required
for "incentive stock option" status under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year under the Plan and/or any other plan of
the Company or any Subsidiary shall not exceed $100,000. For purposes of
applying the foregoing limitation, Incentive Stock Options shall be taken into
account in the order granted. Any Option not meeting such limitation shall be
treated for all purposes as a Non-Qualified Stock Option.
f. Cashless Exercise. The Company may, in the sole discretion
of the Board, cooperate in a "cashless exercise" of an Option. The cashless
exercise shall be effected by the Participant delivering to a registered
securities broker instructions to sell a sufficient number of Shares to cover
the costs and expenses associated therewith.
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<PAGE> 8
SECTION 6. SHARE APPRECIATION RIGHTS.
a. Grant. SARs may be granted alone ("Stand-Alone SARs") or in
conjunction with all or part of any Option granted under the Plan ("Tandem
SARs"). In the case of a Non-Qualified Stock Option, a Tandem SAR may be granted
either at or after the time of the grant of such Option. In the case of an
Incentive Stock Option, a Tandem SAR may be granted only at the time of the
grant of such Option.
b. Exercise.
(i) Tandem SARs. A Tandem SAR or applicable portion thereof
shall terminate and no longer be exercisable upon the termination or exercise of
the related Option or portion thereof, except that, unless otherwise determined
by the Board, in its sole discretion at the time of grant, a Tandem SAR granted
with respect to less than the full number of Shares covered by a related Option
shall be reduced only after such related Option is exercised or otherwise
terminated with respect to the number of Shares not covered by the Tandem SAR.
A Tandem SAR may be exercised by a Participant by
surrendering the applicable portion of the related Option, only at such time or
times and to the extent that the Option to which such Tandem SAR relates shall
be exercisable in accordance with the provisions of Section 5 and this Section
6. Options which have been so surrendered, in whole or in part, shall no longer
be exercisable to the extent the related Tandem SARs have been exercised.
Upon the exercise of a Tandem SAR, a Participant shall be
entitled to receive, upon surrender to the Company of all (or a portion) of an
Option in exchange for cash and/or Shares, an amount equal to the excess of (A)
the Fair Market Value, as of the date such Option (or such portion thereof) is
surrendered, of the Shares covered by such Option (or such portion thereof) over
(B) the aggregate exercise price of such Option (or such portion thereof).
Upon the exercise of a Tandem SAR, the Option or part
thereof to which such Tandem SAR is related, shall be deemed to have been
exercised for the purpose of the limitation set forth in Section 3 of the Plan
on the number of Shares to be issued under the Plan, but only to the extent of
the number of Shares issued under the Tandem SAR at the time of exercise based
on the value of the Tandem SAR at such time.
A Tandem SAR may be exercised only if and when the Fair
Market Value of the Shares subject to the Option exceeds the exercise price of
such Option.
(ii) Stand-Alone SARs. A Stand-Alone SAR may be exercised
by a Participant giving notice of intent to exercise to the Company, provided
that all or a portion of such Stand-Alone SAR shall have become vested and
exercisable as of the date of exercise.
Upon the exercise of a Stand-Alone SAR, a Participant shall
be entitled to receive, in either cash and/or Shares, an amount equal to the
excess, if any, of (A) the Fair Market Value, as of the date such SAR (or
portion of such SAR) is exercised, of the Shares covered by such SAR (or portion
of such SAR) over (B) the Fair Market Value of the Shares covered by
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<PAGE> 9
such SAR (or a portion of such SAR) as of the date such SAR (or a portion of
such SAR) was granted.
c. Terms and Conditions. SARs shall be subject to such terms
and conditions, not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Board, in its sole discretion; provided,
however, that the provisions of SAR awards need not be the same with respect to
each Participant. Such terms and conditions include the following:
(i) Term of SAR. The term of each SAR shall be fixed by the
Board, provided that the term of a Tandem SAR shall be determined by the terms
of the applicable Option, and provided further that the term of a Stand-Alone
SAR shall be ten (10) years, unless another term is specified by the Board.
(ii) Exercisability. SARs shall vest and be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Board at the time of grant, provided that the term of a Tandem
SAR shall be determined by the terms of the applicable Option. A Participant
shall not have any rights as a shareholder with respect to any SAR.
(iii) Termination of Employment. Unless otherwise specified
in the terms of an Award, SARs shall be subject to the terms of Section 7 with
respect to exercise upon termination of employment.
SECTION 7. TERMINATION OF SERVICE. Unless otherwise specified with
respect to a particular Award, Options or SARs granted hereunder will remain
exercisable after termination of employment only to the extent specified in this
Section 7.
a. Termination by Reason of Death. If a Participant's service
with the Company or any Subsidiary terminates by reason of death, any Option or
SAR held by such Participant may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Board may determine, at or after
grant, by the legal representative of the estate or by the legatee of the
Participant under the will of the Participant, for a period expiring (i) at such
time as may be specified by the Board at or after the time of grant, or (ii) if
not specified by the Board, then one (1) year from the date of death, or (iii)
if sooner than the applicable period specified under (i) or (ii) above, then
upon the expiration of the stated term of such Option or SAR.
b. Termination by Reason of Disability. If a Participant's
service with the Company or any Subsidiary terminates by reason of Disability,
any Option or SAR held by such Participant may thereafter be exercised by the
Participant or his personal representative, to the extent it was exercisable at
the time of termination, or on such accelerated basis as the Board may determine
at or after grant, for a period expiring (i) at such time as may be specified by
the Board at or after the time of grant, or (ii) if not specified by the Board,
then six months from the date of termination of service, or (iii) if sooner than
the applicable period specified under (i) or (ii) above, then upon the
expiration of the stated term of such Option or SAR; provided, however, that if
the Participant dies within such period, any unexercised Option or SAR held by
such
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<PAGE> 10
Participant shall, at the sole discretion of the Board, thereafter be
exercisable to the extent to which it was exercisable at the time of death for a
period of one (1) year from the date of such death (or such other period as may
be specified by the Board) or until the expiration of the stated term of such
Option or SAR, whichever period is shorter.
c. Qualified Retirement. If a Participant's service with the
Company or any Subsidiary terminates by reason of Qualified Retirement, any
Option or SAR held by such Participant may thereafter be exercised, to the
extent then exercisable or on such accelerated basis as the Board may determine,
at or after grant, by the Participant for a period expiring (i) at such time as
may be specified by the Board at or after the time of grant, or (ii) if not
specified by the Board, then six months from the date of Qualified Retirement,
or (iii) if sooner than the applicable period specified under (i) or (ii) above,
then upon the expiration of the stated term of such Option or SAR; provided,
however, that any Option that, at the time of grant, was intended to be an
Incentive Stock Option but which is exercised more than three (3) months after
termination of employment will then become a Non-Qualified Stock Option.
d. Cause. If a Participant's service is terminated for Cause:
(i) any Option or SAR not already exercised shall be immediately and
automatically forfeited as of the date of such termination, and (ii) any Shares
for which the Company has not yet delivered share certificates shall be
immediately and automatically forfeited and the Company shall refund to the
Participant the Option exercise price paid for such Shares, if any.
e. Other Termination. If a Participant's service with the
Company or any Subsidiary terminates for any reason other than death,
Disability, Qualified Retirement or Cause, any Option or SAR held by such
Participant may thereafter be exercised by the Participant, to the extent it was
exercisable at the time of such termination or on such accelerated basis as the
Board may determine at or after the time of grant, for a period expiring (i) at
such time as may be specified by the Board at or after the time of grant, or
(ii) if not specified by the Board, then three (3) months from the date of
termination of service, or (iii) if sooner than the applicable period specified
under (i) or (ii) above, then upon the expiration of the stated term of such
Option or SAR.
SECTION 8. RESTRICTED SHARES.
a. Issuance. Restricted Shares may be issued either alone or
in addition to other awards granted under the Plan. The Board shall determine
the time or times within which Restricted Shares may be subject to forfeiture,
and all other conditions of such awards. The Board may condition the lapse of
restrictions on Restricted Shares upon the continued employment or service or
the recipient, the attainment of specified individual or corporate performance
goals, or such other factors as the Board may determine, in its sole discretion,
at the time of the award. The provisions of Restricted Share awards need not be
the same with respect to each Participant.
b. Awards and Certificates. The prospective recipient of a
Restricted Share award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to
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<PAGE> 11
the Company, and has otherwise complied with the applicable terms and conditions
of such award. The purchase price for Restricted Shares may, but need not, be
zero.
Each Participant receiving a Restricted Share award shall be
issued a share certificate in respect of such Restricted Shares. Such
certificate shall be registered in the name of such Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED
HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE)
OF THE KIRKLAND'S, INC. 1998 INCENTIVE PLAN AND AN AGREEMENT ENTERED
INTO BETWEEN THE REGISTERED OWNER AND KIRKLAND'S, INC. COPIES OF SUCH
PLAN AND AGREEMENT ARE ON FILE IN THE PRINCIPAL OFFICES OF KIRKLAND'S,
INC. AND WILL BE MADE AVAILABLE TO ANY SHAREHOLDER WITHOUT CHARGE UPON
REQUEST TO THE SECRETARY OF THE COMPANY.
The Board shall require that the share certificates evidencing
Restricted Shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Share
award, the Participant shall have delivered to the Company a share power,
endorsed in blank, relating to the Shares covered by such award.
c. Restrictions and Conditions. The Restricted Shares awarded
pursuant to this Section 8 shall be subject to the following restrictions and
conditions:
(i) During a period set by the Board commencing with the
date of such award (the "Restriction Period"), the Participant shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber Restricted
Shares awarded under the Plan. The Board, in its sole discretion, may provide
for the lapse of such restrictions in installments and may accelerate or waive
such restrictions in whole or in part, based on service, performance and/or such
other factors or criteria as the Board may determine, in its sole discretion.
(ii) Except as provided in this Paragraph (ii) and Section
8(c)(i), once the Participant has been issued a certificate or certificates for
Restricted Shares, the Participant shall have, with respect to the Restricted
Shares, all of the rights of a shareholder of the Company, including the right
to vote the Shares, and the right to receive any cash distributions or
dividends. The Board, in its sole discretion, as determined at the time of
award, may permit or require the payment of cash distributions or dividends to
be deferred and, if the Board so determines, reinvested in additional Restricted
Shares to the extent Shares are available under Section 3 of the Plan.
(iii) Subject to the applicable provisions of the award
agreement and this Section 8, upon termination of a Participant's service with
the Company for reasons other than death or Disability, all Restricted Shares
still subject to restriction shall be forfeited by the Participant. Upon the
death or Disability of a Participant during the Restriction Period:
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<PAGE> 12
(1) restrictions based on continued employment will
lapse with respect to a percentage of the Restricted Shares award granted to the
Participant that is equal to the percentage of the Restriction Period that has
elapsed as of the date of death or the date on which such Disability commenced
(as determined by the Board in its sole discretion),
(2) restrictions based on individual or corporate
performance will lapse to the extent determined by the Board in its sole
discretion, and
a share certificate or share certificates representing such Shares, without
bearing the restrictive legend described in Section 8(b), shall be delivered by
the Company to the Participant or the Participant's estate, as the case may be,
in exchange for the share certificate or share certificates that contain such
restrictive legend.
(iv) In the event of hardship or other special
circumstances of a Participant whose service with the Company is involuntarily
terminated (other than for Cause), the Board may, in its sole discretion, waive
in whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Shares, based on such factors as the Board may deem
appropriate.
(v) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Shares subject to such Restriction Period,
the certificates for such Shares, without bearing the restrictive legend
described in Section 8(b), shall be promptly delivered by the Company to the
Participant, in exchange for the share certificate or share certificates that
contain such restrictive legend.
(vi) In the event of a Change of Control, the Board, in its
sole discretion, may cause all Restricted Shares remaining subject to forfeiture
to immediately cease to be subject to forfeiture and a share certificate or
shares certificates representing such Shares, without bearing the restrictive
legend described in Section 8(b), shall be issued by the Company and delivered
to the Participant, in exchange for the share certificate or share certificates
that contain such restrictive legend.
SECTION 9. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan at any time, but, except as otherwise provided in Section
3(d) of the Plan, no amendment, alteration or discontinuation shall be made
which would impair the rights of a Participant with respect to an Option, SAR or
Restricted Share which has been granted under the Plan, without the
Participant's consent, or which, without the approval of such amendment within
one year (365 days) of its adoption by the Board, by a majority of the votes
cast at a duly held shareholder meeting at which a quorum representing a
majority of the Company's outstanding voting shares is present (either in person
or by proxy), would:
a. except as otherwise provided in the Plan, increase the
total number of Shares reserved for the purposes of the Plan;
b. change the persons or class of persons eligible to
participate in the Plan; or
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<PAGE> 13
c. extend the maximum Option term under Section 5(b) of the
Plan.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable tax laws and
accounting rules, as well as other developments.
SECTION 10. UNFUNDED STATUS OF PLAN. The Plan is intended to be
"unfunded." With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company. In its sole
discretion, the Board may authorize the creation of grantor trusts or other
arrangements to meet the obligations created under the Plan to deliver Shares or
payments in lieu of Shares or with respect to awards hereunder.
SECTION 11. GENERAL PROVISIONS.
a. The Board may require each person acquiring Shares or a
Share-based Award under the Plan to represent to and agree with the Company in
writing that the Participant is acquiring the Shares or Share-based Award for
investment purposes and without a view to distribution thereof and as to such
other matters as the Board believes are appropriate to ensure compliance with
applicable Federal and state securities laws. The certificate evidencing such
Award and any securities issued pursuant thereto may include any legend which
the Board deems appropriate to reflect any restrictions on transfer and
compliance with securities laws.
All certificates for Shares or other securities delivered
under the Plan shall be subject to such share-transfer orders and other
restrictions as the Board may deem advisable under the rules, regulations, and
other requirements of the Securities Act of 1933, as amended, the Exchange Act,
any stock exchange upon which the Shares are then listed, and any other
applicable Federal or state securities laws, and the Board may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
b. Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
c. The adoption of the Plan shall not confer upon any employee
of the Company or a Subsidiary any right to continued employment with the
Company or such Subsidiary, nor shall it interfere in any way with the right of
the Company or such Subsidiary to terminate the employment of any of its
employees at any time.
d. No later than the date as of which an amount first becomes
includable in the gross income of the Participant for Federal income tax
purposes with respect to any award under the Plan, the Participant shall pay to
the Company, or make arrangements satisfactory to the Board regarding the
payment, of any Federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the Board,
the minimum required withholding obligations may be settled with Shares,
including Shares that are
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<PAGE> 14
part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
e. The Board shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
f. Except as may otherwise be specifically determined by the
Board with respect to a particular award of Non-Qualified Stock Option, SARs or
Restricted Shares, no Award will be transferable by the Participant otherwise
than by will or by the laws of descent and distribution, and all awards will be
exercisable, during the Participant's lifetime, only by the Participant or, in
the event of his Disability, by his personal representative.
g. The Plan and all Awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Tennessee.
SECTION 12. EFFECTIVE DATE OF PLAN. This Plan shall become effective on
the date that it is adopted by the Board; provided, however, that it shall not
be an Incentive Stock Option Plan if it is not approved, within one year (365
days) of its adoption by the Board, by a majority of the votes cast at a duly
held shareholder meeting at which a quorum representing a majority of Company's
outstanding voting shares is present, either in person or by proxy. The Board
may make awards hereunder prior to approval of the Plan; provided, however, that
any and all Incentive Stock Options so awarded automatically shall be converted
into Non-Qualified Stock Options if the Plan is not approved by shareholders
within 365 days of its adoption.
SECTION 13. TERM OF PLAN. No Option, SAR or Restricted Share will be
granted pursuant to the Plan on or after the tenth (10th) anniversary of the
date of shareholder approval of the Plan, but awards granted prior to such tenth
(10th) anniversary may extend beyond that date.
SECTION 14. INVALID PROVISIONS. In the event that any provision of this
Plan is found to be invalid or otherwise unenforceable under any applicable law,
such invalidity or unenforceability shall not be construed as rendering any
other provisions contained herein as invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same extent as
though the invalid or unenforceable provision was not contained herein.
SECTION 15. GOVERNING LAW. This Plan shall be governed by and construed
in accordance with the laws and judicial decisions of the State of Tennessee,
without regard to the application of the principles of conflicts of laws.
SECTION 16. BOARD ACTION. Notwithstanding anything to the contrary set
forth in this Plan, any and all actions of the Board or Committee, as the case
may be, taken under or in connection with this Plan and any agreements,
instruments, documents, certificates or other writings entered into, executed,
granted, issued and/or delivered pursuant to the terms hereof,
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<PAGE> 15
shall be subject to and limited by any and all votes, consents, approvals,
waivers or other actions of all or certain stockholders of the Company or other
persons required by:
(i) the Company's Articles of Incorporation (as the same may be
amended and/or restated from time to time);
(ii) the Company's Bylaws (as the same may be amended and/or
restated from time to time); and
(iii) any other agreement, instrument, document or writing now or
hereafter existing, between or among the Company and its
stockholders or other persons (as the same may be amended from
time to time).
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<PAGE> 1
EXHIBIT 10.11
KIRKLAND'S, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The Kirkland's, Inc. Employee Stock Purchase Plan (the "Plan") is
intended to encourage and facilitate the purchase of Shares of the Common Stock
of Kirkland's, Inc. (the "Company"), by employees of the Company and any
Participating Companies, thereby providing employees with a personal stake in
the Company and a long range inducement to remain in the employ of the Company
and Participating Companies. It is the intention of the Company that the Plan
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
2. DEFINITIONS.
(a) "Account" means a bookkeeping account established by the Committee
on behalf of a Participant to hold Payroll Deductions.
(b) "Approved Leave of Absence" means a leave of absence that has been
approved by the applicable Participating Company in such a manner as the Board
may determine from time to time.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Committee appointed pursuant to section 14 of
the Plan.
(f) "Company" means Kirkland's, Inc.
(g) "Compensation" means an Employee's total cash compensation payable
for services rendered to a Participating Company during a calendar month.
(h) "Election Form" means the form acceptable to the Committee which an
Employee shall use to make an election to purchase Shares through Payroll
Deductions pursuant to the Plan.
(i) "Eligible Employee" means an Employee who meets the requirements
for eligibility under section 3 of the Plan.
(j) "Employee" means a person who is an employee of a Participating
Company.
(k) "Five Percent Owner" means an Employee who, with respect to a
Participating Company, is described in section 423(b) of the Code.
<PAGE> 2
(l) "Offering" means an offering of Shares to Eligible Employees
pursuant to the Plan.
(m) "Offering Commencement Date" means the first day of each January,
April, July and October, beginning on or after adoption of the Plan by the
Board, until the Plan Termination Date, provided that the first Offering
Commencement Date shall be July 1, 1998, or such later date as may be determined
by the Committee.
(n) "Offering Period" means the period extending from an Offering
Commencement Date through the following Offering Termination Date.
(o) "Offering Termination Date" means the last day of each three-month
period following an Offering Commencement Date.
(p) "Option Price" means ___(1) percent of the average of the high and
low sales prices per Share on the principal exchange on which the Shares are
listed or, if not so listed, on the Nasdaq National Market, on the Offering
Termination Date, or if such date is not a trading day, then on the next trading
day thereafter.
(q) "Participant" means an Employee who meets the requirements for
eligibility under section 3 of the Plan and who has timely delivered an Election
Form to the Committee.
(r) "Participating Company" means, the Company and subsidiaries of the
Company, within the meaning of section 424(f) of the Code, if any, that are
approved by the Board from time to time and whose employees are designated as
Employees by the Board.
(s) "Payroll Deductions" means amounts withheld from a Participant's
Compensation pursuant to the Plan, as described in section 5 of the Plan.
(t) "Plan" means Kirkland's, Inc. Employee Stock Purchase Plan, as set
forth in this document, and as may be amended from time to time.
(u) "Plan Termination Date" means the earlier of:
(1) The Offering Termination Date for the Offering in which the
maximum number of Shares specified in section 5 of the Plan have been issued
pursuant to the Plan; or
(2) The date as of which the Board chooses to terminate the Plan as
provided in section 15 of the Plan.
(v) "Shares" means shares of Common Stock of the Company, no par value.
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(1)May be any amount from 85% to 100%.
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<PAGE> 3
(w) "Successor-in-Interest" means the Participant's executor or
administrator, or such other person or entity to whom the Participant's rights
under the Plan shall have passed by will or the laws of descent and
distribution.
(x) "Termination Form" means the form acceptable to the Committee which
an Employee shall use to withdraw from an Offering pursuant to section 8 of the
Plan.
3. ELIGIBILITY AND PARTICIPATION.
(a) Initial Eligibility. Except as provided in section 3(b) of the
Plan, each Employee shall be eligible to participate in the Plan.
(b) Ineligibility. An Employee shall not be eligible to participate in
the Plan if such Employee:
(1) is a Five Percent Owner;
(2) has not been employed by a Participating Company for a period
of at least six (6) consecutive months;
(3) does not customarily perform work for a Participating Company
more than 20 hours per week; or
(4) is restricted from participating under section 3(d) of the
Plan.
(c) Leave of Absence. For purposes of participation in the Plan, an
Employee on an Approved Leave of Absence shall be deemed to be an Employee for
the first 90 days of such Approved Leave of Absence and such Employee's
employment shall be deemed to have terminated for purposes of participation
under the Plan at the close of business on the 90th day of such Approved Leave
of Absence unless such Employee shall have returned to regular non-temporary
employment before the close of business on such 90th day. Termination by the
Participating Company of an Employee's Approved Leave of Absence, other than
termination or return to non-temporary employment, shall terminate an Employee's
employment for all purposes of the Plan and shall terminate such Employee's
participation in the Plan and the right to exercise any option. An Approved
Leave of Absence shall be considered active employment for purposes of sections
3(b)(2) and 3(b)(3) of the Plan.
(d) Restrictions on Participation. Notwithstanding any provisions of
the Plan to the contrary, no Employee shall be granted an option to participate
in the Plan if:
(1) Immediately after the grant, such Employee would be a Five
Percent Owner; or
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<PAGE> 4
(2) Such option would permit such Employee's rights to purchase
stock under all employee stock purchase plans of the Participating Companies
which meet the requirements of section 423(b) of the Code to accrue at a rate
which exceeds $25,000 in fair market value (as determined pursuant to section
423(b)(8) of the Code) for each calendar year in which such option is
outstanding.
(e) Commencement of Participation. An Employee who meets the
eligibility requirements of sections 3(a) and 3(b) of the Plan and whose
participation is not restricted under section 3(d) of the Plan shall become a
Participant by completing an Election Form and filing it with the Committee on
or before the 15th day of the month immediately preceding the Offering
Commencement Date for the first Offering to which such Election Form applies.
Payroll Deductions for a Participant shall commence on the applicable Offering
Commencement Date when his or her authorization for Payroll Deductions becomes
effective, and shall end on the Plan Termination Date, unless sooner terminated
by the Participant pursuant to section 8 of the Plan.
4. SHARES PER OFFERING.
The Plan shall be implemented by a series of Offerings that shall
terminate on the Plan Termination Date. Offerings shall be made with respect to
Compensation payable for each calendar month of the Company's fiscal year for
the period commencing with the first day of the initial Offering Commencement
Date and ending with the Plan Termination Date. Shares available for any
Offering shall be the difference between the maximum number of Shares that may
be issued under the Plan, as determined pursuant to section 10(a) of the Plan,
for all of the Offerings, less the actual number of Shares purchased by
Participants pursuant to prior Offerings. If the total number of Shares for
which options are exercised on any Offering Termination Date exceeds the maximum
number of Shares available, the Committee shall make a pro rata allocation of
Shares available for delivery and distribution in as nearly a uniform manner as
practicable, and as it shall determine to be fair and equitable, and the
unapplied Account balances shall be returned to Participants as soon as
practicable following the Offering Termination Date.
5. PAYROLL DEDUCTIONS.
(a) Amount of Payroll Deductions. Each Participant's Election Form
shall specify the amount of Payroll Deductions to be made from his or her
Compensation on each regular payday during the time that he or she participates
in the Plan; provided, however, that the Committee may from time to time
establish rules or limitations applicable to the amount of Payroll Deductions
that may be made from each Participant's Compensation; and provided further that
any rules or limitations established by the Committee under this Section 5 shall
be consistent with section 423(b)(5) of the Code.
(b) Participants' Accounts. All Payroll Deductions with respect to a
Participant pursuant to section 5(a) of the Plan shall be credited to the
Participant's Account under the Plan.
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<PAGE> 5
(c) Changes in Payroll Deductions. A Participant may discontinue his
participation in the Plan as provided in section 8(a) of the Plan, but no other
change can be made during an Offering, including, but not limited to, changes in
the amount of Payroll Deductions for such Offering. A Participant may change the
amount of Payroll Deductions for subsequent Offerings by giving written notice
of such change to the Committee on or before the 15th day of the month
immediately preceding the Offering Commencement Date for the Offering for which
such change is effective.
(d) Leave of Absence. A Participant who goes on an Approved Leave of
Absence before the Offering Termination Date after having filed an Election Form
with respect to such Offering may:
(1) Withdraw the balance credited to his or her Account pursuant to
section 8(b) of the Plan;
(2) Discontinue contributions to the Plan but remain a Participant
in the Plan through the Offering Termination Date;
(3) Remain a Participant in the Plan during such Approved Leave of
Absence through the Offering Termination Date and continue the authorization for
the Participating Company to make Payroll Deductions for each payroll period out
of continuing payments to such Participant, if any.
6. GRANTING OF OPTIONS.
On each Offering Termination Date, each Participant shall be deemed to
have been granted an option to purchase a minimum of one (1) Share and a maximum
number of Shares that shall be a number of whole Shares equal to the quotient
of: (a) the balance credited to the Participant's Account as of the Offering
Termination Date, divided by (b) the Option Price.
7. EXERCISE OF OPTIONS.
(a) Automatic Exercise. With respect to each Offering, a Participant's
option for the purchase of Shares granted pursuant to section 6 of the Plan
shall be deemed to have been exercised automatically on the Offering Termination
Date applicable to such Offering.
(b) Fractional Shares and Minimum Number of Shares. To the extent that
a Participant's Account is not sufficient to acquire whole shares only,
fractional Shares shall be credited to the Participant.
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<PAGE> 6
(c) Transferability of Option. No option granted to a Participant
pursuant to the Plan shall be transferable other than by will or by the laws of
descent and distribution, and no such option shall be exercisable during the
Participant's lifetime other than by the Participant.
(d) Delivery of Certificates for Shares. The Company shall deliver
certificates for Shares acquired on the exercise of options during an Offering
Period as soon as practicable following the Offering Termination Date.
8. WITHDRAWALS.
(a) Withdrawal of Account. A Participant may elect to withdraw the
balance credited to the Participant's Account by providing a Termination Form to
the Committee at any time before the Offering Termination Date applicable to any
Offering.
(b) Amount of Withdrawal. A Participant may withdraw all, but not less
than all, of the amounts credited to the Participant's Account by giving a
Termination Form to the Committee. All amounts credited to such Participant's
Account shall be paid as soon as practicable following the Committee's receipt
of the Participant's Termination Form, and no further Payroll Deductions will be
made with respect to the Participant.
(c) Effect of Withdrawal on Subsequent Participation. A Participant who
elects to withdraw from an Offering pursuant to section 8(a) of the Plan shall
be deemed to have elected not to participate in each of the four succeeding
Offerings following the date on which the Participant gives a Termination Form
to the Committee.
(d) Termination of Employment. Upon termination of a Participant's
employment for any reason other than death, including termination due to
disability or continuation of a leave of absence beyond 90 days, all amounts
credited to such Participant's Account shall be returned to the Participant. In
the event of a Participant's (1) termination of employment due to death or (2)
death after termination of employment but before the Participant's Account has
been returned, all amounts credited to such Participant's Account shall be
returned to the Participant's Successor-in-Interest.
(e) Leave of Absence. A Participant who is on an Approved Leave of
Absence shall, subject to the Participant's election pursuant to section 5(d) of
the Plan, continue to be a Participant in the Plan until the end of the first
Offering ending after commencement of such Approved Leave of Absence. A
Participant who has been on an Approved Leave of Absence for more than 90 days
shall not be eligible to participate in any Offering that begins on or after the
commencement of such Approved Leave of Absence so long as such leave of absence
continues.
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<PAGE> 7
9. INTEREST.
No interest shall be paid or allowed with respect to amounts paid into
the Plan or credited to any Participant's Account.
10. SHARES.
(a) Maximum Number of Shares. No more than 2,700 Shares may be issued
under the Plan. Such Shares may be unissued shares or treasury shares of the
Company. The number of Shares available for any Offering and all Offerings shall
be adjusted if the number of outstanding Shares of the Company is increased or
reduced by split-up, reclassification, stock dividend or other similar event.
All Shares issued pursuant to the Plan shall be validly issued, fully paid and
nonassessable.
(b) Participant's Interest in Shares. A Participant shall have no
interest in Shares subject to an option until such option has been exercised.
(c) Registration of Shares. Shares to be delivered to a Participant
under the Plan shall be registered in the name of the Participant.
(d) Restrictions on Exercise. The Board may, in its discretion, require
as conditions to the exercise of any option such conditions as it may deem
necessary to assure that the exercise of options is in compliance with all
applicable laws.
11. EXPENSES.
The Participating Companies shall pay all fees and expenses incurred
(excluding individual Federal, state, local or other taxes) in connection with
the Plan. No charge or deduction for any such expenses will be made to a
Participant upon the termination of his or her participation under the Plan or
upon the distribution of certificates representing Shares purchased with his or
her contributions.
12. TAXES.
The Participating Companies shall have the right to withhold from each
Participant's Compensation an amount equal to all Federal, state, city or other
taxes as the Participating Companies shall determine are required to be withheld
by them. In connection with such withholding, the Participating Companies may
make any such arrangements as are consistent with the Plan as it may deem
appropriate, including the right to withhold from Compensation paid to a
Participant other than in connection with the Plan.
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<PAGE> 8
13. PLAN AND CONTRIBUTIONS NOT TO AFFECT EMPLOYMENT.
The Plan shall not confer upon any Eligible Employee any right to
continue in the employ of the Participating Companies.
14. ADMINISTRATION.
The Plan shall be administered by the Board, which may delegate
responsibility for such administration to a committee of the Board (the
"Committee"). If the Board fails to appoint the Committee, any references in the
Plan to the Committee shall be treated as references to the Board. The Board, or
the Committee, shall have authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, and to make all other
determinations deemed necessary or advisable in administering the Plan, with or
without the advice of counsel. The determinations of the Board or the Committee
on the matters referred to in this paragraph shall be conclusive and binding
upon all persons in interest.
15. AMENDMENT AND TERMINATION.
The Board may terminate the Plan at any time and may amend the Plan
from time to time in any respect; provided, however, that upon any termination
of the Plan, all Shares or Payroll Deductions (to the extent not yet applied to
the purchase of Shares) under the Plan shall be distributed to the Participants;
provided further, that no amendment to the Plan shall affect the right of a
Participant to receive his or her proportionate interest in the Shares or his or
her Payroll Deductions (to the extent not yet applied to the purchase of Shares)
under the Plan; and provided further that the Company may seek shareholder
approval of an amendment to the Plan if such approval is determined to be
required by or advisable under the regulations of the Securities or Exchange
Commission or the Internal Revenue Service, the rules of any stock exchange or
system on which the Shares are listed, or other applicable law, rule or
regulation.
16. EFFECTIVE DATE.
The Plan shall be effective on the date of adoption by the Board,
subject to approval by the Company's shareholders within one year thereafter.
Any option granted before the approval of the Plan by the Company's shareholders
shall be expressly conditioned upon such approval, and no Share certificates
shall be issued until such approval. If shareholder approval is not received
within 12 months before or after the date of the initial adoption of the Plan by
the Board, no Share certificates shall be issued with respect to any automatic
exercises which may have occurred pursuant to section 7 of the Plan, and all
amounts credited to Participants' Accounts with respect to such Shares shall be
returned to Participants as soon as administratively practicable.
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<PAGE> 9
17. GOVERNMENT AND OTHER REGULATIONS.
(a) In General. The purchase of Shares under the Plan shall be subject
to all applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be required.
(b) Securities Law. The Committee shall have the power to make each
grant under the Plan subject to such conditions as it deems necessary or
appropriate to comply with the then-existing requirements of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
including Rule 16b-3 (or any similar rule) of the Securities and Exchange
Commission.
18. NON-ALIENATION.
No Participant shall be permitted to assign, alienate, sell, transfer,
pledge or otherwise encumber his interest under the Plan prior to the
distribution to him of Share certificates. Any attempt at assignment,
alienation, sale, transfer, pledge or other encumbrance shall be void and of no
effect.
19. NOTICES.
Any notice required or permitted hereunder shall be sufficiently given
only if delivered personally, telecopied, or sent by first class mail, postage
prepaid, and addressed:
If to the Company:
Kirkland's, Inc.
805 N. Parkway
P.O. Box 7222
Jackson, Tennessee 38308-7222
Attention: Employee Stock Purchase Plan Committee
Or any other address provided pursuant to written notice.
If to the Participant:
At the address on file with the Company from time to time, or to such
other address as either party may hereafter designate in writing by
notice similarly given by one party to the other.
- 9 -
<PAGE> 10
20. SUCCESSORS.
The Plan shall be binding upon and inure to the benefit of any
successor, successors or assigns of the Company.
21. SEVERABILITY.
If any part of this Plan shall be determined to be invalid or void in
any respect, such determination shall not affect, impair, invalidate or nullify
the remaining provisions of this Plan which shall continue in full force and
effect.
22. ACCEPTANCE.
The election by any Eligible Employee to participate in this Plan
constitutes his or her acceptance of the terms of the Plan and his or her
agreement to be bound hereby.
23. APPLICABLE LAW.
This Plan shall be construed in accordance with the laws of the State
of Tennessee, without regard to the application of the principles of conflicts
or choice of laws.
- 10 -
<PAGE> 1
EXHIBIT 10.12
AETNA LIFE INSURANCE AND ANNUITY COMPANY
401(k) PROFIT SHARING PLAN
<PAGE> 2
AETNA LIFE INSURANCE AND ANNUITY COMPANY
401(k) PROFIT SHARING PLAN
(C) 1990 Aetna Life Insurance and Annuity Company
<PAGE> 3
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
<TABLE>
<S> <C> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS .................... 11
2.2 DETERMINATION OF TOP HEAVY STATUS .............. 12
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER .... 15
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY ........ 15
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES .. 15
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR ......... 16
2.7 RECORDS AND REPORTS ............................ 17
2.8 APPOINTMENT OF ADVISERS ........................ 17
2.9 INFORMATION FROM EMPLOYER ...................... 17
2.10 PAYMENT OF EXPENSES ............................ 17
2.11 MAJORITY ACTIONS ............................... 17
2.12 CLAIMS PROCEDURE ............................... 17
2.13 CLAIMS REVIEW PROCEDURE ........................ 18
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY ...................... 18
3.2 EFFECTIVE DATE OF PARTICIPATION ................ 18
3.3 DETERMINATION OF ELIGIBILITY ................... 18
3.4 TERMINATION OF ELIGIBILITY ..................... 19
3.5 OMISSION OF ELIGIBLE EMPLOYEE .................. 19
3.6 INCLUSION OF INELIGIBLE EMPLOYEE ............... 19
3.7 ELECTION NOT TO PARTICIPATE .................... 19
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE .......... 19
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE IV
CONTRIBUTION AND ALLOCATION
<S> <C> <C>
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION ...... 20
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION .............. 20
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION ........... 23
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.. 24
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ..................... 28
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS ....... 30
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ................. 33
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS ... 36
4.9 MAXIMUM ANNUAL ADDITIONS ............................. 38
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS ............ 44
4.11 TRANSFERS FROM QUALIFIED PLANS ....................... 44
4.12 VOLUNTARY CONTRIBUTIONS .............................. 46
4.13 DIRECTED INVESTMENT ACCOUNT .......................... 46
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS.. ......... 47
4.15 INTEGRATION IN MORE THAN ONE PLAN .................... 47
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND .......................... 47
5.2 METHOD OF VALUATION .................................. 48
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT ............ 48
6.2 DETERMINATION OF BENEFITS UPON DEATH ................. 48
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ..... 49
6.4 DETERMINATION OF BENEFITS UPON TERMINATION ........... 49
6.5 DISTRIBUTION OF BENEFITS ............................. 52
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
6.6 DISTRIBUTION OF BENEFITS UPON DEATH ..................................................... 56
6.7 TIME OF SEGREGATION OR DISTRIBUTION ..................................................... 59
6.8 DISTRIBUTION FOR MINOR BENEFICIARY ...................................................... 59
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN .......................................... 60
6.10 PRE-RETIREMENT DISTRIBUTION ............................................................. 60
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP ....................................................... 60
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS ............................................... 61
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS ...................................................... 61
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE ................................................... 62
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE ............................................. 62
7.3 OTHER POWERS OF THE TRUSTEE ............................................................. 63
7.4 LOANS TO PARTICIPANTS ................................................................... 65
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES ........................................... 67
7.7 ANNUAL REPORT OF THE TRUSTEE ............................................................ 67
7.8 AUDIT ................................................................................... 68
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE .......................................... 68
7.10 TRANSFER OF INTEREST .................................................................... 69
7.11 TRUSTEE INDEMNIFICATION ................................................................. 69
7.12 EMPLOYER SECURITIES AND REAL PROPERTY ................................................... 69
7.13 POWERS AND DUTIES OF THE CUSTODIAN ...................................................... 70
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT............................................................................... 70
8.2 TERMINATION............................................................................. 71
8.3 MERGER OR CONSOLIDATION................................................................. 71
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE IX
MISCELLANEOUS
<S> <C> <C>
9.1 EMPLOYER ADOPTIONS .................................... 71
9.2 PARTICIPANT'S RIGHTS .................................. 71
9.3 ALIENATION ............................................ 72
9.4 CONSTRUCTION OF PLAN .................................. 72
9.5 GENDER AND NUMBER ..................................... 72
9.6 LEGAL ACTION .......................................... 72
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS ................ 73
9.8 BONDING ............................................... 73
9.9 INSURER'S PROTECTIVE CLAUSE ........................... 73
9.10 RECEIPT AND RELEASE FOR PAYMENTS ...................... 73
9.11 ACTION BY THE EMPLOYER ................................ 73
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY .... 74
9.13 HEADINGS .............................................. 74
9.14 APPROVAL BY INTERNAL REVENUE SERVICE .................. 74
9.15 UNIFORMITY ............................................ 75
9.16 PAYMENT OF BENEFITS ................................... 75
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER ........... 75
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ............... 75
10.3 DESIGNATION OF AGENT .................................. 75
10.4 EMPLOYEE TRANSFERS .................................... 76
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES.. 76
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
10.6 AMENDMENT .......................................... 76
10.7 DISCONTINUANCE OF PARTICIPATION .................... 76
10.8 ADMINISTRATOR'S AUTHORITY .......................... 76
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE .. 76
</TABLE>
<PAGE> 8
ARTICLE I
DEFINITIONS
As used in this Plan, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by the
context:
1.1 "ACT" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "ADMINISTRATOR" means the person(s) or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
1.3 "ADOPTION AGREEMENT" means the separate Agreement which is executed
by the Employer and accepted by the Trustee which sets forth the elective
provisions of this Plan and Trust as specified by the Employer.
1.4 "AFFILIATED EMPLOYER" means the Employer and any corporation which
is a member of a controlled group of corporations (as defined in Code Section
414(b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section 414(c))
with the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414(o).
1.5 "AGGREGATE ACCOUNT" means with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
1.6 "ANNIVERSARY DATE" means the anniversary date specified in C3 of
the Adoption Agreement.
1.7 "BENEFICIARY" means the person to whom a share of a deceased
Participant's interest in the Plan is payable, subject to the restrictions of
Sections 6.2 and 6.6.
1.8 "CODE" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.9 "COMPENSATION" with respect to any Participant means such
Participant's compensation as specified by the Employer in E1 of the Adoption
Agreement that is paid during the applicable period. Compensation for any
Self-Employed Individual shall be equal to his Earned Income.
In addition, if specified in the Adoption Agreement, Compensation for
all Plan purposes shall also include compensation which is not currently
includible in the Participant's gross income by reason of the application of
Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d). In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because such Participant is either a "five percent
owner" of the Employer or one of the ten (10) Highly Compensated Employees paid
the greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If,
1
<PAGE> 9
as a result of the application of such rules, the adjusted $200,000 limitation
is exceeded, then (except for purposes of determining the portion of
Compensation up to the integration level if this plan is integrated), the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this Section prior to
the application of this limitation.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.10 "CONTRACT" OR "POLICY" means any life insurance policy, retirement
income policy, or annuity contract (group or individual) issued by the Insurer.
In the event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "CUSTODIAN" means Aetna Life Insurance and Annuity Company. The
Custodian may resign at any time by giving thirty (30) days written notice to
the Employer, and shall cease to be Custodian upon delivery of all Plan assets
in its possession to the Trustee or a successor Custodian.
1.12 "DEFERRED COMPENSATION" means that portion of a Participant's total
Compensation that such Participant has elected to defer for a Plan Year pursuant
to Section 4.2.
1.13 "EARLY RETIREMENT DATE" means the date specified in the Adoption
Agreement on which a Participant or Former Participant has satisfied the age and
service requirements specified in the Adoption Agreement (Early Retirement Age).
A Participant shall become fully Vested upon satisfying this requirement if
still employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the
service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.14 "EARNED INCOME" means with respect to a Self-Employed Individual, the
net earnings from self-employment in the trade or business with respect to which
the Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Employer to a qualified
Plan to the extent deductible under Code Section 404. In addition, for Plan
Years beginning after December 31, 1989, net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f).
1.15 "ELECTIVE CONTRIBUTION" means the Employer's contributions to the Plan
that are made pursuant to the Participant's deferral election pursuant to
Section 4.2. In addition, if selected in E3 of the Adoption Agreement, the
Employer's matching contribution made pursuant to Section 4.1(b) shall be
considered an Elective Contribution for purposes of the Plan. Elective
Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c)
and shall further be required to satisfy the discrimination requirements of
Regulation 1.401(k)-1(b)(3), the provisions of which are specifically
incorporated herein by reference.
1.16 "ELIGIBLE EMPLOYEE" means any Employee specified in D1 of the Adoption
Agreement.
1.17 "EMPLOYEE" means any person who is employed by the Employer, but
excludes any person who is employed as an independent contractor. The term
Employee shall also include Leased Employees as provided in Code Section 414(n)
or (o).
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be treated as
employed by a single employer.
2
<PAGE> 10
1.18 "EMPLOYER" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this Plan,
any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.19 "EXCESS COMPENSATION" means, with respect to a Plan that is integrated
with Social Security, a Participant's Compensation which is in excess of the
amount set forth in the Adoption Agreement.
1.20 "EXCESS CONTRIBUTIONS" means, with respect to a Plan Year, the excess
of Elective Contributions and Qualified Non-Elective Contributions made on
behalf of Highly Compensated Participants for the Plan Year over the maximum
amount of such contributions permitted under Section 4.5(a).
1.21 "EXCESS DEFERRED COMPENSATION" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference.
1.22 "FAMILY MEMBER" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.23 "FIDUCIARY" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.24 "FISCAL YEAR" means the Employer's accounting year as specified in
the Adoption Agreement.
1.25 "FORFEITURE" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.26 "FORMER PARTICIPANT" means a person who has been a Participant, but who
has ceased to be a Participant for any reason.
1.27 "414(s) COMPENSATION" with respect to any Employee means his
Compensation as defined in Section 1.9. However, for purposes of this Section,
Compensation shall be Compensation paid and shall be determined by including, in
the case of a non-standardized Adoption Agreement, any items that are excluded
from Compensation pursuant to the Adoption Agreement. The amount of "414(s)
Compensation" with respect to any Employee shall include "414(s) Compensation"
during the entire twelve (12) month period ending on the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1,
1992, or the
3
<PAGE> 11
date that is sixty (60) days after the date final Regulations are issued,
"414(s) Compensation" shall only be recognized as of an Employee's effective
date of participation.
In addition, if specified in the Adoption Agreement, "414(s)
Compensation" shall also include compensation which is not currently includible
in the Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(h)(1)(B), or 403(b), plus Elective Contributions
attributable to Deferred Compensation recharacterized as voluntary Employee
contributions pursuant to 4.6(a).
1.28 "415 COMPENSATION" means compensation as defined in Section 4.9(f)(2).
1.29 "HIGHLY COMPENSATED EMPLOYEE" means an Employee described in Code
Section 414(q) and the Regulations thereunder and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section
1.36(c).
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top Paid
Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations
under Code Section 416) and received "415 Compensation" during the
"look-back year" from the Employer greater than 50 percent of the limit
in effect under Code Section 415(b)(1)(A) for any such Plan Year. The
number of officers shall be limited to the lesser of (i) 50 employees;
or (ii) the greater of 3 employees or 10 percent of all employees. If
the Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid
the greatest "415 Compensation" during the "determination year" and are
also described in (b), (c) or (d) above when these paragraphs are
modified to substitute "determination year" for "look-back year".
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period. However, if the Plan Year is a calendar year, or if another
Plan of the Employer so provides, then the "look-back year" shall be the
calendar year ending with or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable) shall be the period of
time, if any, which extends beyond the "look-back year" and ends on the last day
of the Plan Year for which testing is being performed (the "lag period"). With
respect to this election, it shall be applied on a uniform and consistent basis
to all plans, entities, and arrangements of the Employer.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b). Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are those for the calendar
year in which the "determination year" or "look-back year" begins.
4
<PAGE> 12
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. In addition, Highly
Compensated Former Employees shall be treated as Highly Compensated Employees
without regard to whether they performed services during the "determination
year".
1.30 "HIGHLY COMPENSATED FORMER EMPLOYEE" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For purposes
of this Section, "determination year", "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.29. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
1.31 "HIGHLY COMPENSATED PARTICIPANT" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.32 "HOUR OF SERVICE" means (1) each hour for which an Employee is directly
or indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour
for which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
5
<PAGE> 13
An Hour of Service must be counted for the purpose of determining a Year
of Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c)
are incorporated herein by reference.
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee pursuant to
Code Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected
in the Adoption Agreement.
1.33 "INSURER" means Aetna Life Insurance and Annuity Company or any of its
affiliates or subsidiaries, or any legal reserve insurance company which has
issued one or more policies under the Plan prior to the adoption of this Plan.
1.34 "INVESTMENT MANAGER" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.35 "JOINT AND SURVIVOR ANNUITY" means an annuity for the life of a
Participant with a survivor annuity for the life of the Participant's spouse
which is not less than 1/2, nor greater than the amount of the annuity payable
during the joint lives of the Participant and the Participant's spouse. The
Joint and Survivor Annuity will be the amount of benefit which can be purchased
with the Participant's Vested interest in the Plan.
1.36 "KEY EMPLOYEE" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as well
as each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under
Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from
the Employer for a Plan Year greater than the dollar limitation in
effect under Code Section 415(c)(1)(A) for the calendar year in which
such Plan Year ends and owning (or considered as owning within the
meaning of Code Section 318) both more than one-half percent interest
and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than five percent (5%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total
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combined voting power of all stock of the Employer or, in the case of
an unincorporated business, any person who owns more than one percent
(1%) of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be treated as separate employers. However, in determining whether
an individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b).
1.37 "LATE RETIREMENT DATE" means the date of, or the first day of the month
or the Anniversary Date coinciding with or next following, whichever corresponds
to the election made for the Normal Retirement Date, a Participant's actual
retirement after having reached his Normal Retirement Date.
1.38 "LEASED EMPLOYEE" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A leased employee shall not be considered an Employee of the recipient
if: (i) such employee is covered by a money purchase pension plan providing: (1)
a nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employee's gross income under Code Sections 125, 402(a)(8), 402(h) or
403(b), (2) immediate participation, and (3) full and immediate vesting; and
(ii) leased employees do not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
1.39 "NET PROFIT" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income, or for
contributions made by the Employer to this Plan and any other qualified plan.
1.40 "NON-ELECTIVE CONTRIBUTION" means the Employer's contributions to the
Plan other than those made pursuant to the Participant's deferral election made
pursuant to Section 4.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4.1(b) shall be considered a
Non-Elective Contribution for purposes of the Plan.
1.41 "NON-HIGHLY COMPENSATED PARTICIPANT" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.42 "NON-KEY EMPLOYEE" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.43 "NORMAL RETIREMENT AGE" means the age specified in the Adoption
Agreement at which time a Participant shall become fully Vested in his
Participant's Account.
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1.44 "NORMAL RETIREMENT DATE" means the date specified in the Adoption
Agreement on which a Participant shall become eligible to have his benefits
distributed to him.
1.45 "1-YEAR BREAK IN SERVICE" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.46 "OWNER-EMPLOYEE" means a sole proprietor who owns the entire interest
in the Employer or a partner who owns more than 10% of either the capital
interest or the profits interest in the Employer and who receives income for
personal services from the Employer.
1.47 "PARTICIPANT" means any Eligible Employee who participates in the Plan
as provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.48 "PARTICIPANT'S ACCOUNT" means the account established and maintained by
the Administrator for each Participant with Respect to his total interest under
the Plan resulting from the Employer's Non-Elective Contributions. A separate
accounting shall be maintained for matching contributions if they are deemed to
be Non-Elective Contributions.
1.49 "PARTICIPANT'S COMBINED ACCOUNT" means the total aggregate amount
of each Participant's Elective Account, Qualified Non-Elective Account, and
Participant's Account.
1.50 "PARTICIPANT'S ELECTIVE ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions made pursuant to Section 4.2, Employer matching contributions if
they are deemed to be Elective Contributions, and any Qualified Non-Elective
Contributions.
1.51 "PARTICIPANT'S ROLLOVER ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with Section
4.11.
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1.52 "PLAN" means this instrument (hereinafter referred to as Aetna Life
Insurance and Annuity Company 401(k) Profit Sharing Plan and Trust Basic Plan
Document #03) including all amendments thereto, and the Adoption Agreement as
adopted by the Employer.
1.53 "PLAN YEAR" means the Plan's accounting year as specified in C2 of
the Adoption Agreement.
1.54 "PRE-RETIREMENT SURVIVOR ANNUITY" means an immediate annuity for the
life of the Participant's spouse, the payments under which must be equal to the
actuarial equivalent of 50% of the Participant's Vested interest in the Plan as
of the date of death.
1.55 "QUALIFIED NON-ELECTIVE ACCOUNT" means the account established
hereunder to which Qualified Non-Elective Contributions are allocated.
1.56 "QUALIFIED NON-ELECTIVE CONTRIBUTION" means the Employer's
contributions to the Plan that are made pursuant to Section 4.1(d) and Section
4.6(b) which are used to satisfy the "Actual Deferral Percentage" tests.
Qualified Non-Elective Contributions are nonforfeitable when made and are
distributable only as specified in Sections 4.2(c) and 6.11. In addition, the
Employer's contributions to the Plan that are made pursuant to Section 4.8(h)
and which are used to satisfy the "Actual Contribution Percentage" tests shall
be considered Qualified Non-Elective Contributions.
1.57 "QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTION ACCOUNT" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the Participant's
tax deductible qualified voluntary employee contributions made pursuant to
Section 4.14.
1.58 "REGULATION" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.59 "RETIRED PARTICIPANT" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.60 "RETIREMENT DATE" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.61 "SELF-EMPLOYED INDIVIDUAL" means an individual who has earned income
for the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had earned income but for
the fact that the trade or business had no net profits for the taxable year. A
Self-Employed Individual shall be treated as an Employee.
1.62 "SHORT PLAN YEAR" means, if specified in the Adoption Agreement, that
the Plan Year shall be less than a 12 month period. If chosen, the following
rules shall apply in the administration of this Plan. In determining whether an
Employee has completed a Year of Service for benefit accrual purposes in the
Short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2(c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "SUPER TOP HEAVY PLAN" means a plan described in Section 2.2(b).
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1.64 "TAXABLE WAGE BASE" means, with respect to any year, the maximum amount
of earnings which may be considered wages for such year under Code Section
3121(a)(1).
1.65 "TERMINATED PARTICIPANT" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
1.66 "TOP HEAVY PLAN" means a plan described in Section 2.2(a).
1.67 "TOP HEAVY PLAN YEAR" means a Plan Year commencing after December
31, 1983 during which the Plan is a Top Heavy Plan.
1.68 "TOP PAID GROUP" shall be determined pursuant to Code Section 414(q)
and the Regulations thereunder and generally means the top 20 percent of
Employees who performed services for the Employer during the applicable year,
ranked according to the amount of "415 Compensation" (as determined pursuant to
Section 1.29) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
shall be treated as Employees pursuant to Code Section 414(n) or (o). Employees
who am non-resident aliens who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, for the purpose of determining the number of active
Employees in any year, the following additional Employees shall also be
excluded, however, such Employees shall still be considered for the purpose of
identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.69 "TOTAL AND PERMANENT DISABILITY" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
disability of a Participant shall be determined by a licensed physician chosen
by the Administrator. However, if the condition constitutes total disability
under the federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled for the
purposes of this Plan. The determination shall be applied uniformly to all
Participants.
1.70 "TRUSTEE" means the person or entity named in B6 of the Adoption
Agreement and any successors.
1.71 "TRUST FUND" means the assets of the Plan and Trust as the same shall
exist from time to time.
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1.72 "VESTED" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.73 "VOLUNTARY CONTRIBUTION ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) shall remain subject to the limitations of Sections 4.2(b) and
4.2(c). Therefore, a separate accounting shall be maintained with respect to
that portion of the Voluntary Contribution Account attributable to voluntary
Employee contributions made pursuant to Section 4.12.
1.74 "YEAR OF SERVICE" means the computation period of twelve (12)
consecutive months, herein set forth, and during which an Employee has completed
at least 1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after a
1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The succeeding computation periods shall
begin with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period, the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with 1,000 Hours of Service in both
the initial eligibility computation period and the first Plan Year which
commences prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two Years of Service for purposes of
eligibility to participate.
For vesting purposes, and all other purposes not specifically addressed
in this Section, the computation period shall be the Plan Year, including
periods prior to the Effective Date of the Plan unless specifically excluded
pursuant to the Adoption Agreement.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this
Plan shall be recognized. Years of Service with any other predecessor Employer
shall be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4(i) of the Plan.
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2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of
the Aggregate Accounts of Key Employees under this Plan and all plans of
an Aggregation Group, exceeds sixty percent (60%) of the Present Value
of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but
such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate Account
balance shall not be taken into account for purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any
Aggregation Group which includes this Plan is a Top Heavy Group). In
addition, if a Participant or Former Participant has not performed any
services for any Employer maintaining the Plan at any time during the
five year period ending on the Determination Date, any accrued benefit
for such Participant or Former Participant shall not be taken into
account for the purposes of determining whether this Plan is a Top Heavy
or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
beginning after December 31, 1983, in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees and (2)
the sum of the Aggregate Accounts of Key Employees under this Plan and
all plans of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of all Key
and Non-Key Employees under this Plan and all plans of an Aggregation
Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but on or
before the Determination Date, except for the first Plan Year
when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year;
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding
Plan Years. However, in the case of distributions made after the
valuation date and prior to the Determination Date, such
distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of
the valuation date. Notwithstanding anything herein to the
contrary, all distributions, including distributions made prior
to January 1, 1984, and distributions under a terminated plan
which if it had not been terminated would have been required to
be included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life
insurance policies) of a Participant's account balance because
of death shall be treated as a distribution for the purposes of
this paragraph.
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(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified voluntary
employee contributions shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer),
if this Plan provides the rollovers or plan-to-plan transfers, it shall
always consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall not
consider such rollovers or plan-to-plan transfers accepted after
December 31, 1983 as part of the Participant's Aggregate Account
balance. However, rollovers or plan-to-plan transfers accepted prior to
January 1, 1984 shall be considered as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones
either not initiated by the Employee or made to a plan maintained by
the same employer), if this Plan provides the rollover or plan-to-plan
transfer, it shall not be counted as a distribution for purposes of
this Section. If this Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such rollover or plan-to-plan
transfer as part of the Participant's Aggregate Account balance,
irrespective of the date on which such rollover or plan-to-plan
transfer is accepted.
(7) For the purposes of determining whether two employers are to be
treated as the same employer in 2.2(c)(5) and 2.2(c)(6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o) are
treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation
Group hereunder, each qualified plan of the Employer, including any
Simplified Employee Pension Plan, in which a Key Employee is a
participant in the Plan Year containing the Determination Date or any
of the four preceding Plan Years, and each other qualified plan of the
Employer which enables any qualified plan in which a Key Employee
participates to meet the requirements of Code Sections 401(a)(4) or
410, will be required to be aggregated. Such group shall be known as a
Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group
will be considered a Top Heavy Plan if the Required Aggregation Group
is a Top Heavy Group. No plan in the Required Aggregation Group will be
considered a Top Heavy Plan if the Required Aggregation Group is not a
Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any
other plan of the Employer, including any Simplified Employee Pension
Plan, not required to be included in the Required Aggregation Group,
provided the resulting group, taken as a whole, would continue to
satisfy the provisions of Code Sections 401(a)(4) and 410. Such group
shall be known as a Permissive Aggregation Group.
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<PAGE> 21
In the case of a Permissive Aggregation Group, only a plan that is part
of the Required Aggregation Group will be considered a Top Heavy Plan
if the Permissive Aggregation Group is a Top Heavy Group. No plan in
the Permissive Aggregation Group will be considered a Top Heavy Plan if
the Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates
fall within the same calendar year shall be aggregated in order to
determine whether such plans are Top Heavy Plans.
(4) When aggregating plans, the value of Aggregate Accounts and Accrued
Benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
(5) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years ending on
the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan Year,
or (b) in the case of the first Plan Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit plan,
the Present Value of Accrued Benefit for a Participant other than a Key Employee
shall be as determined using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method exists, using a
method which results in benefits accruing not more rapidly than the slowest
accrual rate permitted under Code Section 411(b)(1)(C). The determination of the
Present Value of Accrued Benefit shall be determined as of the most recent
valuation date that falls within or ends with the 12-month period ending on the
Determination Date, except as provided in Code Section 416 and the Regulations
thereunder for the first and second plan years of a defined benefit plan.
However, any such determination must include present value of accrued
benefit attributable to any Plan distributions referred to in Section 2.2(c)(3)
above, any Employee contributions referred to in Section 2.2(c)(4) above or any
related or unrelated rollovers referred to in Sections 2.2(c)(5) and 2.2(c)(6)
above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all
defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
(h) The Administrator shall determine whether this Plan is a Top Heavy Plan
on the Anniversary Date specified in the Adoption Agreement. Such determination
of the top heavy ratio shall be in accordance with Code Section 416 and the
Regulations thereunder.
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2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems necessary
for the proper administration of the Plan to assure that the Plan is
being operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall establish a "funding policy and
method", i.e., it shall determine whether the Plan has a short run need
for liquidity (e.g., to pay benefits) or whether liquidity is a long
run goal and investment growth (and stability of same) is a more
current need, or shall appoint a qualified person to do so. The
Employer or its delegate shall communicate such needs and goals to the
Trustee, who shall coordinate such Plan needs with its investment
policy. The communication of such a "funding policy and method" shall
not, however, constitute a directive to the Trustee as to investment of
the Trust Funds. Such "funding policy and method" shall be consistent
with the objectives of this Plan and with the requirements of Title I
of the Act.
(c) The Employer may, in its discretion, appoint an Investment
Manager to manage all or a designated portion of the assets of the
Plan. In such event, the Trustee shall follow the directive of the
Investment Manager in investing the assets of the Plan managed by the
Investment Manager.
(d) The Employer shall periodically review the performance of
any Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct and
evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator, the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
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2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and determine all questions arising in connection
with the administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect
to the amount and the kind of benefits to which any Participant shall
be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust
Fund;
(d) to maintain all necessary records for the administration
of the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent with
the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any Insurer, and to designate the Insurer from which
such Contract shall be purchased;
(g) to determine the size and type of any Contract to be
purchased from the Insurer;
(h) to compute and certify to the Employer and to the Trustee
from time to time the sums of money necessary or desirable to be
contributed to the Trust Fund;
(i) to consult with the Employer and the Trustee regarding the
short and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner designed to
accomplish specific objectives;
(j) to prepare and distribute to Employees a procedure for
notifying Participants and Beneficiaries of their rights to elect Joint
and Survivor Annuities and Pre-Retirement Survivor Annuities if
required by the Code and Regulations thereunder;
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<PAGE> 24
(k) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their Compensation
deferred or paid to them in cash;
(l) to assist any Participant regarding his rights, benefits,
or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
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2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator a written request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and expense and at which the claimant shall have
an opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written notice
to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator which
are pertinent to the claim at issue and its disallowance. Either the claimant or
the Administrator may cause a court reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
any such court reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. A final decision as to the allowance
of the claim shall be made by the Administrator within 60 days of receipt of the
appeal (unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated to the claimant within the 60 day period). Such communication
shall be written in a manner calculated to be understood by the claimant and
shall include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a noneligible Employee to an Eligible Employee, such Employee
shall become a Participant as of the date he becomes an Eligible Employee.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise become a Participant shall go from a
classification of an Eligible Employee to a noneligible Employee and becomes
ineligible to participate and has not incurred a 1-Year Break in Service, such
Employee shall participate in the Plan as of the date he returns to an eligible
class of Employees. If such Employee does incur a 1-Year Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all
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<PAGE> 26
persons, as long as the same is made pursuant to the Plan and the Act. Such
determination shall be subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's Account shall
be forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution, if necessary after the
application of Section 4.4(e), so that the omitted Employee receives a total
amount which the said Employee would have received had he not been omitted. Such
contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year. For Standardized Plans, a Participant or an
Eligible Employee may not elect not to participate. Furthermore, the foregoing
election not to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business for which this Plan
is established and one or more other entities, this Plan and the plan
established for other trades or businesses must, when looked at as a
single Plan, satisfy Code Sections 401(a) and (d) for the Employees of
this and all other entities.
(b) If the Plan provides contributions or benefits for one or
more Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must be
included in a plan which satisfies Code Sections 401(a) and (d) and
which provides contributions and benefits not less favorable than
provided for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the
plans of two or more trades or businesses which are not controlled and
the individual controls a trade or business, then the benefits
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<PAGE> 27
or contributions of the employees under the plan of the trades or
businesses which are controlled must be as favorable as those provided
for him under the most favorable plan of the trade or business which is
not controlled.
(d) For purposes of the preceding paragraphs, an
Owner-Employee, or two or more Owner-Employees, will be considered to
control an entity if the Owner-Employee, or two or more Owner-Employees
together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
(e) For purposes of the preceding sentence, an
Owner-Employee, or two or more Owner-Employees shall be treated as
owning any interest in a partnership which is owned, directly or
indirectly, by a partnership which such Owner-Employee, or such two or
more Owner-Employees, are considered to control within the meaning of
the preceding sentence.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be
deemed an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the percentage specified in the Adoption
Agreement of the Deferred Compensation of each Participant eligible to
share in the allocations of the matching contribution, which amount
shall be deemed an Employer's Non-Elective or Elective Contribution as
selected in the Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a
discretionary amount, if any, which shall be deemed an Employer's
Non-Elective Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a Qualified
Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Fiscal Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash or
in such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a contribution
even if it exceeds current or accumulated Net Profit or the amount
which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer his Compensation which
would have been received in the Plan Year, but for the deferral
election, subject to the limitations of this Section and the Adoption
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<PAGE> 28
Agreement. A deferral election (or modification of an earlier election) may not
be made with respect to Compensation which is currently available on or before
the date the Participant executed such election, or if later, the latest of the
date the Employer adopts this cash or deferred arrangement, or the date such
arrangement first became effective. Any elections made pursuant to this Section
shall become effective as soon as is administratively feasible.
Additionally, if elected in the Adoption Agreement, each Participant
may elect to defer and have allocated for a Plan Year all or a portion of any
cash bonus attributable to services performed by the Participant for the
Employer during such Plan Year and which would have been received by the
Participant on or before two and one-half months following the end of the Plan
Year but for the deferral. A deferral election may not be made with respect to
cash bonuses which are currently available on or before the date the Participant
executed such election. Notwithstanding the foregoing, cash bonuses attributable
to services performed by the Participant during a Plan Year but which are to be
paid to the Participant later than two and one-half months after the close of
such Plan Year will be subjected to whatever deferral election is in effect at
the time such cash bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced shall
be that Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective Account.
Once made, a Participant's election to reduce Compensation shall remain
in effect until modified or terminated. Modifications may be made as specified
in the Adoption Agreement, and terminations may be made at any time. Any
modification or termination of an election will become effective as soon as is
administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully Vested
at all times and shall not be subject to Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the Plan, but in no
event prior to the earlier of:
(1) a Participant's termination of employment, Total and Permanent
Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to the
limitations of Section 6.11;
(4) the termination of the Plan without the existence at the time of
Plan termination of another defined contribution plan (other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)) or
the establishment of a successor defined contribution plan (other than
an employee stock ownership plan as defined in Code Section 4975(e)(7))
by the Employer or an Affiliated Employer within the period ending
twelve months after distribution of all assets from the Plan maintained
by the Employer;
(5) the date of the sale by the Employer to an entity that is not an
Affiliated Employer of substantially all of the assets (within the
meaning of Code Section 409(d)(2)) with respect to a Participant who
continues employment with the corporation acquiring such assets; or
(6) the date of the sale by the Employer or an Affiliated Employer of
its interest in a subsidiary (within the meaning of Code Section
409(d)(3)) to an entity that is not an
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<PAGE> 29
Affiliated Employer with respect to a Participant who continues
employment with such subsidiary.
(d) In any Plan Year beginning after December 31, 1987, a Participant's
Deferred Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed the
limitation imposed by Code Section 402(g), as in effect for the calendar year in
which such Plan Year began. This dollar limitation shall be adjusted annually
pursuant to the method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained
by the Employer or from his Participant's Elective Account pursuant to Section
6.11(c), then such Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period of twelve (12)
months following the receipt of the distribution. Furthermore, the dollar
limitation under Code Section 402(g) shall be reduced, with respect to the
Participant's taxable year following the taxable year in which the hardship
distribution was made, by the amount of such Participant's Deferred
Compensation, if any, made pursuant to this Plan (and any other plan maintained
by the Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan together
with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under
another qualified cash or deferred arrangement (as defined in Code Section
401(k)), a simplified employee pension (as defined in Code Section 408(k)), a
salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)),
a deferred compensation plan under Code Section 457, or a trust described in
Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method provided in
Code Section 415(d) pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than Match 1st following the close of his
taxable year, notify the Administrator in writing of such excess and request
that his Deferred Compensation under this Plan be reduced by an amount specified
by the Participant. In such event, the Administrator shall direct the Trustee to
distribute such excess amount (and any Income allocable to such excess amount)
to the Participant not later than the first April 15th following the close of
the Participant's taxable year. Distributions in accordance with this paragraph
may be made for any taxable year of the Participant which begins after December
31, 1986. Any distribution of less than the entire amount of Excess Deferred
Compensation and Income shall be treated as a pro rata distribution of Excess
Deferred Compensation and Income. The amount distributed shall not exceed the
Participant's Deferred Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
(1) the Participant shall designate the distribution as Excess
Deferred Compensation;
(2) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution
of Excess Deferred Compensation.
For the purpose of this Section, "Income" means the amount of
income or loss allocable to a Participant's Excess Deferred Compensation and
shall be equal to the sum of the allocable gain or loss for the taxable year of
the Participant and the allocable gain or loss for the period between the end of
the taxable year of the Participant and the date of distribution ("gap period").
The income or
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<PAGE> 30
loss allocable to each such period is calculated separately and is
determined by multiplying the income or loss allocable to the
Participant's Deferred Compensation for the respective period by a
fraction. The numerator of the fraction is the Participant's Excess
Deferred Compensation for the taxable year of the Participant. The
denominator is the balance, as of the last day of the respective
period, of the Participant's Elective Account that is attributable to
the Participant's Deferred Compensation reduced by the gain allocable
to such total amount for the respective period and increased by the
loss allocable to such total amount for the respective period.
In lieu of the "fractional method" described above, a "safe
harbor method" may be used to calculate the allocable income or loss
for the "gap period". Under such "safe harbor method", allocable income
or loss for the "gap period" shall be deemed to equal ten percent (10%)
of the income or loss allocable to a Participant's Excess Deferred
Compensation for the taxable year of the Participant multiplied by the
number of calendar months in the "gap period". For purposes of
determining the number of calendar months in the "gap period", a
distribution occurring on or before the fifteenth day of the month
shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be
treated as having been made on the first day of the next subsequent
month.
Income or loss allocable to any distribution of Excess
Deferred Compensation on or before the last day of the taxable year of
the Participant shall be calculated from the first day of the taxable
year of the Participant to the date on which the distribution is made
pursuant to either the "fractional method" or the "safe harbor method".
Notwithstanding the above, for the 1987 calendar year, Income
during the "gap period" shall not be taken into account.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any
distribution and/or recharacterization of Excess Contributions pursuant
to Section 4.6(a) for the Plan Year beginning with or within the
taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide benefits to the
Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may
be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or
savings and loan association, money market certificate, or other
short-term debt security acceptable to the Trustee until such time as
the allocations pursuant to Section 4.4 have been made.
(j) The Employer and the Administrator shall adopt a procedure
necessary to implement the salary reduction elections provided for
herein.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the
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<PAGE> 31
Employer's general assets, but in any event within ninety (90) days from the
date on which such amounts would otherwise have been payable to the Participant
in cash. The provisions of Department of Labor regulations 2510.3-102 are
incorporated herein by reference. Furthermore, any additional Employer
contributions which are allocable to the Participant's Elective Account for a
Plan Year shall be paid to the Plan no later than the twelve-month period
immediately following the close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of each
Anniversary Date, or other valuation date, all amounts allocated to each
such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable period of time after
the date of receipt by the Administrator of such information, the
Administrator shall allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 4. 1 (a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Matching Contribution made
pursuant to Section 4. 1 (b), to each Participant's Account,
or Participant's Elective Account as selected in E3 of the
Adoption Agreement, in accordance with Section 4.1(b).
Except, however, a Participant who is not credited with a Year
of Service during any Plan Year shall or shall not share in
the Employer's Matching Contribution for that year as provided
in E3 of the Adoption Agreement. However, for Plan Years
beginning after 1989, if this is a standardized Plan, a
Participant shall share in the Employer's Matching
Contribution regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's Account
in accordance with the provisions of E4 of the Adoption
Agreement.
However, if an integrated allocation formula is selected at E4
of the Adoption Agreement, then such contribution shall be
allocated to each Participant's Combined Account in a dollar
amount equal to 5.7% of the sum of each Participant's total
Compensation plus Excess Compensation. If the Employer does
not contribute such amount for all Participants, each
Participant will be allocated a share of the contribution in
the same proportion that his total Compensation plus his total
Excess Compensation for the Plan Years bears to the total
Compensation plus the total Excess Compensation of all
Participants for that year. The balance of the contribution,
if any, will be allocated in the same proportion that his
total Compensation bears to the total Compensation of all
Participant's eligible to share in the allocation.
Regardless of the preceding, 4.3% shall be substituted for
5.7% above if Excess Compensation is based on more than 20%
and less than or equal to 80% of the Taxable Wage Base. If
Excess Compensation is based on less than 100% and more than
80% of the Taxable Wage Base, then 5.4% shall be substituted
for 5.7% above.
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<PAGE> 32
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), to each
Participant's Qualified Non-Elective Contribution Account in
the same proportion that each such Participant's Compensation
for the year bears to the total Compensation of all
Participants for such year.
(5) Regardless of the preceding, a Participant who is not
credited with a Year of Service during a Plan Year shall not
share in the allocation of the Employer's Non-Elective
Contribution made pursuant to Section 4.1(c) and the
Employer's Qualified Non-Elective Contribution made pursuant
to Section 4.1(d), unless reduced pursuant to Section 4.4(h).
However, for Plan Years beginning after 1989 for a
standardized plan, and if elected in the non-standardized
Adoption Agreement, a Participant shall share in the
allocation of such contributions regardless of whether a Year
of Service was completed during the Plan Year.
(c) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any earnings or
losses (no appreciation or net depreciation) of the Trust Fund shall be
allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all Participants'
and Former Participants' nonsegregated accounts as of such date. If any
nonsegregated account of a Participant has been distributed prior to the
Anniversary Date or other valuation date subsequent to a Participant's
termination of employment, no earnings or losses shall be credited to such
account.
(d) Participants' Accounts shall be debited for any insurance or
annuity premiums paid, if any, and credited with any dividends or interest
received on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any, in
accordance with Section 6.4(g)(2) or be used to satisfy any contribution
that may be required pursuant to Section 3.5 and/or 6.9. The remaining
Forfeitures, if any, shall be treated in accordance with the Adoption
Agreement. Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as defined
in Section 4.9) to any Participant's Account to exceed the amount allowable
by the Code, the excess shall be reallocated in accordance with Section
4.10. Except, however, for any Plan Year beginning prior to January 1,
1990, and if elected in the non-standardized Adoption Agreement for any
Plan Year beginning on or after January 1, 1990, a Participant who performs
less than a Year of Service during any Plan Year shall not share in the
Plan Forfeitures for that year, unless there is a Short Plan Year or a
contribution required pursuant to Section 4.4(h).
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's
Combined Account of each Non-Key Employee shall be equal to at least three
percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by
contributions and forfeitures, if any, allocated to each Non-Key Employee
in any defined contribution plan included with this plan in a Required
Aggregation Group). However, if (i) the sum of the Employer's contributions
and Forfeitures allocated to the Participant's Combined Account of each Key
Employee for such Top Heavy Plan Year is less than three percent (3%) of
each Key Employee's "415 Compensation" and (ii) this Plan is not required
to be included in an Aggregation Group to enable a defined benefit plan to
meet the requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's
Combined Account of each Non-Key Employee shall be equal to the largest
percentage allocated to do Participant's Combined Account of any Key
Employee. However, for Plan years beginning after December 31, 1988, in
determining whether a Non-Key Employee has received the required minimum
allocation, such
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<PAGE> 33
Non-Key Employee's Deferred Compensation and matching contributions used to
satisfy the "Actual Deferral Percentage" test pursuant to Section 4.5(a) or the
"Actual Contribution Percentage" test of Section 4.7(a) shall not be taken into
account.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each Participant's
Account. If the Employer does not contribute such amount for all
Participants, the amount shall be allocated to each Participant's
Account in the same proportion that his total Compensation for the Plan
Year bears to the total Compensation of all Participants for such year.
(2) The balance of the Employer's contribution over the amount
allocated under subparagraph (1) hereof shall be allocated to each
Participant's Account in a dollar amount equal to 3% multiplied by a
Participant's Excess Compensation. If the Employer does not contribute
such amount for all Participants, each Participant will be allocated a
share of the contribution in the same proportion that his Excess
Compensation bears to the total Excess Compensation of all Participants
for that year.
(3) The balance of the Employer's contribution over the amount
allocated under subparagraph (2) hereof shall be allocated to each
Participant's Account in a dollar amount equal to 2.7% multiplied by
the sum of each Participant's total Compensation plus Excess
Compensation. If the Employer does not contribute such amount for all
Participants, each Participant will be allocated a share of the
contribution in the same proportion that his total Compensation plus
his total Excess Compensation for the Plan Year bears to the total
Compensation plus the total Excess Compensation of all Participants for
that year.
Regardless of the preceding, 1.3% shall be substituted for 2.7% above
if Excess Compensation is based on more than 20% and less than or equal
to 80% of the Taxable Wage Base. If Excess Compensation is based on
less than 100% and more than 80% of the Taxable Wage Base, then 2.4%
shall be substituted for 2.7% above.
(4) The balance of the Employer's contributions over the amount
allocated above, if any, shall be allocated to each Participant's
Account in the same proportion that his total Compensation for the Plan
Year bears to the total Compensation of all Participants for such year.
For each Non-Key Employee who is a Participant in this Plan and another
non-paired defined contribution plan maintained by the Employer, the minimum 3%
allocation specified above shall be provided as specified in F3 of the Adoption
Agreement.
(g) For purposes of the minimum allocations set forth above, the percentage
allocated to the Participant's Combined Account of any Key Employee shall be
equal to the ratio of the sum of the Employer's contributions and Forfeitures
allocated on behalf of such Key Employee divided by the "415 Compensation" for
such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth above
shall be allocated to the Participant's Combined Account of all Non-Key
Employees who are Participants and who are employed by the Employer on the last
day of the Plan Year, including Non-Key Employees who have
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<PAGE> 34
(1) failed to complete a Year of Service; or (2) declined to make mandatory
contributions (if required) or salary reduction contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in any Plan Year in
which the Employer maintains both this Plan and a defined benefit pension plan
included in a Required Aggregation Group which is top heavy, the Employer shall
not be required to provide a Non-Key Employee with both the full separate
minimum defined benefit plan benefit and the full separate defined contribution
plan allocations. Therefore, if the Employer maintains both a Defined Benefit
and a Defined Contribution Plan that are a Top Heavy Group, the top heavy
minimum benefits shall be provided as follows:
Applies if F1b of the Adoption Agreement is selected -
(1) The requirements of Section 2.1 shall apply except that each
Non-Key Employee who is a Participant in this Plan or a Money Purchase
Plan and who is also a Participant in the Defined Benefit Plan shall
receive a minimum allocation of five percent (5%) of such Participant's
"415 Compensation" from the applicable Defined Contribution Plan(s).
(2) For each Non-Key Employee who is a Participant only in the Defined
Benefit Plan, the Employer will provide a minimum non-integrated
benefit in the Defined Benefit Plan equal to 2% of his highest five
consecutive year average "415 Compensation" for each Year of Service
while a Participant in the Plan, in which the Plan is top heavy, not to
exceed ten.
(3) For each Non-Key Employee who is a Participant only in this Defined
Contribution Plan, the Employer will provide a contribution equal to 3%
of his "415 Compensation".
Applies if F1c of the Adoption Agreement is selected -
(4) The minimum allocation specified in Section 4.4(i)(1) shall be
7 1/2% for years in which the Plan is Top Heavy, but not Super Top
Heavy.
(5) The minimum benefit specified in Section 4.4(i)(2) shall be 3% for
years in which the Plan is Top Heavy, but not Super Top Heavy.
(6) The minimum allocation specified in Section 4.4(i)(3) shall be 4%
for years in which the Plan is Top Heavy, but not Super Top Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be
limited to $200,000 (unless adjusted in such manner as permitted under Code
Section 415(d)). However, for Plan Years beginning prior to January 1, 1989, the
$200,000 limit shall apply only for Top Heavy Plan Years and shall not be
adjusted.
(k) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary reduction
contributions made by the Employer for the year of termination without regard to
the Hours of Service credited.
(l) Notwithstanding anything herein to the contrary (other than
Sections 4.4(k) and 6.6(h)(1)), any Participant who terminated employment during
the Plan Year for reasons other than death, Total and Permanent Disability, or
retirement shall or shall not share in the allocations of the Employer's
Matching Contribution made pursuant to Section 4.1(b), the Employer's
Non-Elective Contributions made pursuant to Section 4.1(c), the Employer's
Qualified Non-Elective Contribution made pursuant to Section 4.1(d), and
Forfeitures as provided in the Adoption Agreement. Notwithstanding the
27
<PAGE> 35
foregoing, for Plan Years beginning after 1989, if this is a standardized Plan,
any such terminated Participant shall share in such allocations provided the
terminated Participant completed more than 500 Hours of Service.
(m) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or retirement
shall share in the allocation of the Employer's Matching Contribution made
pursuant to Section 4.1(b), the Employer's Non-Elective Contributions made
pursuant to Section 4.1(c), the Employer's Qualified Non-Elective Contribution
made pursuant to Section 4.1(d), and Forfeitures as provided in this Section
regardless of whether they completed a Year of Service during the Plan Year.
(n) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing his status in the Plan attributable to
post-break service.
(o) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail to meet
the requirements of Code Sections 401(a)(26), 410(b)(1), or 410(b)(2)(A)(i) and
the Regulations thereunder because Employer matching Contributions made pursuant
to Section 4.1(b), Employer Non-Elective Contributions made pursuant to
Section 4.1(c) or Employer Qualified Non-Elective Contributions made pursuant
to Section 4.1(d) have not been allocated to a sufficient number or percentage
of Participants for a Plan Year, then the following rules shall apply:
(1) Allocations of the respective contribution and Forfeitures shall
first be made to all active Participants who are employed on the last
day of the Plan Year, regardless of the number of Hours of Service
completed; and
(2) If after application of paragraph (1) above, the applicable test is
still not satisfied, then the group of Participants eligible to share
in the Employer's contribution and Forfeitures for the Plan Year shall
be further expanded to include the minimum number of Participants who
are not actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific Participants who
shall become eligible to share shall be those Participants, when
compared to similarly situated Participants, who have completed the
greatest number of Hours of Service in the Plan Year before terminating
employment.
Nothing in this Section shall permit the reduction of a Participant's
accrued benefit. Therefore any amounts that have previously been allocated to
Participants may not be reallocated to satisfy these requirements. In such
event, the Employer shall make an additional contribution equal to the amount
such affected Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be deductible under Code
Section 404. Any adjustment to the allocations pursuant to this paragraph shall
be considered a retroactive amendment adopted by the last day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning
after December 31, 1986, the annual allocation derived from Employer
Elective Contributions and Qualified Non-Elective
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<PAGE> 36
Contributions to a Participant's Elective Account and Qualified Non-Elective
Account shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group multiplied
by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral Percentage" for
the Non-Highly Compensated Participant group shall not be more than two
percentage points. Additionally, the "Actual Deferral Percentage" for
the Highly Compensated Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, to prevent
the multiple use of the alternative method described in (2) above and
Code Section 401(m)(9)(A), any Highly Compensated Participant eligible
to make elective deferrals pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions under this Plan or
under any other plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are incorporated herein
by reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and Non-Highly
Compensated Participant group for a Plan Year, the average of the ratios,
calculated separately for each Participant in such group, of the amount of
Employer Elective Contributions and Qualified Non-Elective Contributions
allocated to each Participant's Elective Account and Qualified Non-Elective
Account for such Plan Year, to such Participant's "414(s) Compensation" for such
Plan Year. The actual deferral ratio for each Participant and the "Actual
Deferral Percentage" for each group, for Plan Years beginning after December 31,
1988, shall be calculated to the nearest one-hundredth of one percent of the
Participant's "414(s) Compensation". Employer Elective Contributions allocated
to each Non-Highly Compensated Participant's Elective Account shall be reduced
by Excess Deferred Compensation to the extent such excess amounts are made under
this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Participant who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the following
shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be the
greater of: (i) the ratio determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family Members
who are Highly Compensated Participants without regard to family
aggregation; and (ii) the ratio determined by aggregating Employer
Elective Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation" for Plan
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<PAGE> 37
Years beginning after December 31, 1988, Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close of the
Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation" of
all Family Members shall be disregarded for purposes of determining
the "Actual Deferral Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1) and
(2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was made or suspended
pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b)(other than Code Section 401(b)(2)(A)(ii)as in effect
for Plan Years beginning after December 31, 1988), the cash or deferred
arrangements included in such plans shall be treated as one arrangement.
In addition, two or more cash or deferred arrangements may be considered
as a single arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4),410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans and the
plans including such arrangements shall be treated as one arrangement and
as one plan for purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k). For plan years beginning after December 31, 1989, plans
may be aggregated under this paragraph (e) only if they have the same
plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be combined with this Plan for purposes of determining
whether the employee stock ownership plan or this Plan satisfies this
Section and Code Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two (2) or more cash or deferred
arrangements (other than a cash or deferred arrangement which is part of
an employee stock ownership plan as defined in Code Section 4975(e)(7) for
Plan Years beginning after December 31, 1988) of the Employer or an
Affiliated Employer, all such cash or deferred arrangements shall be
treated as one cash or deferred arrangement for the purpose of determining
the actual deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after December 31, 1988, if
the cash or deferred arrangements have different Plan Years, this
paragraph shall be applied by treating all cash or deferred arrangements
ending with or within the same calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions made pursuant to Section
4.4 do not satisfy one of the tests set forth in Section
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<PAGE> 38
4.5, for Plan Years beginning after December 31, 1986, the Administrator shall
adjust Excess Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following the
end of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him and/or at his election recharacterized as
a voluntary Employee contribution pursuant to Section 4.12 until one of
the tests set forth in Section 4.5 is satisfied, or until his actual
deferral ratio equals the actual deferral ratio of the Highly Compensated
Participant having the second highest actual deferral ratio. This process
shall continue until one of the tests set forth in Section 4.5 is
satisfied. For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions and Qualified
Non-Elective Contributions made on behalf of such Highly Compensated
Participant (determined prior to the application of this paragraph) minus
the amount determined by multiplying the Highly Compensated Participant's
actual deferral ratio (determined after application of this paragraph) by
his "414(s) Compensation". However, in determining the amount of Excess
Contributions to be distributed and/or recharacterized with respect to an
affected Highly Compensated Participant as determined herein, such amount
shall be reduced by any Excess Deferred Compensation previously
distributed to such affected Highly Compensated Participant for his
taxable year ending with or within such Plan Year. Any distribution and/or
recharacterization of Excess Contributions shall be made in accordance
with the following:
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the Plan
Year following the Plan Year to which they are allocable;
(ii) shall be made first from unmatched Deferred Compensation
and, thereafter, simultaneously from Deferred Compensation
which is matched and matching contributions which relate to
such Deferred Compensation. However, any such matching
contributions which are not Vested shall be forfeited in lieu
of being distributed;
(iii) shall be made from Qualified Non-Elective Contributions
only to the extent that Excess Contributions exceed the
balance in the Participant's Elective Account attributable to
Deferred Compensation and Employer matching contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a distribution of
Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which the
last of those Highly Compensated Participants with Excess
Contributions to be recharacterized is notified of the
recharacterization and the tax consequences of such
recharacterization;
(ii) for Plan Years ending on or before August 8, 1988, may be
postponed but not later than October 24, 1988;
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<PAGE> 39
(iii) shall not exceed the amount of Deferred Compensation on behalf of
any Highly Compensated Participant for any Plan Year;
(iv) shall be treated as voluntary Employee contributions for purposes of
Code Section 401(a)(4) and Regulation 1.401(k)-1(b). However, for purposes
of Sections 2.2 and 4.4(f), recharacterized Excess Contributions continue
to be treated as Employer contributions that are Deferred Compensation.
For Plan Years beginning after December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions shall continue to be
nonforfeitable and subject to the same distribution rules provided for in
Section 4.9(f);
(v) which relate to Plan Years ending on or before October 24, 1988, may
be treated as either Employer contributions or voluntary Employee
contributions and therefore shall not be subject to the restrictions of
Section 4.2(c);
(vi) are not permitted if the amount recharacterized plus voluntary
Employee contributions actually made by such Highly Compensated
Participant, exceed the maximum amount of voluntary Employee contributions
(determined prior to application of Section 4.7(a)) that such Highly
Compensated Participant is permitted to make under the Plan in the absence
of recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the entire amount of
Excess Contributions shall be treated as a pro rata distribution and/or
recharacterization of Excess Contributions and Income.
(4) The determination and correction of Excess Contributions of a Highly
Compensated Participant whose actual deferral ratio is determined under the
family aggregation rules shall be accomplished as follows:
(i) If the actual deferral ratio for the Highly Compensated Participant is
determined in accordance with Section 4.5(c)(1)(ii), then the actual
deferral ratio shall be reduced as required herein and the Excess
Contributions for the family unit shall be allocated among the Family
Members in proportion to the Elective Contributions of each Family Member
that were combined to determine the group actual deferral ratio.
(ii) If the actual deferral ratio for the Highly Compensated Participant
is determined under Section 4.5(c)(1)(i), then the actual deferral ratio
shall first be reduced as required herein, but not below the actual
deferral ratio of the group of Family Members who are not Highly
Compensated Participants without regard to family aggregation. The Excess
Contributions resulting from this initial reduction shall be allocated (in
proportion to Elective Contributions) among the Highly Compensated
Participants whose Elective Contributions were combined to determine the
actual deferral ratio. If further reduction is still required, then Excess
Contributions resulting from this further reduction shall be determined by
taking into account the contributions of all Family Members and shall be
allocated among them in proportion to their respective Elective
Contributions.
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(b) Within twelve (12) months after the end of the Plan Year, the
Employer shall make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 4.5(a). Such contribution
shall be allocated to the Participant's Qualified Non-Elective Account of
each Non-Highly Compensated Participant in the same proportion that each
Non-Highly Compensated Participant's Compensation for the year bears to
the total Compensation of all Non-Highly Compensated Participants.
(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of the
allocable gain or loss for the Plan Year and the allocable gain or loss
for the period between the end of the Plan Year and the date of
distribution ("gap period"). The income or loss allocable to Excess
Contributions for the Plan Year and the "gap period" is calculated
separately and is determined by multiplying the income or loss for the
Plan Year or the "gap period" by a fraction. The numerator of the fraction
is the Excess Contributions for the Plan Year. The denominator of the
fraction is the total of the Participant's Elective Account attributable
to Elective Contributions and the Participant's Qualified Non-Elective
Account as of the end of the Plan Year or the "gap period", reduced by the
gain allocable to such total amount for the Plan Year or the "gap period"
and increased by the loss allocable to such total amount for the Plan Year
or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period". Under such "safe harbor method", allocable Income for the "gap
period" shall be deemed to equal ten percent (10%) of the Income allocable
to Excess Contributions for the Plan Year of the Participant multiplied by
the number of calendar months in the "gap period". For purposes of
determining the number of calendar months in the "gap period", a
distribution occurring on or before the fifteenth day of the mouth shall
be treated as having been made on the last day of the preceding month and
a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
Notwithstanding the above, for Plan Years which began in 1987,
Income during the "gap period" shall not be taken into account.
(d) Any amounts not distributed or recharacterized within 2 1/2
months after the end of the Plan Year shall be subject to the 10% Employer
excise tax imposed by Code Section 4979.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage", for Plan Years beginning
after the later of the Effective Date of this Plan or December 31, 1986,
for the Highly Compensated Participant group shall not exceed the greater
of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant group, or such percentage for the
Non-Highly Compensated Participant group plus 2 percentage points.
However, for Plan Years beginning after December 31, 1988, to
prevent the multiple use of the alternative method described in this
paragraph and Code Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals pursuant to Section
4.2 or any other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under any plan
maintained by the Employer or an Affiliated Employer shall have his
actual contribution ratio reduced pursuant to Regulation 1.401(m)-2.
The
33
<PAGE> 41
provisions of Code Section 401(m) and Regulations 1.401(m)-1(b) and
1.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the Highly
Compensated Participant group and Non-Highly Compensated Participant
group, the average of the ratios (calculated separately for each
Participant in each group) of:
(1) the sum of Employer matching contributions pursuant to Section
4.1(b) (to the extent such matching contributions are not used to
satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12 and Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) contributed under the Plan on behalf of each such
Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage"
and the amount of Excess Aggregate Contributions pursuant to Section
4.8(e), only Employer matching contributions contributed to the Plan prior
to the end of the succeeding Plan Year shall be considered. In addition,
the Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions made pursuant
to Section 4.1(b) or voluntary Employee contributions made pursuant to
Section 4.12 allocated to their accounts, elective deferrals (as defined
in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as
defined in Code Section 401(m)(4)(C)) contributed to any plan maintained
by the Employer. Such elective deferrals and qualified non-elective
contributions shall be treated as Employer matching contributions subject
to Regulation 1.401(m)-1(b)(2) which is incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, the Plan Year
must be the same as the plan year of the plan to which the elective
deferrals and the qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of
a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating Employer
matching contributions made pursuant to Section 4.1(b) (to the
extent such matching contributions are not used to satisfy the tests
set forth in Section 4.5), voluntary Employee contributions made
pursuant to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and
"414(s) Compensation" of all eligible Family Members who are Highly
Compensated Participants without regard to family aggregation; and
(ii) the ratio determined by aggregating Employer matching
contributions made pursuant to Section 4.1(b) (to the extent such
matching contributions are not used to satisfy the tests set forth
in Section 4.5), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of all eligible Family Members (including Highly
Compensated Participants). However, in applying the $200,000 limit
to "414(s) Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected Employee's
spouse and any lineal descendants who have not attained age 19
before the close of the Plan Year.
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<PAGE> 42
(2) The Employer matching contributions made pursuant to Section
4.1(b) (to the extent such matching contributions are not used to
satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and "414(s) Compensation" of all Family Members shall
be disregarded for purposes of determining the "Actual Contribution
Percentage" of the Non-Highly Compensated Participant group except
to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1) and
(2) above.
(e) For purposes of this Section and Code Sections 40l(a)(4), 410(b)
and 4Ol(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as
one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the
average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for
Plan Years beginning after December 31, 1988), such plans shall be treated
as one plan. In addition, two or more plans of the Employer to which
matching contributions, Employee contributions, or both, are made may be
considered as a single plan for purposes of determining whether or not
such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a
case, the aggregated plans must satisfy this Section and Code Sections
401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single
plan. For plan years beginning after December 31, 1989, plans may be
aggregated under this paragraph only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two
or more plans (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7) for Plan Years beginning after December 31, 1988)
which are maintained by the Employer or an Affiliated Employer to which
matching contributions, Employee contributions, or both, are made, all
such contributions on behalf of such Highly Compensated Participant shall
be aggregated for purposes of determining such Highly Compensated
Participant's actual contribution ratio. However, for Plan Years beginning
after December 31, 1988, if the plans have different plan years, this
paragraph shall be applied by treating all plans ending with or within the
same calendar year as a single plan.
(g) For purposes of Section 4.7(a) and 4.8, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to have matching contributions made pursuant to Section
4.1(b) (whether or not a deferred election was made or suspended pursuant
to Section 4.2(e)) allocated to his account for the Plan Year or to make
salary deferrals pursuant to Section 4.2 (if the Employer uses salary
deferrals to satisfy the provisions of this Section) or voluntary Employee
contributions pursuant to Section 4.12 (whether or not voluntary Employee
contributions are made) allocated to his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean
an Employee contribution made to the Plan, or to a contract described in
Code Section 403(b), on behalf of a Participant on account of an Employee
contribution made by such Participant, or on account of a participant's
deferred compensation, under a plan maintained by the Employer.
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<PAGE> 43
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31,
1986, the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section 4.7(a), the
Administrator (on or before the fifteenth day of the third month following
the end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to the Highly
Compensated Participant having the highest actual contribution ratio, his
portion of Excess Aggregate Contributions (and Income allocable to such
contributions) or, if forfeitable, forfeit such non-Vested Excess
Aggregate Contributions attributable to Employer matching contributions
(and Income allocable to such Forfeitures) until either one of the tests
set forth in Section 4.7(a) is satisfied, or until his actual contribution
ratio equals the actual contribution ratio of the Highly Compensated
Participant having the second highest actual contribution ratio. This
process shall continue until one of the tests set forth in Section 4.7(a)
is satisfied. The distribution and/or Forfeiture of Excess Aggregate
Contributions shall be made in the following order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 4.6(a)(1);
(2) Voluntary Employee contributions including Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate Contributions (and Income) shall be treated as a pro rata
distribution of Excess Aggregate Contributions and Income. Distribution of
Excess Aggregate Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income). Forfeitures
of Excess Aggregate Contributions shall be treated in accordance with
Section 4.4. However, no such Forfeiture may be allocated to a Highly
Compensated Participant whose contributions are reduced pursuant to this
Section.
(c) Excess Aggregate Contributions attributable to amounts other
than voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes of
Code Sections 404 and 415 even if distributed from the Plan.
(d) For the purposes of this Section and Section 4.7, "Excess
Aggregate Contributions" means, with respect to any Plan Year, the excess
of:
(1) the aggregate amount of Employer matching contributions made
pursuant to Section 4.1(b) (to the extent such contributions are
taken into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c)
actually made on behalf of the Highly Compensated Participant group
for such Plan Year, over
(2) the maximum amount of such contributions permitted under the
limitations of Section 4.7(a).
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<PAGE> 44
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken into
account pursuant to Section 4.7(b)), voluntary Employee contributions made
pursuant to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and any
Qualified Non-Elective Contributions or elective deferrals taken into
account pursuant to Section 4.7(c) on behalf of the Highly Compensated
Participant (determined prior to the application of this paragraph) minus
the amount determined by multiplying the Highly Compensated Participant's
actual contribution ratio (determined after application of this paragraph)
by his "414(s) Compensation". The actual contribution ratio must be
rounded to the nearest one-hundredth of one percent for Plan Years
beginning after December 31, 1988. In no case shall the amount of Excess
Aggregate Contribution with respect to any Highly Compensated Participant
exceed the amount of Employer matching contributions made pursuant to
Section 4.1(b) (to the extent taken into account pursuant to Section
4.7(b)), voluntary Employee contributions made pursuant to Section 4.12,
Excess Contributions recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c) on behalf
of such Highly Compensated Participant for such Plan Year.
(f) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as voluntary
Employee contributions due to recharacterization for the plan year of any
other qualified cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within the Plan Year
or which are treated as voluntary Employee contributions due to
recharacterization pursuant to Section 4.6(a).
(g) The determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules shall
be accomplished as follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance with Section 4.7(d)(1)(ii),
then the actual contribution ratio shall be reduced and the Excess
Aggregate Contributions for the family unit shall be allocated among
the Family Members in proportion to the sum of Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken
into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c) of
each Family Member that were combined to determine the group actual
contribution ratio.
(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 4.7(d)(1)(i), then the
actual contribution ratio shall first be reduced, as required
herein, but not below the actual contribution ratio of the group of
Family Members who are not Highly Compensated Participants without
regard to family aggregation. The Excess Aggregate Contributions
resulting from this initial reduction shall be allocated among the
Highly Compensated Participants whose Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken
into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c)
were combined to determine the actual contribution ratio. If further
reduction is still required, then Excess Aggregate Contributions
resulting from this further reduction shall be determined by taking
into account the contributions of all Family Members and shall be
allocated among
37
<PAGE> 45
them in proportion to their respective Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken
into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c).
(h) Notwithstanding the above, within twelve (12) months after the
end of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated Participants
in an amount sufficient to satisfy one of the tests set forth in Section
4.7(a). Such contribution shall be allocated to the Participant's
Qualified Non-Elective Account of each Non-Highly Compensated Participant
in the same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants. A separate accounting shall be
maintained for the purpose of excluding such contributions from the
"Actual Deferral Percentage" tests pursuant to Code Section 4.5(a).
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum of
the allocable gain or loss for the Plan Year and the allocable gain or
loss for the period between the end of the Plan Year and the date of
distribution ("gap period"). The income or loss allocable to Excess
Aggregate Contributions for the Plan Year and the "gap period" is
calculated separately and is determined by multiplying the income or loss
for the Plan Year or the "gap period" by a fraction. The numerator of the
fraction is the Excess Aggregate Contributions for the Plan Year. The
denominator of the fraction is the total Participant's Account and
Voluntary Contribution Account attributable to Employer matching
contributions subject to Section 4.7, voluntary Employee contributions
made pursuant to Section 4.12, and any Qualified Non-Elective
Contributions and elective deferrals taken into account pursuant to
Section 4.7(c) as of the end of the Plan Year or the "gap period", reduced
by the gain allocable to such total amount for the Plan Year or the "gap
period" and increased by the loss allocable to such total amount for the
Plan Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period". Under such "safe harbor method", allocable Income for the "gap
period" shall be deemed to equal ten percent (10%) of the Income allocable
to Excess Aggregate Contributions for the Plan Year of the Participant
multiplied by the number of calendar months in the "gap period". For
purposes of determining the number of calendar months in the "gap period",
a distribution occurring on or before the fifteenth day of the month shall
be treated as having been made on the last day of the preceding month and
a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting
from recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
Notwithstanding the above, for Plan Years which began in 1987,
Income during the "gap period" shall not be taken into account.
4.9 MAXIMUM ANNUAL ADDITIONS
(a)(1) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer, or a
welfare benefit fund (as defined in Code Section 419(e)), maintained by
the Employer, or an individual medical account (as defined in Code Section
415(l)(2)) maintained by the Employer, which provides Annual Additions,
the amount of Annual Additions
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<PAGE> 46
which may be credited to the Participant's accounts for any Limitation Year
shall not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the Participant's accounts would cause
the Annual Additions for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so that the Annual
Additions for the Limitation Year will equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation
Year, uniformly determined for all Participants similarly situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
compensation for such Limitation Year.
(4) If pursuant to Section 4.9(a)(2) or as a result of the
allocation of Forfeitures, there is an Excess Amount, the excess
will be disposed of as follows:
(i) Any nondeductible Voluntary Employee Contributions, to the
extent they would reduce the Excess Amount, will be returned
to the Participant;
(ii) If, after the application of subparagraph (i), an Excess
Amount still exists, and the Participant is covered by the
Plan at the end of the Limitation Year, the Excess Amount in
the Participant's account will be used to reduce Employer
contributions (including any allocation of Forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) If, after the application of subparagraph (i), an Excess
Amount still exists, and the Participant is not covered by the
Plan at the end of a Limitation Year, the Excess Amount will
be held unallocated in a suspense account. The suspense
account will be applied to reduce future Employer
contributions (including allocation of any Forfeitures) for
all remaining Participants in the next Limitation Year, and
each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any time during
a Limitation Year pursuant to this Section, it will not
participate in the allocation of investment gains and losses.
If a suspense account is in existence at any time during a
particular limitation year, all amounts in the suspense
account must be allocated and reallocated to participants'
accounts before any employer contributions or any employee
contributions may be made to the plan for that limitation
year. Excess amounts may not be distributed to participants or
former participants.
(b)(1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified Prototype defined
contribution plan maintained by the Employer, or a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer, or an
individual medical account (as defined in Code Section 415(l)(2))
maintained by the Employer, which provides Annual Additions, during any
Limitation Year. The Annual Additions which way be credited to a
Participant's accounts under this Plan for any such Limitation Year shall
not exceed the Maximum Permissible Amount reduced by the Annual Additions
credited to a Participant's accounts under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual Additions with
39
<PAGE> 47
respect to the Participant under other defined contribution plans and
welfare benefit funds maintained by the Employer are less than the Maximum
Permissible Amount and the Employer contribution that would otherwise be
contributed or allocated to the Participant's accounts under this Plan
would cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated will be reduced so that
the Annual Additions under all such plans and welfare benefit funds for
the Limitation Year will equal the Maximum Permissible Amount. If the
Annual Additions with respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate are equal to
or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's account under this Plan for
the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in
Section 4.9(a)(2).
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(4) If, pursuant to Section 4.9(b)(2) or as a result of the
allocation of Forfeitures, a Participant's Annual Additions under
this Plan and such other plans would result in an Excess Amount for
a Limitation Year, the Excess Amount will be deemed to consist of
the Annual Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical account
will be deemed to have been allocated first regardless of the actual
allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of another plan, the Excess Amount attributed to this Plan will be
the product of,
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this
Plan to (2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date under this
and all the other qualified defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed in
the manner described in Section 4.9(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Prototype
Plan, Annual Additions which may be credited to the Participant's account
under this Plan for any Limitation Year will be limited in accordance with
Section 4.9(b), unless the Employer provides other limitations in the
Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in this Plan the
sum of the Participant's Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The
Annual Additions which may be credited to the Participant's account under
this Plan for any Limitation Year will be limited in accordance with the
Limitation on Allocations Section of the Adoption Agreement.
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<PAGE> 48
(e) For purposes of applying the limitations of Code Section 415,
the transfer of funds from one qualified plan to another is not an "annual
addition". In addition, the following are not Employee contributions for
the purposes of Section 4.9(f)(1)(2): (1) rollover contributions (as
defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan; (3)
repayments of distributions received by an Employee pursuant to Code
Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received
by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory
contributions); and (5) Employee contributions to a simplified employee
pension excludable from gross income under Code Section 408(k)(6).
(f) For purposes of this Section, the following terms shall be
defined as follows:
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer contributions, (2)
effective with respect to "limitation years" beginning after
December 31, 1986, Employee contributions, (3) forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31, 1985,
in taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account
of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit fund (as defined in Code Section 419(e)) maintained
by the Employer. Except, however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply to:
(1) any contribution for medical benefits (within the meaning of
Code Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition", or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1). Notwithstanding the foregoing, for "limitation years"
beginning prior to January 1, 1987, only that portion of Employee
contributions equal to the lesser of Employee contributions in
excess of six percent (6%) of "415 Compensation" or one-half of
Employee contributions shall be considered an "annual addition".
For this purpose, any Excess Amount applied under Sections 4.9(a)(4)
and 4.9(b)(6) in the Limitation Year to reduce Employer
contributions shall be considered Annual Additions for such
Limitation Year.
(2) Compensation means a Participant's earned income, wages,
salaries, fees for professional services and other amounts received
for personal services actually rendered in the course of employment
with the Employer maintaining the Plan (including, but not limited
to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums,
tips, and bonuses) and excluding the following:
(i) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a simplified employee pension plan to the
extent such contributions are excludable from the Employee's
gross income, or any distributions from a plan of deferred
compensation;
(ii) contributions made by the Employer to a plan of deferred
compensation to the extent that all or a portion of such
contributions are recharacterized as a voluntary Employee
contribution;
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<PAGE> 49
(iii) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by
an Employee becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(iv) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option;
and
(v) other amounts which received special tax benefits, or
contributions made by an Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the
Employee).
For purposes of applying the limitations of this Section 4.9,
Compensation for any Limitation Year is the Compensation actually
paid or includible in gross income during such year. Notwithstanding
the preceding sentence, Compensation for a Participant in a
profit-sharing plan who is permanently and totally disabled (as
defined in Code Section 22(e)(3)) is the Compensation such
Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid
immediately before becoming permanently and totally disabled; such
imputed Compensation for the disabled Participant may be taken into
account only if the Participant is not a Highly Compensated Employee
and contributions made on behalf of such Participant are
nonforfeitable when made.
(3) Defined Benefit Fraction means a fraction, the numerator of
which is the sum of the Participant's Projected Annual Benefits
under all the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is the
lesser of 125 percent of the dollar limitation determined for the
Limitation Year under Code Sections 415(b) and (d) or 140 percent of
his Highest Average Compensation including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as
of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125 percent of
the sum of the annual benefits under such plans which the
Participant had accrued as of the end of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986.
The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code
Section 415 for all Limitation Years beginning before January 1,
1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100
shall be substituted for 125 unless the extra minimum allocation is
being made pursuant to the Employer's election in F1 of the Adoption
Agreement. However, for any Plan Year in which this Plan is a Super
Top Heavy Plan, 100 shall be substituted for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if
greater, one-fourth of the defined benefit dollar limitation set
forth in Code Section 415(b)(1) as in effect for the Limitation
Year.
(5) Defined Contribution Fraction means a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's
account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior
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<PAGE> 50
Limitation Years, (including the Annual Additions attributable to
the Participant's nondeductible voluntary employee contributions to
any defined benefit plans, whether or not terminated, maintained by
the Employer and the annual additions attributable to all welfare
benefit funds, as defined in Code Section 419(e), and individual
medical accounts, as defined in Code Section 415(l)(2), maintained
by the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior Limitation
Years of Service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year is the lesser of 125 percent
of the Defined Contribution Dollar Limitation or 35 percent of the
Participant's Compensation for such year. For Limitation Years
beginning prior to January 1, 1987, the "annual addition" shall
not be recomputed to treat all Employee contributions as an Annual
Addition.
If the Employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one
or more defined contribution plans maintained by the Employer which
were in existence on May 5, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the Defined Benefit
Fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted from
the numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the last
Limitation Year beginning before January 1, 1987, and disregarding
any changes in the term and conditions of the plan made after May 5,
1986, but using the Code Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100
shall be substituted for 125 unless the extra minimum allocation is
being made pursuant to the Employer's election in F1 of the Adoption
Agreement. However, for any Plan Year in which this Plan is a Super
Top Heavy Plan, 100 shall be substituted for 125 in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this Section,
Affiliated Employers shall be determined pursuant to the
modification made by Code Section 415(h).
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) Highest Average Compensation means the average Compensation for
the three consecutive Years of Service with the Employer that
produces the highest average. A Year of Service with the Employer is
the 12 consecutive month period defined in Section E1 of the
Adoption Agreement which is used to determine Compensation under the
Plan.
(9) Limitation Year means the Compensation Year (a 12 consecutive
month period) as elected by the Employer in the Adoption Agreement.
All qualified plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a different 12
consecutive month period, the new Limitation Year must begin on a
date within the Limitation Year in which the amendment is made.
(10) Master or Prototype Plan means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue
Service.
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<PAGE> 51
(11) Maximum Permissible Amount means the maximum Annual Addition
that may be contributed or allocated to a Participant's account
under the plan for any Limitation Year, which shall not exceed the
lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation Limitation referred to in (ii) shall not
apply to any contribution for medical benefits (within the
meaning of Code Sections 401(h) or 419A(f)(2)) which is
otherwise treated as an annual addition under Code Sections
415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive month
period, the Maximum Permissible Amount will not exceed the Defined
Contribution Dollar Contribution multiplied by the following
fraction:
number of months in the short Limitation Year
--------------------------
12
(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or
qualified Joint and Survivor Annuity) to which the Participant would
be entitled under the terms of the plan assuming:
(13) the Participant will continue employment until Normal
Retirement Age (or current age, if later), and
(14) the Participant's Compensation for the current Limitation Year
and all other relevant factors used to determine benefits under the
Plan will remain constant for all future Limitation Years.
(g) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements prescribed
in this Section shall at all times comply with the provisions of Code
Section 415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable
error in estimating a Participant's annual Compensation, or other facts
and circumstances to which Regulation 1.415-6(b)(6) shall be applicable,
the "annual additions" under this Plan would cause the maximum provided in
Section 4.9 to be exceeded, the Administrator shall treat the excess in
accordance with Section 4.9(a)(4).
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of
the Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax exempt
status of the Plan or create adverse tax consequences for the Employer.
The amounts transferred shall be
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set up in a separate account herein referred to as a "Participant's
Rollover Account". Such account shall be fully Vested at all times and
shall not be subject to forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn
by, or distributed to the Participant, in whole or in part, except as
provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his Beneficiary. Any
distributions of amounts held in a Participant's Rollover Account shall be
made in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder. Furthermore, such amounts shall be considered as part of a
Participant's benefit in determining whether an involuntary cash-out of
benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after
a valuation date be segregated into a separate account for each
Participant until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as part
of the general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan" shall
mean any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
lump-sum distributions received by an Employee from another qualified plan
which are eligible for tax free rollover to a qualified plan and which are
transferred by the Employee to this Plan within sixty (60) days following
his receipt thereof, (iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit individual
retirement account has no assets other than assets which (A) were
previously distributed to the Employee by another qualified plan as a
lump-sum distribution (B) were eligible for tax-free rollover to a
qualified plan and (C) were deposited in such conduit individual
retirement account within sixty (60) days of receipt thereof and other
than earnings on said assets; and (iv) amounts distributed to the Employee
from a conduit individual retirement account meeting the requirements of
clause (iii) above, and transferred by the Employee to this Plan within
sixty (60) days of his receipt thereof from such conduit individual
retirement account.
(g) Prior to accepting any transfers to which this Section applies,
the Administrator may require the Employee to establish that the amounts
to be transferred to this Plan meet the requirements of this Section and
may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet the
requirements of this Section.
(h) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction having
the effect of such a transfer) shall only be permitted if it will not
result in the elimination or reduction of any "Section 411(d)(6) protected
benefit" as described in Section 8.1.
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4.12 VOLUNTARY CONTRIBUTIONS
(a) If elected in the Adoption Agreement, each Participant may, at
the discretion of the Administrator in a nondiscriminatory manner, elect
to voluntarily contribute a portion of his compensation earned while a
Participant under this Plan. Such contributions shall be paid to the
Trustee within a reasonable period of time but in no event later than 90
days after the receipt of the contribution.
(b) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) A Participant may elect to withdraw his voluntary contributions
from his Voluntary Contribution Account and the actual earnings thereon in
a manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder. If the
Administrator maintains sub-accounts with respect to voluntary
contributions (and earnings thereon) which were made on or before a
specified date, a Participant shall be permitted to designate which
sub-account shall be the source for his withdrawal. No Forfeitures shall
occur solely as a result of an Employee's withdrawal of Employee
contributions.
In the event such a withdrawal is made, or in the event a Participant
has received a hardship distribution pursuant to Regulation
1.401(k)-l(d)(2)(iii)(B) from any other plan maintained by the Employer or
from his Participant's Elective Account pursuant to Section 6.11, then
such Participant shall be barred from making any voluntary contributions
to the Trust Fund for a period of twelve (12) months after receipt of the
withdrawal or distribution.
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(e) The Administrator may direct that voluntary contributions made
after a valuation date be segregated into a separate account until such
time as the allocations pursuant to this Plan have been made, at which
time they may remain segregated or be invested as part of the general
Trust Fund, to be determined by the Administrator.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants may
direct the Trustee as to the investment of all or a portion of any one or
more of their individual account balances. Participants may direct the
Trustee in writing to invest their account in specific assets as permitted
by the Administrator provided such investments are in accordance with the
Department of Labor regulations and are permitted by the Plan. That
portion of the account of any Participant so directing will thereupon be
considered a Directed Investment Account.
(b) A separate Directed Investment Account shall be established for
each Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account shall
be charged and credited as the case may be to each account. The Directed
Investment Account shall not share in Trust Fund Earnings, but it shall be
charged or credited as appropriate with the net earnings, gains, losses
and expenses as well as any appreciation or depreciation in market value
during each Plan Year attributable to such account.
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(c) The Administrator shall establish a procedure, to be applied in
a uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the Administrator
shall impose on a Participant's right to direct investments.
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions, then each Participant who made a
"Qualified Voluntary Employee Contribution" within the meaning of Code
Section 219(e)(2) as it existed prior to the enactment of the Tax Reform
Act of 1986, shall have his contribution held in a separate Qualified
Voluntary Employee Contribution Account which shall be fully Vested at all
times. Such contributions, however, shall not be permitted if they are
attributable to taxable years beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including,
but not limited to, all notice and consent requirements of Code Sections
411(a)(11) and 417 and the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Qualified Voluntary Employee Contribution Account
shall be used to provide additional benefits to the Participant or his
Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a separate
account for each Participant, they shall be invested as part of the
general Trust Fund and share in earnings and losses.
4.15 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified
retirement plans integrated with Social Security such that any Participant in
this Plan is covered under more than one of such plans, then such plans will be
considered to be one plan and will be considered to be integrated if the extent
of the integration of all such plans does not exceed 100%. For purposes of the
preceding sentence, the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable, under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date", to determine the net worth of the assets comprising the
Trust Fund as it exists on the "valuation date". In determining such net worth,
the Trustee shall value the assets comprising the Trust Fund at their fair
market value as of the "valuation date" and shall deduct all expenses for which
the Trustee has not yet obtained reimbursement from the Employer or the Trust
Fund.
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5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Administrator shall direct
the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date". If such
securities were not traded on the "valuation date", or if the exchange on which
they are traded was not open for business on the "valuation date", then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date". Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date", which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on or after his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date or Early Retirement Date, all
amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or
other termination of his employment, all amounts created to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of Sections
6.6 and 6.7, the distribution of the deceased Participant's accounts to
the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7, the
distribution of any remaining amounts credited to the accounts of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the value
of the account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(d) Unless otherwise elected in the manner prescribed in Section
6.6, the Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse for the Pre-Retirement Survivor Annuity
if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be
the Participant's Beneficiary, or
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(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and there is no "qualified domestic
relations order" as defined in Code Section 414(p) which
provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a
form satisfactory to the Administrator. A Participant may at any time
revoke his designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the Administrator.
However, the Participant's spouse must again consent in writing to any
change in Beneficiary unless the original consent acknowledged that the
spouse had the right to limit consent only to a specific Beneficiary and
that the spouse voluntarily elected to relinquish such right. The
Participant may, at any time, designate a Beneficiary for death benefits
payable under the Plan that are in excess of the Pre-Retirement Survivor
Annuity. In the event no valid designation of Beneficiary exists at the
time of the Participant's death, the death benefit shall be payable to his
estate.
(e) If the Plan provides an insured death benefit and a Participant
dies before any insurance coverage to which he is entitled under the Plan
is effected, his death benefit from such insurance coverage shall be
limited to the standard rated premium which was or should have been used
for such purpose.
(f) In the event of any conflict between the terms of this Plan and
the terms of any Contract issued hereunder, the Plan provisions shall
control.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Administrator, in
accordance with the provisions of Sections 6.5 and 6.7, shall direct the
distribution to such Participant of all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent
to the termination of a Participant's employment for any reason other than
retirement, death, or Total and Permanent Disability, the Administrator
may direct the Trustee to segregate the amount of the Vested portion of
such Terminated Participant's Combined Account and invest the aggregate
amount thereof in a separate, federally insured savings account,
certificate of deposit, common or collective trust fund of a bank or a
deferred annuity. In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall remain in a separate
account for the Terminated Participant and share in allocations pursuant
to Section 4.4 until such time as a distribution is made to the Terminated
Participant. The amount of the portion of the Participant's Combined
Account which is not Vested may be credited to a separate account (which
will always share in gains and losses of the Trust) and at such time as
the amount becomes a Forfeiture shall be treated in accordance with the
provisions of the Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in the
event that the amount of the Vested portion of the Terminated
Participant's Combined Account equals or exceeds the fair market
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value of any insurance Contracts, the Trustee, when so directed by the
Administrator and agreed to by the Terminated Participant, shall assign,
transfer, and set over to such Terminated Participant all Contracts on his
life in such form or with such endorsements, so that the settlement
options and forms of payment are consistent with the provisions of Section
6.5. In the event that the Terminated Participant's Vested portion does
not at least equal the fair market value of the Contracts, if any, the
Terminated Participant may pay over to the Trustee the sum needed to make
the distribution equal to the value of the Contracts being assigned or
transferred, or the Trustee, pursuant to the Participant's election, may
borrow the cash value of the Contracts from the Insurer so that the value
of the Contracts is equal to the Vested portion of the Terminated
Participant's Combined Account and then assign the Contracts to the
Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be
made on the occurrence of an event which would result in the distribution
had the Terminated Participant remained in the employ of the Employer
(upon the Participant's death, Total and Permanent Disability, Early or
Normal Retirement). However, at the election of the Participant, the
Administrator shall direct that the entire Vested portion of the
Terminated Participant's Combined Account to be payable to such Terminated
Participant provided the conditions, if any, set forth in the Adoption
Agreement have been satisfied. Any distribution under this paragraph shall
be made in a manner which is consistent with and satisfies the provisions
of Section 6.5, including but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder.
Notwithstanding the above, if the value of a Terminated
Participant's Vested benefit derived from Employer and Employee
contributions does not exceed, and at the time of any prior distribution,
has never exceeded $3,500, the Administrator shall direct that the entire
Vested benefit be paid to such Participant in a single lump-sum without
regard to the consent of the Participant or the Participant's spouse. A
Participant's Vested benefit shall not include Qualified Voluntary
Employee Contributions within the meaning of Code Section 72(o)(5)(B) for
Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a
percentage of such Participant's Account determined on the basis of the
Participant's number of Years of Service according to the vesting schedule
specified in the Adoption Agreement.
(c) For any Top Heavy Plan Years, one of the minimum top heavy
vesting schedules as elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. The minimum top heavy vesting
schedule applies to all benefits within the meaning of Code Section
411(a)(7) except those attributable to Employee contributions, including
benefits accrued before the effective date of Code Section 416 and
benefits accrued before the Plan became top heavy. Further, no decrease in
a Participant's Vested percentage may occur in the event the Plan's status
as top heavy changes for any Plan Year. However, this Section does not
apply to the account balances of any Employee who does not have an Hour of
Service after the Plan has initially become top heavy and the Vested
percentage of such Employee's Participant's Account shall be determined
without regard to this Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy
Plan, the Administrator shall continue to use the vesting schedule in
effect while the Plan was a Top Heavy Plan for each Employee who had an
Hour of Service during a Plan Year when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any
full or partial termination of the Plan, all amounts credited to the
account of any affected Participant shall become 100% Vested and shall not
thereafter be subject to Forfeiture.
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(e) If this is an amended or restated Plan, then notwithstanding the
vesting schedule specified in the Adoption Agreement, the Vested percentage of a
Participant's Account shall not be less than the Vested percentage attained as
of the later of the effective date or adoption date of this amendment and
restatement. The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Article, or due to changes in the Plan's status as a
Top Heavy Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is
amended in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed amended by an
automatic change to a top heavy vesting schedule, then each Participant with at
least 3 Years of Service as of the expiration date of the election period may
elect to have his nonforfeitable percentage computed under the Plan without
regard to such amendment or change. Notwithstanding the foregoing, for Plan
Years beginning before January 1, 1989, or with respect to Employees who fail to
complete at least one (1) Hour of Service in a Plan Year beginning after
December 31, 1988, five (5) shall be substituted for three (3) in the preceding
sentence. If a Participant fails to make such election, then such Participant
shall be subject to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end 60 days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment
from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the Employer
before a 1-Year Break in Service occurs, he shall continue to participate in the
Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such Former
Participant had received a distribution of his entire Vested interest
prior to his reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him before the earlier
of five (5) years after the first date on which the Participant is
subsequently reemployed by the Employer or the close of the first
period of 5 consecutive 1-Year Breaks in Service commencing after the
distribution. If a distribution occurs for any reason other than a
separation from service, the time for repayment may not end earlier
than five (5) years after the date of separation. In the event the
Former Participant does repay the full amount distributed to him, the
undistributed portion of the Participant's Account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the
Anniversary Date or other valuation date preceding his termination. If
an employee receives a distribution pursuant to this section and the
employee resumes employment covered under this plan, the employee's
employer-derived account balance will be restored to the amount on the
date of distribution if the employee repays to the plan the full amount
of the distribution attributable to employer contribution before the
earlier, of 5 years after the first date on which the participant is
subsequently re-employed by the employer, or the date the participant
incurs 5 consecutive 1-year breaks in service following the date of the
distribution. If a non-Vested Former Participant was deemed to have
received a distribution and such Former Participant is
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reemployed by the Employer before five (5) consecutive 1-Year
Breaks in Service, then such Participant will be deemed to
have repaid the deemed distribution as of the date of
reemployment.
(3) If any Former Participant is reemployed after a 1-Year
Break in Service has occurred, Years of Service shall include
Years of Service prior to his 1-Year Break in Service subject
to the following rules:
(i) Any Former Participant who under the Plan does
not have a nonforfeitable right to any interest in
the Plan resulting from Employer contributions shall
lose credits if his consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five (5)
or (B) the aggregate number of his pre-break Years of
Service;
(ii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account
balance attributable to pre-break service shall not
be increased as a result of post-break service;
(iii) A Former Participant who is reemployed and who
has not had his Years of Service before a 1-Year
Break in Service disregarded pursuant to (i) above,
shall participate in the Plan as of his date of
reemployment;
(iv) If a Former Participant completes a Year of
Service (a 1-Year Break in Service previously
occurred, but employment had not terminated), he
shall participate in the Plan retroactively from the
first day of the Plan Year during which he completes
one (1) Year of Service.
(h) In determining Years of Service for purposes of vesting
under the Plan, Years of Service shall be excluded as specified in the
Adoption Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a)(1) Unless otherwise elected as provided below, a
Participant who is married on the "annuity starting date" and who does
not die before the "annuity starting date" shall receive the value of
all of his benefits in the form of a Joint and Survivor Annuity. The
Joint and Survivor Annuity is an annuity that commences immediately and
shall be equal in value to a single life annuity. Such joint and
survivor benefits following the Participant's death shall continue to
the spouse during the spouse's lifetime at a rate equal to 50% of the
rate at which such benefits were payable to the Participant. This Joint
and Survivor Annuity shall be considered the designated qualified Joint
and Survivor Annuity and automatic form of payment for the purposes of
this Plan. However, the Participant may elect to receive a smaller
annuity benefit with continuation of payments to the spouse at a rate
of seventy-five percent (75%) or one hundred percent (100%) of the rate
payable to a Participant during his lifetime which alternative Joint
and Survivor Annuity shall be equal in value to the automatic Joint and
50% Survivor Annuity. An unmarried Participant shall receive the value
of his benefit in the form of a life annuity. Such unmarried
Participant, however, may elect in writing to waive the life annuity.
The election must comply with the provisions of this Section as if it
were an election to waive the Joint and Survivor Annuity by a married
Participant, but without the spousal consent requirement. The
Participant way elect to have any annuity provided for in this Section
distributed upon the attainment of the "earliest retirement age" under
the Plan. The "earliest retirement age" is the earliest date on which,
under the Plan, the Participant could elect to receive retirement
benefits.
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(2) Any election to waive the Joint and Survivor Annuity must be made
by the Participant in writing during the election period and be
consented to by the Participant's spouse. If the spouse is legally
incompetent to give consent, the spouse's legal guardian, even if such
guardian is the Participant, may give consent. Such election shall
designate a Beneficiary (or a form of benefits) that may not be changed
without spousal consent (unless the consent of the spouse expressly
permits designations by the Participant without the requirement of
further consent by the spouse). Such spouse's consent shall be
irrevocable and must acknowledge the effect of such election and be
witnessed by a Plan representative or a notary public. Such consent
shall not be required if it is established to the satisfaction of the
Administrator that the required consent cannot be obtained because
there is no spouse, the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The election made
by the Participant and consented to by his spouse may be revoked by
the Participant in writing without the consent of the spouse at any
time during the election period. The number of revocations shall not
be limited. Any new election must comply with the requirements of
this paragraph. A former spouse's waiver shall not be binding on
a new spouse.
(3) The election period to waive the Joint and Survivor Annuity shall
be the 90 day period ending on the "annuity starting date."
(4) For purposes of this Section and Section 6.6, the "annuity starting
date" means the first day of the first period for which an amount is
paid as an annuity, or, in the case of a benefit not payable in the
form of an annuity, the first day on which all events have occurred
which entitles the Participant to such benefit.
(5) With regard to the election, the Administrator shall provide to the
Participant no less than 30 days and no more than 90 days before the
"annuity starting date" a written explanation of:
(i) the terms and conditions of the Joint and Survivor
Annuity, and
(ii) the Participant's right to make and the effect of an
election to waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to any
election to waive the Joint and Survivor Annuity, and
(iv) the right of the Participant to revoke such election, and
the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to
paragraph (a)(2) above not to receive his benefit in the form of a Joint and
Survivor Annuity, or if such Participant is not married, in the form of a life
annuity, the Administrator, pursuant to the election of the Participant, shall
direct the distribution to a Participant or his Beneficiary any amount to which
he is entitled under the Plan in one or more of the following methods which are
permitted pursuant to the Adoption Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may direct that
the Participant's interest in the Plan be segregated and
invested separately, and that the funds
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in the segregated account be used for the payment of the
installments. The period over which such payment is to be made
shall not extend beyond the Participant's life expectancy (or
the life expectancy of the Participant and his designated
Beneficiary);
(3) Purchase of or providing an annuity. However, such
annuity may not be in any form that will provide for payments
over a period extending beyond either the life of the
Participant (or the lives of the Participant and his
designated Beneficiary) or the life expectancy of the
Participant (or the life expectancy of the Participant and his
designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor
Annuity derived from Employer and Employee contributions may not be
paid without his written consent if the value exceeds, or has ever
exceeded at the time of any prior distribution, $3,500. Further, the
spouse of a Participant must consent in writing to any immediate
distribution. If the value of the Participant's benefit derived from
Employer and Employee contributions does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the
Administrator may immediately distribute such benefit without such
Participant's consent. No distribution may be made under the preceding
sentence after the "annuity starting date" unless the Participant and
his spouse consent in writing to such distribution. Any written consent
required under this paragraph must be obtained not more than 90 days
before commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded at the time of any prior distribution,
$3,500 shall require such Participant's consent if such distribution
commences prior to the later of his Normal Retirement Age or age 62.
With regard to this required consent:
(1) No consent shall be valid unless the Participant has
received a general description of the material features and an
explanation of the relative values of the optional forms of
benefit available under the Plan that would satisfy the notice
requirements of Code Section 417.
(2) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election
to defer the receipt of benefits shall not apply with respect
to distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall
be provided no less than 30 days and no more than 90 days
before the "annuity starting date".
(4) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice
and must not be made more than 90 days before the "annuity
starting date".
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits, made on or after January
1, 1985, whether under the Plan or through the purchase of an annuity
Contract, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation Section 1.401(a)(9)-2),
the provisions of which are incorporated herein by reference:
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(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later
of (i) the calendar year in which the Participant attains age
70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5) percent
owner" at any time during the "five (5) Plan Year period
ending in the calendar year in which he attains age 70 1/2 or,
in the case of a Participant who becomes a "five (5) percent
owner" during any subsequent Plan Year, clause (ii) shall no
longer apply and the required beginning date shall be the
April 1st of the calendar year following the calendar year in
which such subsequent Plan Year ends. Alternatively,
distributions to a Participant must begin no later than the
applicable April 1st as determined under the preceding
sentence and must be made over the life of the Participant (or
the lives of the Participant and the Participant's designated
Beneficiary) or, if benefits are paid in the form of a Joint
and Survivor Annuity, the life expectancy of the Participant
(or the life expectancies of the Participant and his
designated Beneficiary) in accordance with Regulations. For
Plan Years beginning after December 31, 1988, clause (ii)
above shall not apply to any Participant unless the
Participant had attained age 70 1/2 before January 1, 1988 and
was not a "five (5) percent owner" at any time during the Plan
Year ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then present value of the payments to
be made over the period of the Participant's life expectancy
exceeds fifty percent (50%) of the then present value of the
total payments to be made to the Participant and his
Beneficiaries.
(f) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of a
life annuity) shall be redetermined annually in accordance with
Regulations if permitted pursuant to the Adoption Agreement. If the
Participant or the Participant's spouse may elect whether
recalculations will be made, then the election, once made, shall be
irrevocable. If no election is made by the time distributions must
commence, then the life expectancy of the Participant and the
Participant's spouse shall not be subject to recalculation. Life
expectancy and joint and last survivor expectancy shall be computed
using the return multiples in Tables V and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-
transferable when distributed. Furthermore, the terms of any annuity
Contract purchased and distributed to a Participant or spouse shall
comply with all of the requirements of this Plan.
(h) Subject to the spouse's right of consent afforded under
the Plan, the restrictions imposed by this Section shall not apply
if a Participant has, prior to January 1, 1984, made a written
designation to have his retirement benefit paid in an alternative
method acceptable under Code Section 401(a) as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who
has not terminated employment is not fully Vested in his Participant's
Account and the Participant may increase the Vested percentage in such
account:
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(1) A separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution, and
(2) At any relevant time the Participant's Vested portion of
the separate account shall be equal to an amount ("X")
determined by the formula:
X equals P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested
Participant who dies before the annuity starting date and who has a
surviving spouse shall have the Pre-Retirement Survivor Annuity paid to
his surviving spouse. The Participant's spouse may direct that payment
of the Pre-Retirement Survivor Annuity commence within a reasonable
period after the Participant's death. If the spouse does not so direct,
payment of such benefit will commence at the time the Participant would
have attained the later of his Normal Retirement Age or age 62.
However, the spouse may elect a later commencement date. Any
distribution to the Participant's spouse shall be subject to the rules
specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity
before the Participant's death must be made by the Participant in
writing during the election period and shall require the spouse's
irrevocable consent in the same manner provided for in Section
6.5(a)(2). Further, the spouse's consent must acknowledge the specific
nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse
Beneficiary need not be acknowledged, provided the consent of the
spouse acknowledges that the spouse has the right to limit consent only
to a specific Beneficiary and that the spouse voluntarily elects to
relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor
Annuity shall begin on the first day of the Plan Year in which the
Participant attains age 35 and end on the date of the Participant's
death. An earlier waiver (with spousal consent) may be made provided a
written explanation of the Pre-Retirement Survivor Annuity is given to
the Participant and such waiver becomes invalid at the beginning of the
Plan Year in which the Participant turns age 35. In the event a Vested
Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such
separation from service.
(d) With regard to the election, the Administrator shall
provide each Participant within the applicable period, with respect to
such Participant (and consistent with Regulations), a written
explanation of the Pre-Retirement Survivor Annuity containing
comparable information to that required pursuant to Section 6.5(a)(5).
For the purposes of this paragraph, the term "applicable period" means,
with respect to a Participant, whichever of the following periods ends
last:
(1) The period beginning with the first day of the Plan Year
in which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age 35,
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(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an individual
who becomes a Participant after age 32, the explanation must
be provided by the end of the three-year period beginning with
the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity
with respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
(5) A reasonable period after separation from service in the
case of a Participant who separates before attaining age 35.
For this purpose, the Administrator must provide the
explanation beginning one year before the separation from
service and ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this
Section shall apply only to Participants who are credited with an Hour
of Service on or after August 23, 1984. Former Participants who are not
credited with an Hour of Service on or after August 23, 1984 shall be
provided with rights to the Pre-Retirement Survivor Annuity in
accordance with Section 303(e)(2) of the Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity
derived from Employer and Employee contributions does not exceed $3,500
and has never exceeded $3,500 at the time of any prior distribution,
the Administrator shall direct the immediate distribution of such
amount to the Participant's spouse. No distribution may be made under
the preceding sentence after the annuity starting date unless the
spouse consents in writing. If the value exceeds, or has ever exceeded
at the time of any prior distribution, $3,500, an immediate
distribution of the entire amount may be made to the surviving spouse,
provided such surviving spouse consents in writing to such
distribution. Any written consent required under this paragraph must be
obtained not more than 90 days before commencement of the distribution
and shall be made in a manner consistent with Section 6.5(a)(2).
(g)(1) In the event there is an election to waive the
Pre-Retirement Survivor Annuity, and for death benefits in excess of
the Pre-Retirement Survivor Annuity, such death benefits shall be paid
to the Participant's Beneficiary by either of the following methods, as
elected by the Participant (or if no election has been made prior to
the Participant's death, by his Beneficiary) subject to the rules
specified in Section 6.6(h) and the selections made in the Adoption
Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be
determined by the Participant or his Beneficiary.
After periodic installments commence, the Beneficiary
shall have the right to reduce the period over which
such periodic installments shall be made, and the
cash amount of such periodic installments shall be
adjusted accordingly.
(iii) If death benefits in excess of the
Pre-Retirement Survivor Annuity are to be paid to the
surviving spouse, such benefits may be paid pursuant
to (i) or (ii) above, or used to purchase an annuity
so as to increase the payments made pursuant to the
Pre-Retirement Survivor Annuity;
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(2) In the event the death benefit payable pursuant to Section
6.2 is payable in installments, then, upon the death of the
Participant, the Administrator may direct that the death
benefit be segregated and invested separately, and that the
funds accumulated in the segregated account be used for the
payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January
1, 1985, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the
distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest
shall be distributed at least as rapidly as under the method
of distribution selected pursuant to Section 6.5 as of his
date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to
his Beneficiaries in accordance with the following rules
subject to the selections made in the Adoption Agreement and
Subsections 6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to
the Participant's Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of
the Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above
shall not apply to any portion of the deceased
Participant's interest which is payable to or for the
benefit of a designated Beneficiary. In such event,
such portion shall be distributed over the life of
such designated Beneficiary (or over a period not
extending beyond the life expectancy of such
designated Beneficiary) provided such distribution
begins not later than December 31st of the calendar
year immediately following the calendar year in which
the Participant died;
(iii) However, in the event the Participant's spouse
(determined as of the date of the Participant's
death) is his designated Beneficiary, the provisions
of (ii) above shall apply except that the requirement
that distributions commence within one year of the
Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later
of: (1) December 31st of the calendar year
immediately following the calendar year in which the
Participant died; or (2) December 31st of the
calendar year in which the Participant would have
attained age 70 1/2. If the surviving spouse dies
before distributions to such spouse begin, then the
5-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections
made in the Adoption Agreement, if a Participant's death
benefits are to be paid in the form of a Pre-Retirement
Survivor Annuity, then distributions to the Participant's
surviving spouse must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December
31st of the calendar year in which the Participant would have
attained age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a
designated Beneficiary to be excepted from the 5-year distribution
requirement (if permitted in the Adoption Agreement) must be made no
later than December 31st of the calendar year following the calendar
year of the Participant's death.
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Except, however, with respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died or, if later,
the calendar year in which the Participant would have attained age 70
1/2; or (2) December 31st of the calendar year which contains the
fifth anniversary of the date of the Participant's death. An election
by a designated Beneficiary must be in writing and shall be irrevocable
as of the last day of the election period stated herein. In the absence
of an election by the Participant or a designated Beneficiary, the
5-year distribution requirement shall apply.
(j) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of a
life annuity) shall or shall not be redetermined annually as provided
in the Adoption Agreement and in accordance with Regulations. If the
Participant or the Participant's spouse may elect, pursuant to the
Adoption Agreement, to have life expectancies recalculated, then the
election, once made shall be irrevocable. If no election is made by the
time distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy
shall be computed using the return multiples in Tables V and VI of
Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's
interest in the Plan is distributed to such Participant's spouse, the
portion of the distribution attributable to the Participant's Voluntary
Contribution Account shall be in the same proportion that the
Participant's Voluntary Contribution Account bears to the Participant's
total interest in the Plan.
(l) Subject to the spouse's right of consent afforded under
the Plan, the restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation
to have his death benefits paid in an alternative method acceptable
under Code Section 401(a) as in effect prior to the enactment of the
Tax Equity and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a distribution is
to be made, or a series of payments are to commence, on or as of an Anniversary
Date, the distribution or series of payments may be made or begun on such date
or as soon thereafter as is practicable, but in no event later than 180 days
after the Anniversary Date. However, unless a Former Participant elects in
writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein; (b) the
10th anniversary of the year in which the Participant commenced participation in
the Plan; or (c) the date the Participant terminates his service with the
Employer.
Notwithstanding the foregoing, the failure of a Participant and, if
applicable, the Participant's spouse, to consent to a distribution pursuant to
Section 6.5(d), shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said
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Beneficiary resides. Such a payment to the legal guardian, custodian or parent
of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan
from further liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored,
first from Forfeitures, if any, and then from an additional Employer
contribution if necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
If elected in the Adoption Agreement, at such time as a Participant
shall have attained the age specified in the Adoption Agreement, the
Administrator, at the election of the Participant, shall direct the Trustee to
distribute up to the entire amount then credited to the accounts maintained on
behalf of the Participant. However, no such distribution may be made to any
Participant unless his Participant's Account has become fully Vested. In the
event that the Administrator makes such a distribution, the Participant shall
continue to be eligible to participate in the Plan on the same basis as any
other Employee. Any distribution made pursuant to this Section shall be made in
a manner consistent with Section 6.5, including but not limited to, all notice
and consent requirements required by Code Sections 411(a)(11) and 417 and the
Regulations thereunder.
Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account and Qualified Non-Elective Account shall not be
permitted prior to the Participants attaining 59 1/2 except as otherwise
permitted under the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant,
shall direct the Trustee to distribute to any Participant in any one
Plan Year up to the lesser of (1) 100% of his accounts as specified in
the Adoption Agreement valued as of the last Anniversary Date or other
valuation date or (2) the amount necessary to satisfy the immediate and
heavy financial need of the Participant. Any distribution made pursuant
to this Section shall be deemed to be made as of the first day of the
Plan Year or, if later, the valuation date immediately preceding the
date of distribution, and the account from which the distribution is
made shall be reduced accordingly. Withdrawal under this Section shall
be authorized only if the distribution is on account of one of the
following or any other items permitted by the Internal Revenue Service:
(1) Medical expenses described in Code Section 213(d) incurred
by the Participant, his spouse, or any of his dependents (as
defined in Code Section 152);
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition for the next semester or quarter of
post-secondary education for the Participant, his spouse,
children, or dependents; or
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(5) The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's
Account until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section
unless the Administrator, based upon the Participant's representation
and such other facts as are known to the Administrator, determines that
all of the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and
voluntary Employee contributions will be suspended for at
least twelve (12) months after receipt of the hardship
distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals
for the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's elective
deferrals for the taxable year of the hardship distribution.
(d) Notwithstanding the above, distributions from the
Participant's Elective Account and Qualified Non-Elective Account
pursuant to this Section shall be limited solely to the Participant's
Deferred Compensation and any income attributable thereto credited to
the Participant's Elective Account as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be
made in a manner which is consistent with and satisfies the provisions
of Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411 (a)(11) and 417 and the Regulations
thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee", "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a
Participant in a Profit Sharing Plan and to any distribution, made on or after
the first day of the first plan year beginning after December 31, 1988, from or
under a separate account attributable solely to accumulated deductible employee
contributions, as defined in Code Section 72(o)(5)(B), and maintained on behalf
of a participant in a money purchase pension plan, (including a target benefit
plan):
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(a) The Participant shall be prohibited from electing benefits
in the form of a life annuity;
(b) Upon the death of the Participant, the Participant's
entire Vested account balances will be paid to his or her surviving
spouse, or, if there is no surviving spouse or the surviving spouse has
already consented to waive his or her benefit, in accordance with
Section 6.6, to his designated Beneficiary; and
(c) Except to the extent otherwise provided in this Section
and Section 6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6
regarding spousal consent and the forms of distributions shall be
inoperative with respect to this Plan.
This Section shall not apply to any Participant if it is
determined that this Plan is a direct or indirect transferee of a
defined benefit plan or money purchase plan, or a target benefit plan,
stock bonus or profit sharing plan which would otherwise provide for a
life annuity form of payment to the Participant.
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined
by the Employer to invest, manage, and control the Plan assets subject,
however, to the direction of an Investment Manager if the Employer
should appoint such manager as to all or a portion of the assets of the
Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the event of
their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year a
written annual report per Section 7.6; and
(d) If there shall be more than one Trustee, they shall act by
a majority of their number, but may authorize one or more of them to
sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to
keep the Trust Fund invested without distinction between principal and
income and in such securities or property, real or personal, wherever
situated, as the Trustee shall deem advisable, including, but not
limited to, stocks, common or preferred, bonds and other evidences of
indebtedness or ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust Fund
consider, among other factors, the short and long-term financial needs
of the Plan on the basis of information furnished by the Employer. In
making such investments, the Trustee shall not be restricted to
securities or other property of the character expressly authorized by
the applicable law for trust investments; however, the Trustee shall
give due regard to any limitations imposed by the Code or the Act so
that at all times this Plan may qualify as a qualified Plan and Trust.
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(b) The Trustee may employ a bank or trust company pursuant to
the terms of its usual and customary bank agency agreement, under which
the duties of such bank or trust company shall be of a custodial,
clerical and record-keeping nature.
(c) The Trustee, at the direction of the Administrator and
pursuant to instructions from the individual designated in the Adoption
Agreement for such purpose shall ratably apply for, own, and pay all
premiums on Contracts on the lives of the Participants. Any initial or
additional Contract purchased on behalf of a Participant shall have a
face amount of not less than $1,000 or the limitation of the Insurer,
whichever is greater. If a life insurance Contract is to be purchased
for a Participant, the aggregate premium for ordinary life insurance
for each Participant must be less than 50% of the aggregate
contributions and Forfeitures allocated to a Participant's Combined
Account. For purposes of this limitation, ordinary life insurance
Contracts are Contracts with both non-decreasing death benefits and
non-increasing premiums. If term insurance or universal life insurance
is purchased with such contributions, the aggregate premium must be 25%
or less of the aggregate contributions and Forfeitures allocated to a
Participant's Combined Account. If both term insurance and ordinary
life insurance are purchased with such contributions, the amount
expended for term insurance plus one-half of the premium for ordinary
life insurance may not in the aggregate exceed 25% of the aggregate
Employer contributions and Forfeitures allocated to a Participant's
Combined Account. The Trustee must distribute the Contracts to the
Participant or convert the entire value of the Contracts at or before
retirement into cash or provide for a periodic income so that no
portion of such value may be used to continue life insurance protection
beyond retirement. Notwithstanding the above, the limitations imposed
herein with respect to the purchase of life insurance shall not apply,
in the case of a Profit Sharing Plan, to the portion of a Participant's
Account that has accumulated for at least two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts
credited to a Participant's Qualified Voluntary Employee Contribution
Account pursuant to Section 4.14, shall not be applied to the purchase
of life insurance contracts.
(d) The Trustee will be the owner of any life insurance
Contract purchased under the terms of this Plan. The Contract must
provide that the proceeds will be payable to the Trustee; however, the
Trustee shall be required to pay over all proceeds of the Contract to
the Participant's designated Beneficiary in accordance with the
distribution provisions of Article VI. A Participant's spouse will be
the designated Beneficiary pursuant to Section 6.2, unless a qualified
election has been made in accordance with Sections 6.5 and 6.6 of the
Plan, if applicable. Under no circumstances shall the Trust retain any
part of the proceeds. However, the Trustee shall not pay the proceeds
in a method that would violate the requirements of the Retirement
Equity Act, as stated in Article VI of the Plan, or Code Section
401(a)(9) and the Regulations thereunder.
(e) Notwithstanding anything in the Plan to contrary,
investments under this Plan shall include a product of Aetna Life
Insurance and Annuity Company, or any of its affiliates or
subsidiaries.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory authority, including the Act, and other provisions of this Plan,
shall have the following powers and authorities to be exercised in the Trustee's
sole discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of
securities, margin accounts may be opened and maintained;
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(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property held
by the Trustee, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the application of
the purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments
incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting
corporate securities, and to delegate discretionary powers, and to pay
any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property.
(d) To cause any securities or other property to be registered
in the Trustee's own name or in the name of one or more of the
Trustee's nominees, and to hold any investments in bearer form, but the
books and records of the Trustee shall at all times show that all such
investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as the Trustee shall
deem advisable; and for any sum so borrowed, to issue a promissory note
as Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustee
shall be bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the best
interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to commence
or defend suits or legal or administrative proceedings, and to
represent the Plan in all suits and legal and administrative
proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may or
may not be agent or counsel for the Employer;
(k) To apply for and procure from the Insurer as an investment
of the Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect, receive,
and settle for the proceeds of all such annuity, or other Contracts as
and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's bank;
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(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time,
with assets belonging to any other qualified employee pension benefit
trust created by the Employer or any Affiliated Employer, and to
commingle such assets and make joint or common investments and carry
joint accounts on behalf of this Plan and such other trust or trusts,
allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(q) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the Trustee
may deem necessary to carry out the purposes of the Plan;
(r) Directed Investment Account. The powers granted to the
Trustee shall be exercised in the sole fiduciary discretion of the
Trustee. However, if elected in the Adoption Agreement, each
Participant may direct the Trustee to separate and keep separate all or
a portion of his interest in the Plan; and further each Participant is
authorized and empowered, in his sole and absolute discretion, to give
directions to the Trustee in such form as the Trustee may require
concerning the investment of the Participant's Directed Investment
Account, which directions must be followed by the Trustee subject,
however, to restrictions on payment of life insurance premiums. Neither
the Trustee nor any other persons including the Administrator or
otherwise shall be under any duty to question any such direction of the
Participant or to review any securities or other property, real or
personal, or to make any suggestions to the Participant in connection
therewith, and the Trustee shall comply as promptly as practicable with
directions given by the Participant hereunder. Any such direction may
be of a continuing nature or otherwise and may be revoked by the
Participant at any time in such form as the Trustee may require. The
Trustee may refuse to comply with any direction from the Participant in
the event the Trustee, in its sole and absolute discretion, deems such
directions improper by virtue of applicable law, and in such event, the
Trustee shall not be responsible or liable for any loss or expense
which may result. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's Directed
Investment Account.
Notwithstanding anything hereinabove to the contrary, the
Trustee shall not, at any time after December 31, 1981, invest any
portion of a Directed Investment Account in "collectibles" within the
meaning of that term as employed in Code Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee may,
in the Trustee's sole discretion, make loans to Participants or
Beneficiaries under the following circumstances: (1) loans shall be
made available to all Participants and Beneficiaries on a reasonably
equivalent basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made
available to other Participants; (3) loans shall bear a reasonable rate
of interest; (4) loans shall be adequately secured; and (5) shall
provide for periodic repayment over a reasonable period of time.
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(b) Loans shall not be made to any Shareholder-Employee or
Owner-Employee unless an exemption for such loan is obtained pursuant
to Act Section 408 and further provided that such loan would not be
subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide
for a repayment period extending beyond such Participant's Normal
Retirement Date.
(d) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the
Participant during the one year period ending on the day
before the date on which such loan is made, over the
outstanding balance of loans from the Plan to the
Participant on the date on which such loan was made, or
(2) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Employee under the
Plan.
For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan made
prior to January 1, 1987, the $50,000 limit specified in (1) above
shall be unreduced.
(e) No Participant loan shall take into account the present
value of such Participant's Qualified Voluntary Employee Contribution
Account.
(f) Loans shall provide for level amortization with payments
to be made not less frequently than quarterly over a period not to
exceed five (5) years. However, loans used to acquire any dwelling unit
which, within a reasonable time, is to be used (determined at the time
the loan is made) as a principal residence of the Participant shall
provide for periodic repayment over a reasonable period of time that
may exceed five (5) years. Notwithstanding the foregoing, loans made
prior to January 1, 1987 which are used to acquire, construct,
reconstruct or substantially rehabilitate any dwelling unit which,
within a reasonable period of time is to be used (determined at the
time the loan is made) as a principal residence of the Participant or
a member of his family (within the meaning of Code Section 267(c)(4))
may provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
(g) An assignment or pledge of any portion of a Participant's
interest in the Plan and a loan, pledge, or assignment with respect to
any insurance Contract purchased under the Plan, shall be treated as a
loan under this Section.
(h) Any loan made pursuant to this Section after August 18,
1985 where the Vested interest of the Participant is used to secure
such loan shall require the written consent of the Participant's spouse
in a manner consistent with Section 6.5(a) provided the spousal consent
requirements of such Section apply to the Plan. Such written consent
must be obtained within the 90-day period prior to the date the loan is
made. Any security interest held by the Plan by reason of an
outstanding loan to the Participant shall be taken into account in
determining the amount of the death benefit or Pre-Retirement Survivor
Annuity. However, no spousal consent shall be required under this
paragraph if the total accrued benefit subject to the security is not
in excess of $3,500.
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(i) With regard to any loans granted or renewed on or after
the last day of the first Plan Year beginning after December 31, 1988,
a Participant loan program shall be established which must include, but
need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or financial
need if selected in the Adoption Agreement;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that will
be taken to preserve plan assets.
Such Participant loan program shall be contained in a separate
written document which, when properly executed, is hereby incorporated
by reference and made a part of this Plan. Furthermore, such
Participant loan program may be modified or amended in writing from
time to time without the necessity of amending this Section of the
Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance with the terms of the Plan, make payments out of the Trust
Fund. The Trustee shall not be responsible in any way for the application of
such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in
the Trustee's fee schedule (if the Trustee has such a schedule) or as agreed
upon in writing by the Employer and the Trustee. An individual serving as
Trustee who already receives full-time pay from the Employer shall not receive
compensation from this Plan. In addition, the Trustee shall be reimbursed for
any reasonable expenses, including reasonable counsel fees incurred by it as
Trustee. Such compensation and expenses shall be paid from the Trust Fund unless
paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever
that may be levied or assessed under existing or future laws upon, or in respect
of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary
Date or receipt of the Employer's contribution for each Plan Year, the Trustee,
or its agent, shall furnish to the Employer and Administrator a written
statement of account with respect to the Plan Year for which such contribution
was made setting forth:
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(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund;
and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its
receipt of each such statement of account, shall acknowledge receipt
thereof in writing and advise the Trustee and/or Administrator of its
approval or disapproval thereof. Failure by the Employer to disapprove
any such statement of account within thirty (30) days after its receipt
thereof shall be deemed an approval thereof. The approval by the
Employer of any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the same
extent as if the account of the Trustee had been settled by judgment or
decree in an action for a judicial settlement of its account in a court
of competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if the
Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the
Act and the regulations thereunder for any Plan Year, the Administrator
shall direct the Trustee to engage on behalf of all Participants an
independent qualified public accountant for that purpose. Such
accountant shall, after an audit of the books and records of the Plan
in accordance with generally accepted auditing standards, within a
reasonable period after the close of the Plan Year, furnish to the
Administrator and the Trustee a report of his audit setting forth his
opinion as to whether any statements, schedules or lists, that are
required by Act Section 103 or the Secretary of Labor to be filed with
the Plan's annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently.
(b) All auditing and accounting fees shall be an expense of
and may, at the election of the Administrator, be paid from the Trust
Fund.
(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised and
subject to periodic examination by a state or federal agency, it shall
transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one hundred
twenty (120) days after the end of the Plan Year or such other date as
may be prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date, a
written notice of his resignation.
(b) The Employer may remove the Trustee by mailing by
registered or certified mail, addressed to such Trustee at his last
known address, at least thirty (30) days before its effective date, a
written notice of his removal.
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(c) Upon the death, resignation, incapacity, or removal of any
Trustee, a successor may be appointed by the Employer; and such
successor, upon accepting such appointment in writing and delivering
same to the Employer, shall, without further act, become vested with
all the estate, rights, powers, discretions, and duties of his
predecessor with like respect as if he were originally named as a
Trustee herein. Until such a successor is appointed, the remaining
Trustee or Trustees shall have full authority to act under the terms of
the Plan.
(d) The Employer may designate one or more successors prior to
the death, resignation, incapacity, or removal of a Trustee. In the
event a successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested
with all the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally named as
Trustee herein immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he
shall furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as part
of the annual statement of account for the Plan Year required under
Section 7.6 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no later than
the due date of the annual statement of account for the Plan Year. The
procedures set forth in Section 7.6 for the approval by the Employer of
annual statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any such
special statement in the manner provided in Section 7.6 shall have the
same effect upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have any duty
or responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by
Section 7.6 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee
at the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing, or stock bonus plan maintained by such Participant's
new employer and represented by said employer in writing as meeting the
requirements of Code Section 401(a), provided that the trust to which such
transfers are made permits the transfer to be made.
7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee against
any and all claims, losses, damages, expenses and liabilities the Trustee may
incur in the exercise and performance of the Trustee's powers and duties
hereunder, unless the same are determined to be due to gross negligence or
willful misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100% of the fair market value of all the
assets in the Trust Fund may be invested in "qualifying Employer securities" and
"qualifying Employer real property".
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7.13 POWERS AND DUTIES OF THE CUSTODIAN
The Custodian herein named shall have no duties other than those of an
administrative or custodial nature, and shall keep records of its activities,
to be furnished from time to time to the Trustee and/or Administrator. The
Custodian shall have possession of the assets of the Trust Fund and shall invest
them and distribute them only in accordance with directions received from the
Trustee and/or Administrator. The Custodian shall have no responsibility with
respect to any assets of the Trust Fund not delivered to the Custodian. The
Custodian shall be entitled to be paid fees in accordance with its published fee
schedule and reimbursement for its expenses, to be paid from the assets of the
Trust.
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend
this Plan subject to the limitations of this Section. However, any
amendment which affects the rights, duties or responsibilities of the
Trustee and Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee shall not
be required to execute any such amendment unless the amendment affects
the duties of the Trustee hereunder.
(b) The Employer may (1) change the choice of options in the
Adoption Agreement, (2) add overriding language in the Adoption
Agreement when such language is necessary to satisfy Code Sections 415
or 416 because of the required aggregation of multiple plans, and (3)
add certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan. An Employer that amends
the Plan for any other reason, including a waiver of the minimum
funding requirement under Code Section 412(d), will no longer
participate in this Prototype Plan and will be considered to have an
individually designed plan.
(c) The Employer expressly delegates authority to the
sponsoring organization of this Plan, the right to amend this Plan by
submitting a copy of the amendment to each Employer who has adopted
this Plan after first having received a ruling or favorable
determination from the Internal Revenue Service that the Plan as
amended qualifies under Code Section 401(a) and the Act. For purposes
of this Section, the mass submitter shall be recognized as the agent of
the sponsoring organization. If the sponsoring organization does not
adopt the amendments made by the mass submitter, it will no longer be
identical to or a minor modifier of the mass submitter plan.
(d) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such part
as is required to pay taxes and administration expenses) to be used for
or diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any reduction
in the amount credited to the account of any Participant; or causes or
permits any portion of the Trust Fund to revert to or become property
of the Employer.
(e) Except as permitted by Regulations (including Regulation
1.411(d)-4), no Plan amendment or transaction having the effect of
a Plan amendment (such as a merger, plan transfer or similar
transaction) shall be effective if it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies conditions
relating to "Section 411(d)(6) protected benefits" the result of
which is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the later
of the adoption date or effective date of the amendment. "Section
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411(d)(6) protected benefits" are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type subsidies,
and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the
Plan by delivering to the Trustee and Administrator written notice of
such termination. Upon any full or partial termination all amounts
credited to the affected Participants' Combined Accounts shall become
100% Vested and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all
Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets to Participants in a manner which
is consistent with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash (or in property if
permitted in the Adoption Agreement) or through the purchase of
irrevocable nontransferable deferred commitments from the Insurer.
Except as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected benefits"
as described in Section 8. 1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or liabilities
may be transferred to any other plan only if the benefits which would be
received by a Participant of this Plan, in the event of a termination of the
plan immediately after such transfer, merger or consolidation, are at least
equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" as described in Section
8.1(e).
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by
executing the Adoption Agreement in form satisfactory to the Trustee,
and it shall provide such additional information as the Trustee may
require. The consent of the Trustee to act as such shall be signified
by its execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of
the Employer and the participation of its Participants shall be
separate and apart from that of any other employer and its participants
hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
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9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable to any person (including a Participant or his
Beneficiary) shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge,
and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void; and no such benefit
shall in any manner be liable for, or subject to, the debts, contracts,
liabilities, engagements, or torts of any such person, nor shall it be
subject to attachment or legal process for or against such person, and
the same shall not be recognized except to such extent as may be
required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any
provision of this Plan. At the time a distribution is to be made to or
for a Participant's or Beneficiary's benefit, such proportion of the
amount to be distributed as shall equal such indebtedness shall be paid
to the Plan, to apply against or discharge such indebtedness. Prior to
making a Payment, however, the Participant or Beneficiary must be given
written notice by the Administrator that such indebtedness is to be so
paid in whole or part from his Participant's Combined Account. If the
Participant or Beneficiary does not agree that the indebtedness is a
valid claim against his Vested Participant's Combined Account, he shall
be entitled to a review of the validity of the claim in accordance with
procedures provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order", a former
spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the State or Commonwealth in which the Employer's principal
office is located, other than its laws respecting choice of law, to the extent
not pre-empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
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9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted
by law, it shall be impossible by operation of the Plan or of the
Trust, by termination of either, by power of revocation or amendment,
by the happening of any contingency, by collateral arrangement or by
any other means, for any part of the corpus or income of any Trust
Fund maintained pursuant to the Plan or any funds contributed thereto
to be used for, or diverted to, purposes other than the exclusive
benefit of Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a
mistake of fact pursuant to Section 403(c)(2)(A) of the Act, the
Employer may demand repayment of such contribution at any time within
one (1) year following the time of payment and the Trustees shall
return such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the contributions may not be
returned to the Employer but any losses attributable thereto must
reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.9 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
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9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan.
In general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the sole authority
to appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of the
Adoption Agreement or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
Trust, except those assets, the management of which has been assigned to an
Investment Manager or Administrator, who shall be solely responsible for the
management of the assets assigned to it, all as specifically provided in the
Plan. Each named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the provisions of
the Plan, authorizing or providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such direction, information
or action of another named Fiduciary as being proper under the Plan, and is not
required under the Plan to inquire into the propriety of any such direction,
information or action. It is intended under the Plan that each named Fiduciary
shall be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant
to a timely application filed by or in behalf of the Plan, the
Commissioner of Internal Revenue Service or his delegate should
determine that the Plan does not initially qualify as a tax-exempt plan
under Code Sections 401 and 501, and such determination is not
contested, or if contested, is finally upheld, then if the Plan is a
new plan, it shall be void ab initio and all amounts contributed to the
Plan, by the Employer, less expenses paid, shall be returned within one
year and the Plan shall terminate, and the Trustee shall be discharged
from all further obligations. If the disqualification relates to an
amended plan, then the Plan shall operate as if it had not been amended
and restated. In the event that a contribution is made to the Plan
conditioned upon qualification of the Plan as amended, such
contribution must be returned to Employer upon the determination that
the amended Plan fails to qualify under the Code.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.5, 3.6, and 4.1(f), any contribution by the Employer to
the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any such
deduction is disallowed, the Employer may within one (1) year following
the disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan attributable
to the excess contribution may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so returned.
(c) If an Employer's Plan fails to attain or retain qualification,
then such Plan will no longer participate in this Prototype Plan and
will be considered an individually designed plan.
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9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
9.16 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and
Section 6.11 only upon death, Total and Permanent Disability, normal or early
retirement, termination of employment, or upon Plan Termination.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any Affiliated Employer may adopt this Plan and all of
the provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the
same Adoption Agreement provisions as those selected by the Employer
other than the Plan Year, the Fiscal Year, and such other items that
must, by necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the
same Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold
and invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer
or a Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's Combined
Account as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall
continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer
or borne by the Trust Fund shall be paid by each Participating Employer
in the same proportion that the total amount standing to the credit of
all Participants employed by such Employer bears to the total standing
to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
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10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan
Year shall be allocated among all Participants of all Participating Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer
shall be permitted to discontinue or revoke its participation in the Plan at any
time. At the time of any such discontinuance or revocation, satisfactory
evidence thereof and of any applicable conditions imposed shall be delivered to
the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts
and other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate pension plan for its
Employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(e). If no successor is designated, the Trustee shall
retain such assets for the Employees of said Participating Employer pursuant to
the provisions of Article VII hereof. In no such event shall any part of the
corpus or income of the Trust Fund as it relates to such Participating Employer
be used for or diverted for purposes other than for the exclusive benefit of the
Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from
making a contribution which it would otherwise have made under the Plan by
reason of having no current or accumulated earnings or profits, or because such
earnings or profits are less than the contribution which it would otherwise have
made, then, pursuant to Code Section 404(a)(3)(B), so much of the contribution
which such Participating Employer was
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so prevented from making may be made, for the benefit of the participating
employees of such Participating Employer, by other Participating Employers who
are members of the same affiliated group within the meaning of Code Section 1504
to the extent of their current or accumulated earnings or profits, except that
such contribution by each such other Participating Employer shall be limited to
the proportion of its total current and accumulated earnings or profits
remaining after adjustment for its contribution to the Plan made without regard
to this paragraph which the total prevented contribution bears to the total
current and accumulated earnings or profits of all the Participating Employers
remaining after adjustment for all contributions made to the Plan without regard
to this paragraph.
A Participating Employer on behalf of whose employees a contribution is
made under this paragraph shall not be required to reimburse the contributing
Participating Employers.
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AMENDMENT NUMBER ONE TO
AETNA LIFE INSURANCE COMPANY,
AETNA LIFE INSURANCE AND ANNUITY COMPANY
401(K) PROFIT SHARING PLAN AND TRUST
Aetna Life Insurance Company, Aetna Life Insurance and Annuity
Company 401(k) Profit Sharing Plan and Trust is hereby amended as
follows:
1. Section 1.9 is amended by replacing the first paragraph with the
following paragraphs:
"Compensation" with respect to any Participant means one of the
following as elected in the Adoption Agreement. However, compensation for any
Self-Employed Individual shall be equal to his Earned Income.
i. Information required to be reported under sections
6041, 6051 and 6052 (Wages, Tips and Other Compensation
Box on Form W-2). Compensation is defined as wages as
defined in section 3401(a) and all other payments of
compensation to an employee by the employer (in the
course of the employer's trade or business) for which
the employer is required to furnish the employee a
written statement under sections 6041(d) and 6051(a)(3)
of the Code. Compensation must be determined without
regard to any rules under section 3401(a) that limit
the remuneration included in wages based on the nature
or location of the employment or the services performed
(such as the exception for agricultural labor in
section 3401(a)(2)).
ii. Section 3401(a) wages. Compensation is defined as
wages within the meaning of section 3401(a) for the
purposes of income tax withholding at the source but
determined without regard to any rules that limit the
remuneration included in wages based on the nature or
location of the employment or the services performed
(such as the exception for agricultural labor in
section 3401(a)(2)).
iii. 415 safe-harbor compensation. Compensation is defined
as wages, salaries, and fees for professional services
and other amounts received (without regard to whether
or not an amount is paid in cash) for personal services
actually rendered in the course of employment with the
employer maintaining the plan to the extent that the
amounts are includible in gross income (including, but
not limited to, commissions paid salesmen, compensation
for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses,
fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan (as described in
1.62-2(c)), and excluding the following:
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a. Employer contributions to a plan of deferred compensation
which are not includible in the employee's gross income for
the taxable year in which contributed, or employer
contributions under a simplified employee pension plan to the
extent such contributions are deductible by the employee, or
any distributions from a plan of deferred compensation;
b. Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
c. Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in section 403(b) of the Code (whether or
not the contributions are actually excludable from the gross
income of the employee).
If, in connection with the adoption of this or any other amendment, the
definition of Compensation has been modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of such
amendment, Compensation means compensation determined pursuant to the
Plan then in effect.
2. Section 1.15 is amended in its entirety to read as follows:
"Elective Contribution" means the Employer's contributions to the Plan
that are made pursuant to the Participant's deferral election pursuant to
Section 4.2, excluding any such amounts distributed as "excess annual
additions" pursuant to Section 4.4. In addition, if selected in E3 of the
Adoption Agreement, the Employer's matching contribution shall or shall not be
considered an Elective Contribution for purposes of the Plan, as provided in
Section 4.1(b). Elective Contributions shall be subject to the requirements of
Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the
discrimination requirements of Regulation 1.401(k)-l(b)(3), the provisions of
which are specifically incorporated herein by reference.
3. Section 1.21 is amended in its entirety to read as follows:
"Excess Deferred Compensation" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of
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<PAGE> 87
such Participant for such taxable year, over the dollar limitation provided for
in Code Section 402(g), which is incorporated herein by reference. Excess
Deferred Compensation shall be treated as an "annual addition" pursuant to
Section 4.9 when contributed to the Plan unless distributed to the affected
Participant not later than the first April 15th following the close of the
Participant's taxable year.
4. Section 1.27 is amended in its entirety to read as follows:
"414(s) Compensation" with respect to any Employee means his
Compensation as defined in Section 1.9. However, for purposes of this Section,
Compensation shall be Compensation paid and, if selected in the Adoption
Agreement, shall only be recognized as of an Employee's effective date of
participation. If, in connection with the adoption of this or any other
amendment, the definition of "414(s) Compensation" has been modified, then, for
Plan Years prior to the Plan Year which includes the adoption date of such
amendment, "414(s) Compensation" means compensation determined pursuant to the
Plan then in effect.
5. Section 1.28 ("415 Compensation") is amended by the addition of the
following paragraph:
If, in connection with the adoption of this or any other amendment, the
definition of "415 Compensation" has been modified, then, for Plan Years prior
the Plan Year which includes the adoption date of such amendment, "415
Compensation" means compensation determined pursuant to the Plan then in effect.
6. Section 4.9(a)(4) and 4.9(a)(4)(i) are amended to read as follows:
(4) If there is an excess amount pursuant to Section 4.9(a)(2) or
Section 4.10, the excess will be disposed of in one of the
following manners, as uniformly determined by the Plan
Administrator for all Participants similarly situated:
(i) Any Deferred Compensation or nondeductible Voluntary
Employee Contributions, to the extent they would
reduce the Excess Amount will be distributed to the
Participant;
7. Section 4.9(f)(2) is amended in its entirety to read as follows:
Compensation means a Participant's Compensation as elected in the
Adoption Agreement. However, regardless of any selection made in the Adoption
Agreement, "415 Compensation" shall exclude compensation which is not currently
includible in the Participant's gross income by reason of the application of
Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b).
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<PAGE> 88
For limitation years beginning after December 31, 1991, for purposes of
applying the limitations of this article, compensation for a limitation year is
the compensation actually paid or made available during such limitation year.
Notwithstanding the preceding sentence, compensation for a participant
in a defined contribution plan who is permanently and totally disabled (as
defined in section 22(e)(3) of the Internal Revenue Code) is the compensation
such participant would have received for the limitation year if the participant
had been paid at the rate of compensation paid immediately before becoming
permanently and totally disabled; such imputed compensation for the disabled
participant may be taken into account only if the participant is not a Highly
Compensated Employee and contributions made on behalf of such participant are
nonforfeitable when made.
8. Section 4.10 is amended in its entirety to read as follows:
(a) If as a result of the allocation of Forfeitures, a reasonable error
in estimating a Participant's annual Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any Participant under the limits of
Section 4.9, or other facts and circumstances to which Regulation 1.415-6(b)(6)
shall be applicable, the "annual additions" under this Plan would cause the
maximum provided in Section 4.9 to be exceeded, the Administrator shall treat
the excess in accordance with Section 4.9(a)(4).
9. Sections 6.11(a)(1) and (a)(4) are amended in their entirety to read
as follows:
(1) Medical expenses described in Code Section 213(d) incurred by the
Participant, his spouse, or any of his dependents (as defined in Code Section
152) or expenses necessary for these persons to obtain medical care;
(4) Payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant, his spouse, children, or
dependents;
10. Section 7.10 is amended by the addition of the following paragraphs:
(a) Notwithstanding any provision of the plan to the contrary, with
respect to distributions made after December 31, 1992, a Participant shall be
permitted to elect to have any "eligible rollover distribution" transferred
directly to an "eligible retirement plan" specified by the Participant. The Plan
provisions otherwise applicable to distributions continue to apply to the direct
transfer option. The Participant shall, in the time and manner prescribed by the
Administrator, specify the amount to be directly transferred and the "eligible
retirement
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<PAGE> 89
plan" to receive the transfer. Any portion of a distribution which is not
transferred shall be distributed to the Participant.
(b) For purposes of this Section, the term "eligible rollover
distribution" means any distribution other than a distribution of substantially
equal periodic payments over the life or life expectancy of the Participant (or
joint life or joint life expectancies of the Participant and the designated
beneficiary) or a distribution over a period certain of ten years or more.
Amounts required to be distributed under Code Section 401(a)(9) are not eligible
rollover distributions. The direct transfer option described in subsection (a)
applies only to eligible rollover distributions which would otherwise be
includible in gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan"
means an individual retirement account as described in Code Section 408(a), an
individual retirement annuity as described in Code Section 408(b), an annuity
plan as described in Code Section 403(a), or a defined contribution plan as
described in Code Section 401(a) which is exempt from tax under Code Section
501(a) and which accepts rollover distributions.
(d) The election described in subsection (a) also applies to the
surviving spouse after the Participant's death; however, distributions to the
surviving spouse may only be transferred to an individual retirement account or
individual retirement annuity. For purposes of subsection (a), a spouse or
former spouse who is the alternate payee under a qualified domestic relations
order as defined in Code Section 414(p) will be treated as the Participant.
11. Section 4.2(d) is amended in its entirety to read as follows:
(d) In any Plan Year beginning after December 31, 1986, a Participant's
Deferred Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed the
limitation imposed by Code Section 402(g), as in effect for the calendar year in
which such Plan Year began. If such dollar limitation is exceeded solely from
elective deferrals made under this Plan or any other Plan maintained by the
Employer, a Participant will be deemed to have notified the Administrator of
such excess amount which shall be distributed in a manner consistent with
Section 4.2(f). This dollar limitation shall be adjusted annually pursuant to
the method provided in Code Section 415(d) in accordance with Regulations.
12. Section 4.2(f) is amended by the addition of the following paragraph
after paragraph (f)(3) to read as follows:
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<PAGE> 90
Any distribution under this Section shall be made first from unmatched
Deferred Compensation and, thereafter, simultaneously from Deferred Compensation
which is matched and matching contributions which relate to such Deferred
Compensation. However, any such matching contributions which are not Vested
shall be forfeited in lieu of being distributed.
13. Section 4.2(f) is amended by the addition of the following paragraph as
the second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not include any
income for the "gap period". Further provided, for any distribution under this
Section which is made after August 15, 1991, the amount of Income may be
computed using a reasonable method that is consistent with Section 4.3(c),
provided such method is used consistently for all Participants and for all such
distributions for the Plan Year.
14. Section 4.6(c) is amended by the addition of the following paragraph as
the second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not include any
income for the "gap period". Further provided, for any distribution under this
Section which is made after August 15, 1991, the amount of Income may be
computed using a reasonable method that is consistent with Section 4.3(c),
provided such method is used consistently for all Participants and for all such
distributions for the Plan Year.
15. Section 4.7(c) is amended in its entirety to read as follows:
(c) For purposes of determining the "Actual Contribution Percentage"
and the amount of Excess Aggregate Contributions pursuant to Section 4.8(d),
only Employer matching contributions (excluding matching contributions forfeited
or distributed pursuant to Section 4.2(f), 4.6(a), or 4.8(a)) contributed to the
Plan prior to the end of the succeeding Plan Year shall be considered. In
addition, the Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions made pursuant to
Section 4.1(b) or voluntary Employee contributions made pursuant to Section 4.12
allocated to their accounts, elective deferrals (as defined in Regulation
1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code
Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such
elective deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-1(b)(2) which is
incorporated herein by reference. However, for Plan Years beginning after
December 31, 1988, the Plan Year must be the same as the plan year of the plan
to which
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<PAGE> 91
the elective deferrals and the qualified non-elective contributions are made.
16. Section 4.8(i) is amended by the addition of the following paragraph as
the second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not include any
Income for the "gap period". Further provided, for any distribution under this
Section which is made after August 15, 1991, the amount of Income may be
computed using a reasonable method that is consistent with Section 4.3(c),
provided such method is used consistently for all Participants and for all such
distributions for the Plan Year.
17. Section 6.11(c) (1) is amended in its entirety to read as follows:
(1) The distribution is not in excess of the amount of the immediate
and heavy financial need of the Participant. The amount of the immediate and
heavy financial need may include any amounts necessary to pay any federal, state
or local income taxes or penalties reasonably anticipated to result from the
distribution.
18. Article IV is amended by the addition of the following:
Notwithstanding anything in this Article to the contrary, effective as
of the Plan Year in which this amendment becomes effective, the Actual Deferral
Percentage Test and the Actual Contribution Percentage Test shall be applied
(and adjusted) by applying the Family Member aggregation rules of Code Section
414(q)(6).
19. Section E1a. of the Adoption Agreement is amended in its entirety to
read as follows:
Compensation with respect to any Participant means:
1. ( ) Wages, Tips and other Compensation (Box 10 on Form W-2).
2. ( ) Section 3401(a) wages (wages for withholding purposes).
3. ( ) 415 Safe-harbor compensation.
AND Compensation
( ) shall
( ) shall not
exclude (even if includible in gross income) reimbursements or other
expense allowances, fringe benefits (cash or
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<PAGE> 92
noncash), moving expenses, deferred compensation, and welfare
benefits.
20. Section E3 of the 401(k) Adoption Agreement(s) is amended by the
addition of the following:
( ) Notwithstanding anything in the Plan to the contrary, all
matching contributions which relate to distributions of Excess
Deferred Compensation, Excess Contributions and Excess
Aggregate Contributions shall be Forfeited. (Select this
option only if it is applicable.)
NOTE: THIS AMENDMENT ONLY NEEDS TO BE EXECUTED BELOW BY THE EMPLOYER IF THE PLAN
IS BEING AMENDED TO UTILIZE THE MODIFICATIONS MADE TO SECTION E1 OR E3 OF THE
ADOPTION AGREEMENT.
IN WITNESS WHEREOF, the Employer hereby causes this amendment to be
executed on this ________ day of ___________________, 19___.
EMPLOYER: PARTICIPATING EMPLOYER:
______________________________ _____________________________
(enter name) (enter name)
By:___________________________ By:__________________________
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<PAGE> 93
AMENDMENT TO
AETNA LIFE INSURANCE COMPANY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
401(K) PROFIT SHARING PLAN AND TRUST
1. Section 1.9 is amended by the addition of the following:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan year,
the compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
2. Section 6.13 is amended by the addition of the following:
If a distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence less than 30
days after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the participant that the
participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
<PAGE> 94
(2) the participant, after receiving the notice, affirmatively elects a
distribution.
3. Section 7.9 is amended by the addition of the following:
(a) Notwithstanding any provision of the plan to the contrary, with
respect to distributions made after December 31, 1992, a Participant shall be
permitted to elect to have any "eligible rollover distribution" transferred
directly to an "eligible retirement plan" specified by the Participant. The Plan
provisions otherwise applicable to distributions continue to apply to the direct
transfer option. The Participant shall, in the time and manner prescribed by the
Administrator, specify the amount to be directly transferred and the "eligible
retirement plan" to receive the transfer. Any portion of a distribution which is
not transferred shall be distributed to the Participant.
(b) For purposes of this Section, the term "eligible rollover
distribution" means any distribution other than a distribution of substantially
equal periodic payments over the life or life expectancy of the Participant (or
joint life or joint life expectancies of the Participant and the designated
beneficiary) or a distribution over a period certain of ten years or more.
Amounts required to be distributed under Code Section 401(a)(9) are not eligible
rollover distributions. The direct transfer option described in subsection (a)
applies only to eligible rollover distributions which would otherwise be
includible in gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan"
means an individual retirement account as described in Code Section 408(a), an
individual retirement annuity as described in Code Section 408(b), an annuity
plan as described in Code Section 403(a), or a defined contribution plan as
described in Code Section 401(a) which is exempt from tax under Code Section
501(a) and which accepts rollover distributions.
(d) The election described in subsection (a) also applies to the
surviving spouse after the Participant's death; however, distributions to the
surviving spouse may only be transferred to an individual retirement account or
individual retirement annuity. For purposes of subsection (a), a spouse or
former spouse who is the alternate payee under a qualified domestic relations
order as defined in Code Section 414(p) will be treated as the Participant.
<PAGE> 95
ADOPTION AGREEMENT FOR
AETNA LIFE INSURANCE AND ANNUITY COMPANY
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the Aetna Life Insurance and Annuity
Company Non-Standardized 401(k) Profit Sharing Plan for those Employees who
shall qualify as Participants hereunder, to be known as the
Al KIRKLAND'S, INC. RETIREMENT PLAN
------------------------------------------
(ENTER PLAN NAME)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 NAME OF EMPLOYER Kirkland's Inc. and Affiliated Companies
--------------------------------------------------------
--------------------------------------------------------
B2 ADDRESS 529 Old Hickory Boulevard, P. 0. Box 7222
--------------------------------------------------------
Jackson, Tennessee 38308-7222
------------- ----------- ----------
CITY STATE ZIP
TELEPHONE (901) 668-2444
--------------
B3 EMPLOYER IDENTIFICATION NUMBER 62 - 1287151
----- --------
B4 DATE BUSINESS COMMENCED 1984
------
B5 TYPE OF ENTITY
a. /X/ S Corporation
b. / / Professional Service Corporation
c. / / Corporation
d. / / Sole Proprietorship
e. / / Partnership
f. / / Other
-------------------
AND, is the Employer a member of...
g. a controlled group? /x/ Yes / / No
h. an affiliated service group? / / Yes /x/ No
(c) 1990-N Aetna Life Insurance and Annuity Company
<PAGE> 96
B6 NAME(S) OF TRUSTEE(S) a. Robert E. Alderson
----------------------------------
b. Carl T. Kirkland
----------------------------------
c. Bruce Moore
----------------------------------
B7 TRUSTEES' ADDRESS a. /x/ Use Employer Address
b. / /
------------------------------------------------------
Street
,
-------------------- ----------- ---------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. /x/ state b. / / commonwealth of c. Tennessee
---------
and this Plan and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
commencing on a. January 1 (e.g., January 1st)
------------
month day
and ending on b. December 31.
-------------
month day
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the Aetna Life Insurance and Annuity Company
Standardized 401(k) Profit Sharing Plan and Trust shall:
a. /x/ establish a new Plan and Trust effective as of September
---------
15, 1991 (hereinafter called the "Effective Date").
--------
b. / / constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the
Employer which was effective ___________ (hereinafter called
the "Effective Date"). Except as specifically provided in the
Plan, the effective date of this amendment and restatement is
__________ (For TRA '86 amendments, enter the first day of the
first Plan Year beginning in 1989).
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1 (e.g., January 1st)
------------
and ending on b. December 31.
------------
2
<PAGE> 97
IS THERE A SHORT PLAN YEAR?
c. / / No
d. /x/ Yes, beginning September 15, 1991
-------------------
and ending December 31, 1991.
------------------
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a.
---------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. /x/ 001 b./ / 002 c./ / 003 d./ / Other .
-----
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint an
Administrator. If none is named, the Employer will become the
Administrator.)
a. /x/ Employer (Use Employer Address)
b. / / Name
----------------------------------------
Address
--------------------------------------
,
------------------ --------- ---------
City State Zip
Telephone
-------------------
Administrator's I.D. Number -
-------------- -----------
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. / / Employer (Use Employer Address)
b. / / Name
----------------------------------------
Address
--------------------------------------
,
------------------ --------- ---------
City State Zip
3
<PAGE> 98
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section l.16) shall mean:
a. /X/ all Employees who have satisfied the eligibility requirements.
b. / / all Employees who have satisfied the eligibility requirements
except those checked below:
1. / / Employees paid by commissions only.
2. / / Employees hourly paid.
3. / / Employees paid by salary.
4. / / Employees whose employment is governed by a collective
bargaining agreement between the Employer and "employee
representatives" under which retirement benefits were
the subject of good faith bargaining. For this purpose,
the term "employee representatives" does not include
any organization more than half of whose members are
employees who are owners, officers, or executives of the
Employer.
5. / / Highly Compensated Employees.
6. / / Employees who are non-resident aliens who received no
earned income (within the meaning of Code Section 911
(d)(2)) from the Employer which constitutes income from
sources within the United States (within the meaning of
Code Section 861(a)(3)).
7. / / Other__________________________________________________
NOTE: For purposes of this section, the term Employee shall include all
Employees of this Employer and any leased employees deemed to be Employees under
Code Section 414(n) or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.17)
Employees of Affiliated Employers:
a. / / will not or N/A
b. /X/ will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected each Affiliated Employer should execute this
Adoption Agreement as a participating Employer.
D3 HOURS OF SERVICE (Plan Section 1.32) will be determined on the basis of the
method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. /X/ On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. / / On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee would be
credited with at least one (1) Hour of Service during the day.
c. / / On the basis of weeks worked. An Employee will be credited forty-
five (45) Hours of Service if under the Plan such Employee would
be credited with at least one (1) Hour of Service during the week.
d. / / On the basis of semi-monthly payroll periods. An Employee will
be credited with ninety-five (95) Hours of Service if under the
Plan such Employee would be credited with at least one (1) Hour of
Service during the semi-monthly payroll period.
4
<PAGE> 99
e. / / On the basis of months worked. An Employee will be credited with
one hundred ninety (190) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of Service
during the month.
D4 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b and c,
and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if such
Eligible Employee has satisfied the service and age requirements, if any,
specified below:
a. / / NO AGE OR SERVICE REQUIRED.
b. /X/ SERVICE REQUIREMENT. (may not exceed 1 year.)
1. / / None
2. / / 1/2 Year of Service
3. /XX/ 1 Year of Service
4. / / Other____________________________________________________
NOTE: If the Year(s) of Service selected is or includes a fractional year, an
Employee will not be required to complete any specified number of Hours of
Service to receive credit for such fractional year. If expressed in Months of
Service, an Employee will not be required to complete any specified number of
Hours of Service in a particular month.
c. /X/ AGE REQUIREMENT (may not exceed 21)
1. / / N/A - No Age Requirement.
2. / / 20 1/2
3. /XX/ 21
4. / / Other__________________________________________________
d. / / FOR NEW PLANS ONLY - Regardless of any of the above age or service
requirements, any Eligible Employee who was employed on the
Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date.
D5 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2)
An Eligible Employee shall become a Participant as of:
a. / / the first day of the Plan Year in which he met the requirements.
b. / / the first day of the Plan Year in which he met the requirements, if
he met the requirements in the first 6 months of the Plan Year, or
as of the first day of the next succeeding Plan Year if he met the
requirements in the last 6 months of the Plan Year.
c. /XX/ the earlier of the first day of the seventh month or the first day
of the Plan Year coinciding with or next following the date on
which he met the requirements.
d. / / the first day of the Plan Year next following the date on which he
met the requirements. (Eligibility must be 1/2 Year of Service or
less or 1 1/2 Years of Service or less if 100% immediate vesting
is selected and age 20 1/2 or less.)
e. / / the first day of the month coinciding with or next following the
date on which he met the requirements.
5
<PAGE> 100
f. / / Other: ______________________________________________, provided
that an Employee who has satisfied the maximum age and service
requirements that are permissible in Section D4 above and who is
otherwise entitled to participate, shall commence participation no
later than the earlier of (a) 6 months after such requirements are
satisfied, or (b) the first day of the first Plan Year after such
requirements are satisfied, unless the Employee separates from
service before such participation date.
D6 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as follows:
a. / / 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service.)
b. / / 0-2 years 0% c. / / 0-4 years 0%
3 years 100% 5 years 100%
d. /XX/ 0-1 year 0% e. / / 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. / / 1 year 20% g. / / 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. / / Other - Must be at least as liberal as either c or g above.
Years of Service Percentage
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
6
<PAGE> 101
D7 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been
amended to a less favorable schedule, enter the pre-amended schedule
below: N/A - NEW PLAN
a. / / Vesting schedule has not been amended or amended schedule is more
favorable in all years.
b. / / Years of Service Percentage
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
D8 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy
Plan, the following vesting schedule, based on number of Years of Service,
for such Plan Year and each succeeding Plan Year, whether or not the Plan
is a Top Heavy Plan, shall apply and shall be treated as a Plan amendment
pursuant to this Plan. Once effective, this schedule shall also apply to
any contributions made prior to the effective date of Code Section 416
and/or before the Plan became a Top Heavy Plan.
a. /X/ N/A (D6a, b, d, e or f was selected)
b. / / 0-1 year 0% c. / / 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any Participant who
does not have an Hour of Service after the Plan has initially become top heavy.
Such Participant's Account balance attributable to Employer contributions and
Forfeitures will be determined without regard to this section.
D9 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be
EXCLUDED:
a. / / Service prior to the Effective Date of the Plan or a predecessor
plan.
b. /X/ N/A
c. / / Service prior to the time an Employee attained age 18.
d. /X/ N/A
D10 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. / / No.
b. /X/ Yes: Years of Service with KIRKLAND'S CONSOLIDATED AND AFFILIATED
COMPANIES shall be recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then Years of
Service with such predecessor Employer shall be recognized pursuant to Section
1.74 and b. must be marked.
7
<PAGE> 102
D11 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.43) means:
a. /X/ the date a Participant attains his 65TH birthday. (not to exceed
65th)
b. / / the later of the date a Participant attains his ______ birthday
(not to exceed 65th) or the c. ______ (not to exceed 5th)
anniversary of the first day of the Plan Year in which
participation in the Plan commenced.
D12 NORMAL RETIREMENT DATE (Plan Section 1.44) shall commence:
a. /X/ as of the Participant's "NRA".
OR (must select b. or c. AND 1. or 2.)
b. / / as of the first day of the month...
c / / as of the Anniversary Date...
1. / / coinciding with or next following the Participant's "NRA".
2. / / nearest the Participant's "NRA".
D13 EARLY RETIREMENT DATE (Plan Section 1.13) means the:
a. / / No Early Retirement provision provided.
b. /X/ date on which a Participant...
c. / / first day of the month coinciding with or next following the date
on which a Participant...
d. / / Anniversary Date coinciding with or next following the date on
which a Participant...
AND, if b, c or d was selected...
1. /X/ attains his 55TH birthday and has
2. /X/ completed at least 6 Years of Service.
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
El a. COMPENSATION (Plan Section 1.9) with respect to any Participant means:
1. / / "415 Compensation."
2. /X/ Compensation reportable as wages on Form W-2.
b. COMPENSATION shall be
1. /X/ actually paid (must be selected if Plan is integrated)
2. / / accrued
c. HOWEVER, for non-integrated plans, Compensation shall exclude (select all
that apply):
1. /X/ N/A. No exclusions
2. / / overtime
3. / / bonuses
4. / / commissions
5. / / other ___________
8
<PAGE> 103
d. FOR PURPOSES OF THIS SECTION El, Compensation shall be based on:
1. /XX/ the Plan Year.
2. / / the Fiscal Year coinciding with or ending within the
Plan Year.
3. / / the Calendar Year coinciding with or ending within the
Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
e. HOWEVER, for an Employee's first year of participation, Compensation
shall be recognized as of:
1. / / the first day of the Plan Year.
2. /XX/ the date the Participant entered the Plan.
f. IN ADDITION, COMPENSATION and "414(s) Compensation"
1. / / shall 2. /X/ shall not include compensation which is not
currently includible in the Participant's gross income by
reason of the application of Code Sections 125, 402(a)(8),
402(h)(1)(B), or 403(b).
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section 4.2) Each
Employee may elect to have his Compensation reduced by:
a. / / ___________%
b. / / up to ___________%
c. / / from ___________% to ___________%
d. /XX/ up to the maximum percentage allowable not to exceed the limits
of Code Sections 401(k), 404 and 415.
AND...
e. /XX/ A Participant may elect to commence salary reductions as of
01/01 & 07/01 (ENTER AT LEAST ONE DATE OR PERIOD). A Participant
may modify the amount of salary reductions as of 01/01 & 07/01
(ENTER AT LEAST ONE DATE OR PERIOD).
AND...
Shall cash bonuses paid within 2 1/2 months after the end of the Plan
Year be subject to the salary reduction election?
f. /X/ Yes
g. / / No
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section
4.1(b))
a. / / N/A. There shall be no matching contributions.
b. / / The Employer shall make matching contributions equal to
___________% (e.g. 50%) of the Participant's salary reductions.
c. /XX/ The Employer may make matching contributions equal to a discre-
tionary percentage, to be determined by the Employer, of the
Participant's salary reductions.
9
<PAGE> 104
d. / / The Employer shall make matching contributions equal to the sum of
___________% of the portion of the Participant's salary reduction
which does not exceed ___________% of the Participant's
Compensation plus ___________% of the portion of the Participant's
salary reduction which exceeds ___________% of the Participant's
Compensation, but does not exceed ___________% of the Participant's
Compensation.
e. / / The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
---------- ----------
---------- ----------
---------- ----------
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. /XX/ Matching contributions g. / / shall h. /XX/ shall not be used in
satisfying the deferral percentage tests. (If used, full vesting
and restrictions on withdrawals will apply and the match will be
deemed to be an Elective Contribution).
i. /X/ Shall a Year of Service be required in order to share in the
matching contributions?
With respect to Plan Years beginning after 1989...
1. / / Yes (Could cause Plan to violate minimum participation
and coverage requirements under Code Sections 401(a)(26)
and 410)
2. /X/ No
With respect to Plan Years beginning before 1990...
1. /XX/ N/A New Plan or same as year beginning after 1990.
2. / / Yes
3. / / No
j. /X/ In determining matching contributions, only salary reductions up
to 5% of a Participant's Compensation will be matched. k. / / N/A
l. / / The matching contribution made on behalf of a Participant for any
Plan Year shall not exceed $____________________. m. ( ) N/A
n. /XX/ Matching contributions shall be made on behalf of
1. /XX/ all Participants.
2. / / only Non-Highly Compensated Employees.
10
<PAGE> 105
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan Section
4.1)?
a. / / No.
b. / / Yes, the Employer may make a discretionary contribution out of
its current or accumulated Net Profit.
c. /XX/ Yes, the Employer may make a discretionary contribution which
is not limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. /XX/ FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall
be allocated in the same ratio as each Participant's Compensation
bears to the total of such Compensation of all Participants.
e. / / FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall
be allocated in accordance with Plan Section 4.4(b)(3) based on a
Participant's Compensation in excess of:
f. / / The Taxable Wage Base.
g. / / The greater of $10,000 or 20% of the Taxable Wage Base.
h. / / __________% of the Taxable Wage Base. (See Note below)
i. / / $________________. (see Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than or
equal to 80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more than 80%
of the Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 4.1)
a. /XX/ N/A. There shall be no Qualified Non-Elective Contributions
except as provided in Section 4.6 and 4.8.
b. / / The Employer shall make a Qualified Non-Elective Contribution
equal to _____% of the total Compensation of all Participants
eligible to share in the allocations.
c. / / The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.4(e))
a. Forfeitures of contributions other than matching contributions shall
be...
1. /XX/ added to the Employer's contribution under the Plan.
2. / / allocated to all Participants eligible to share in
the allocations in the same proportion that each
Participant's Compensation for the year bears to the
Compensation of all Participants for such year.
11
<PAGE> 106
b. Forfeitures of matching contributions shall be...
1. / / N/A. No matching contributions or match is fully vested.
2. /XX/ used to reduce the Employer's matching contribution.
3. / / allocated to all Participant's eligible to share in the
allocations in proportion to each such Participant's
Compensation for the year.
4. / / allocated to all Non-Highly Compensated Employee's
eligible to share in the allocations in proportion to
each such Participant's Compensation for the year.
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.4) With respect to Plan
Years beginning after 1989, a Participant...
a. /XX/ shall (Plan may become discriminatory)
b. / / shall not
be required to complete a Year of Service in order to share in any
Non-Elective Contributions (other than matching contributions) or
Qualified Non-Elective Contributions. For Plan Years beginning before
1990, the Plan provides that a Participant must complete a Year of Service
to share in the allocations.
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.4(l))
Any Participant who terminated employment during the Plan Year (i.e. not
actively employed on the last day of the Plan Year) for reasons other than
death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other than
matching), Qualified Non-Elective Contributions, and Forfeitures:
1. For Plan Years beginning after 1989,
i. / / N/A, Plan does not provide for such contributions.
ii. / / shall share in the allocations provided such
Participant completed more than 500 Hours of Service.
iii. / / shall share in such allocations provided such
Participant completed a Year of Service.
iv. /X/ shall not share in such allocations, regardless of
Hours of Service.
2. For Plan Years beginning before 1990,
i. /XX/ N/A, new Plan, or same as for Plan Years beginning
after 1989.
ii. / / shall share in such allocations provided such
Participant completed a Year of Service.
iii. / / shall not share in such allocations, regardless of
Hours of Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum participation
and coverage requirements under Code Sections 401(a)(26) and 410.
12
<PAGE> 107
b. With respect to the allocation of Employer Matching Contributions, a
Participant:
1. For Plan Years beginning after 1989,
i. / / N/A, Plan does not provide for matching contribu-
tions.
ii. /X/ shall share in the allocations, regardless of Hours
of Service.
iii. / / shall share in the allocations provided such
Participant completed more than 500 Hours of
Service.
iv. / / shall share in such allocations provided such
Participant completed a Year of Service.
v. / / shall not share in such allocations, regardless of
Hours of Service.
2. For Plan Years beginning before 1990,
i. /XX/ N/A, new Plan, or same as years beginning after
1989.
ii. / / shall share in the allocations, regardless of Hours
of Service.
iii. / / shall share in such allocations provided such
Participant completed a Year of Service.
iv. / / shall not share in such allocations, regardless of
Hours of Service.
NOTE: If b.l.iv or v is selected, the Plan could violate minimum
participation and coverage requirements under Code Section 401(a)(26) and
410.
E9 LIMITATIONS ON ALLOCATIONS (Plan Section 4.9)
a. If any Participant is or was covered under another qualified defined
contribution plan maintained by the Employer, other than a Master or
Prototype Plan, or if the Employer maintains a welfare benefit fund,
as defined in Code Section 419(e), or an individual medical account,
as defined in Code Section 415(1)(2), under which amounts are treated
as Annual Additions with respect to any participant in this Plan:
1. /XX/ N/A.
2. / / The provisions of Section 4.9(b) of the Plan will apply
as if the other plan were a Master or Prototype Plan.
3. / / Provide the method under which the Plans will limit
total Annual Additions to the Maximum Permissable
Amount, and will properly reduce any Excess Amounts,
in a manner that precludes Employer discretion.
_______________________________________________________
_______________________________________________________
13
<PAGE> 108
b. If any Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer:
1. /XX/ N/A.
2. / / In any Limitation Year, the Annual Additions credited to the
Participant under this Plan may not cause the sum of the Defined
Benefit Plan Fraction and the Defined contribution Fraction to
exceed 1.0. If the Employer's contribution that would otherwise
be made on the Participant's behalf during the limitation year
would cause the 1.0 limitation to be exceeded, the rate of
contribution under this Plan will be reduced so that the sum of
the fractions equals 1.0. If the 1.0 limitation is exceeded
because of an Excess Amount, such Excess Amount will be reduced
in accordance with Section 4.9(a)(4) of the Plan.
3. / / Provide the method under which the Plans involved will satisfy
the 1.0 limitation in a manner that precludes Employer
discretion.
_______________________________________________________________
_______________________________________________________________
E10 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the death
of a Participant prior to receiving any benefits shall...
a. / / be made pursuant to the election of the Participant or
beneficiary.
b. / / begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary
is the Participant's spouse, begin within the time the
Participant would have attained age 70 1/2.
c. /X/ be made within 5 years of death for all beneficiaries.
d. / / other___________________________________________________________
E11 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required
pursuant to Code Section 401(a)(9) shall...
a. / / be recalculated at the Participant's election.
b. /XX/ be recalculated.
c. / / not be recalculated.
E12 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon
termination of employment pursuant to Section 6.4(a) of the Plan shall
not be made unless the following conditions have been satisfied:
a. / / N/A. Immediate distributions may be made at Participant's election.
b. / / The Participant has incurred __________ 1-Year Break(s) in Service.
c. / / The Participant has reached his or her Early or Normal Retirement
Age.
d. / / Distributions may be made at the Participant's election on or after
the Anniversary Date following termination of employment.
e. /XX/ Other JANUARY 1 AND JULY 1
14
<PAGE> 109
E13 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under the
Plan may be made...
a. 1. / / in lump sums.
2. /XX/ in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. / / no annuities are allowed (avoids Joint and Survivor
rules).
2. /XX/ annuities are allowed (Plan Section 6.13 shall not apply).
NOTE: b.1. above way not be elected if this is an amendment to a plan
which permitted annuities as a form of distribution or if this Plan has
accepted a plan to plan transfer of assets from a plan which permitted
annuities as a form of distribution.
c. AND may be made in...
1. /XX/ cash only (except for insurance or annuity contracts).
2. / / cash or property.
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.4(i)): When a Non-Key Employee is
a Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication of
top heavy minimum benefits.
a. /X/ The Employer does not maintain a Defined Benefit Plan.
b. / / A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (The Defined Benefit and Defined
Contribution Fractions will be computed using 100% if this choice
is selected.)
c. / / A minimum, non-integrated contribution of 7 1/2% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (If this choice is selected, the
Defined Benefit and Defined Contribution Fractions will be
computed using 125% for all Plan Years in which the Plan is Top
Heavy, but not Super Top Heavy.)
d. / / Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude Employer
discretion and avoid inadvertent omissions, including any
adjustments required under Code Section 415(e).
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
15
<PAGE> 110
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy purposes
where the Employer maintains a Defined Benefit Plan in addition to this
Plan, shall be based on...
a. /X/ N/A. The Employer does not maintain a defined benefit plan.
b. / / Interest Rate:__________________________________________________
Mortality Table:________________________________________________
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. /X/ N/A.
b. / / A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan subject to Code Section 412), where
the Employer maintains two (2) or more non-paired Defined
Contribution Plans.
c. / / Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
________________________________________________________________
________________________________________________________________
________________________________________________________________
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. / / Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. /X/ No, loans may not be made.
If YES, (check all that apply)...
c. / / loans shall be treated as a Directed Investment.
d. / / loans shall only be made for hardship or financial necessity.
e. / / the minimum loan shall be $1,000.
f. / / $10,000 de minimis loans may be made regardless of Vested
interest. (If selected, plan may need security in addition to
Vested interest)
NOTE: Department of Labor Regulations require the adoption of a separate
written loan program setting forth the requirements outlined in Plan
Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.13) are permitted for the
interest in any one or more accounts.
a. /X/ Yes, regardless of the Participant's Vested interest in the Plan.
b. / / Yes, but only with respect to the Participant's Vested interest in
the Plan.
c. / / Yes, but only with respect to those accounts which are 100% Vested.
d. / / No directed investments are permitted.
16
<PAGE> 111
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.11)
a. /XX/ Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. / / No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted...
c. /XX/ from any Employee, even if not a Participant.
d. / / from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.12)
a. / / Yes, Voluntary Contributions are allowed subject to the limits
of Section 4.7.
b. /XX/ No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict discrimination
rules.
G5 HARDSHIP DISTRIBUTIONS (Plan Section 6.11)
a. / / Yes, from any accounts which are 100% Vested.
b. /XX/ Yes, from Participant's Elective Account only.
c. / / Yes, but limited to the Participant's Account only.
d. / / No.
NOTE: Distributions from a Participant's Elective Account are limited to
the portion of such account attributable to such Participant's Deferred
Compensation and earnings attributable thereto up to December 31, 1988. Also
hardship distributions are not permitted from a Participant's Qualified
Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. / / If a Participant has reached the age of _________, distributions
may be made, at the Participant's election, from any accounts
which are 100% Vested without requiring the Participant to
terminate employment.
b. /XX/ No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and Qualified
Non-Elective Account are not permitted prior to age 59 1/2.
G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan
contributions.
a. /XX/ No life insurance may be purchased.
b. / / Yes, at the option of the Administrator.
c. / / Yes, at the option of the Participant.
17
<PAGE> 112
The adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 401. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.
This Adoption Agreement may be used only in conjunction with basic Plan document
#03. This Adoption Agreement and the basic Plan document shall together be known
as Aetna Life Insurance and Annuity Company Non-Standardized 401(k) Profit
Sharing Plan #03-001.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Aetna Life Insurance and Annuity Company will notify the Employer of any
amendments made to the Plan or of the discontinuance or abandonment of the Plan
provided this Plan has been acknowledged by Aetna Life Insurance and Annuity
Company or its authorized representative. Furthermore, in order to be eligible
to receive such notification, we agree to notify Aetna life Insurance and
Annuity Company of any change in address.
18
<PAGE> 113
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this 8th day of July, 1991. Furthermore, this Plan may not be used
unless acknowledged by Aetna Life Insurance and Annuity Company or its
authorized representative.
EMPLOYER: KIRKLAND'S, INC. AND
AFFILIATED COMPANIES
/s/ Robert E. Alderson
- -------------------------------------------- --------------------
(enter name) TRUSTEE
By: /s/ Robert E. Alderson Sr VP/Sec /s/ Bruce S. Moore
----------------------------------------- --------------------
TRUSTEE
PARTICIPATING EMPLOYER: /s/ Carl Kirkland
--------------------
TRUSTEE
- --------------------------------------------
(enter name)
By:
-----------------------------------------
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of Aetna Life Insurance and Annuity Company
has acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
Aetna Life Insurance and Annuity Company
By: /s/ Edward A. Fish
-------------------------------
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name DAVID S. PICKETT, ATTORNEY AT LAW
-------------------------------------------------------------------------
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Address 151 FARMINGTON, AVENUE, HARTFORD, CONNECTICUT 06156
-----------------------------------------------------------------------
Telephone (203) 273-3664
---------------------------------------------------------------------
19
<PAGE> 1
EXHIBIT 10.13
EXECUTION
SHAREHOLDERS AGREEMENT
among
KIRKLAND HOLDINGS L.L.C.,
KIRKLAND'S, INC.,
AFFILIATES OF KIRKLAND'S INC.,
CAPITAL RESOURCE LENDERS II, L.P.,
ALLIED CAPITAL CORPORATION,
ALLIED CAPITAL CORPORATION II,
THE MARLBOROUGH CAPITAL INVESTMENT FUND, L.P.,
CAPITAL TRUST INVESTMENTS, LTD.,
CARL KIRKLAND,
ROBERT KIRKLAND,
BRUCE MOORE,
AND
ROBERT ALDERSON
Dated as of June 12, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Sections Page
- -------- ----
<S> <C> <C>
1. Certain Defined Terms......................................................................... 3
2. Prohibited Transfers.......................................................................... 10
3. Preemptive Rights............................................................................. 12
4. Third Party Offers to Shareholders; Participation Rights...................................... 15
5. Stock Splits, Etc............................................................................. 19
6. Joinder Requirements.......................................................................... 19
7. Failure to Deliver Shares..................................................................... 21
8. Termination................................................................................... 22
9. Registration Rights........................................................................... 22
10. Financial Reports and Information............................................................. 22
11. Company Governance Provisions................................................................. 23
12. Specific Performance.......................................................................... 27
13. Legend........................................................................................ 28
14. Notices....................................................................................... 28
15. Entire Agreement and Amendments............................................................... 30
16. Expenses...................................................................................... 31
17. Dividends..................................................................................... 31
18. Amendment to Charter.......................................................................... 31
19. Company Joinders.............................................................................. 31
20. Governing Law; Successors and Assigns......................................................... 32
21. Waivers....................................................................................... 32
22. Severability.................................................................................. 32
23. Captions...................................................................................... 32
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Sections Page
- -------- ----
<S> <C> <C>
24. Counterparts.................................................................................. 32
25. Attorney's Fees............................................................................... 32
26. Parties Benefitted............................................................................ 33
27. Successors and Assigns........................................................................ 33
</TABLE>
-ii-
<PAGE> 4
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (the "Agreement") is made
as of this 12th day of June, 1996, by and among
- KIRKLAND HOLDINGS L.L.C., a Delaware limited
liability company ("Holdings"),
- KIRKLAND'S, INC., a corporation incorporated under
Tennessee law ("Kirkland's" or the
"Representative"),
- the other corporations listed on the signature pages
hereto (such other corporations, together with
Kirkland's, being herein referred to individually as
a "Company" and collectively as the "Companies"),
- Capital Resource Lenders II, L.P. ("CRL"),
- Allied Capital Corporation and Allied Capital
Corporation II (collectively, "Allied"),
- The Marlborough Capital Investment Fund, L.P.
("Marlborough"),
- Capital Trust Investments, Ltd. ("Capital Trust"
and together with CRL, Allied, and Marlborough,
the "Mezzanine Warrant Holders",
- CARL KIRKLAND,
- ROBERT KIRKLAND,
- BRUCE MOORE, and
- ROBERT ALDERSON (Carl Kirkland, Robert Kirkland,
Bruce Moore and Robert Alderson being herein referred
to collectively as the "Individual Investors").
WHEREAS, on April 26, 1996, Holdings, the Companies and the
Individual Investors executed a Recapitalization Agreement (the
"Recapitalization Agreement"). Capitalized terms used but not defined herein
have the meanings set forth in the Recapitalization Agreement;
WHEREAS, pursuant to the Recapitalization Agreement, the
Companies have filed amendments to their charters in preparation for the
Preliminary Recapitalization and the Recapitalization. The amended charter of
each Company provides that the authorized capital of such Company consists of
500,000 shares of common stock, no par value (the "Common Stock") and 100,000
shares of Preferred Stock, of which Preferred Stock 68,400 shares are designated
as Class A Preferred Stock (the
<PAGE> 5
"Class A Preferred Stock") and 31,600 shares are designated as Class B Preferred
Stock (the "Class B Preferred Stock"). The amended charters of all Group A
Companies and Group B Companies also provide that the authorized capital of each
Group A and Group B Company includes 20,000 shares of Preferred Stock which are
designated as Class C Preferred Stock (the "Class C Preferred Stock", and
collectively with the Class A Preferred Stock and the Class B Preferred Stock,
the "Preferred Stock"); and
WHEREAS, the 500,000 shares of authorized Common Stock have
been designated as Voting Common Stock ("Voting Common Stock" and with Voting
Preferred Stock (defined herein), "Voting Stock") and Non-Voting Common Stock,
depending on whether the Company is a Group A Company, Group B Company, Group C
Company or Group D Company; and
WHEREAS, of the 31,600 shares of authorized Class B Preferred
Stock of each Group C Company and Group D Company, 21,800 have been designated
as Voting Class B Preferred Stock ("Voting Class B Preferred Stock") and 9,800
have been designated as Non-Voting Class B Preferred Stock ("Non-Voting Class B
Preferred Stock"); and
WHEREAS, the 31,600 shares of authorized Class B Preferred
Stock of each Group A Company and Group B Company have been designated simply as
Class B Preferred Stock and do not carry voting rights; and
WHEREAS, on the date hereof, Holdings owns a 68.4% interest
and each of the Individual Investors owns a 7.9% interest in the outstanding
Common Stock of each Company (whether voting or non-voting); and
WHEREAS, on the date hereof, the Class A Preferred Stock of
each Company is owned by Holdings; the Class B Preferred Stock of each Company
is owned by the Individual Investors according to the following percentages:
Robert Alderson, 25%; Carl Kirkland, 25%; Robert Kirkland, 25% and Bruce Moore,
25%; and the Class C Preferred Stock is owned by the Individual Investors in the
following percentages: Robert Alderson, 8.3033%; Carl Kirkland, 39.5839%; Robert
Kirkland, 37.7225%; and Bruce Moore, 14.3903%; and
WHEREAS, in connection with the Company's execution of the
Senior Subordinated Note and Warrant Purchase Agreement dated on or about the
date hereof (the "Mezzanine Purchase Agreement"), pursuant to which the
Mezzanine Warrant Holders have loaned a total of $20,000,000 in subordinated
debt to the Companies, the Mezzanine Warrant Holders have received (i) warrants
to purchase up to 11,905 shares of Common Stock, subject to adjustment in
accordance with the terms of such warrants ("Mezzanine Warrants" and the shares
subject to the Mezzanine Warrants, the "Warrant
-2-
<PAGE> 6
Shares") and (ii) warrants to purchase up to an additional 4,817 shares of
Common Stock, subject to adjustment in accordance with the terms of such
warrants, the exercisability of which is contingent upon the timing of certain
events and the valuation of the Companies as evidenced by such event (the
"Mezzanine Contingent Warrants" and the shares subject to the Mezzanine
Contingent Warrants, the "Contingent Warrant Shares"); and
WHEREAS, options to purchase 7,143 shares of Common Stock,
subject to adjustment in accordance with the terms of the Option Agreements
governing such options (the "Option Agreements"), have been granted to the
Management Investors, each having the option under the Option Agreements to
purchase one-third of such shares (the "Option Shares"); and
WHEREAS, as an inducement to completion of the transactions
contemplated by the Recapitalization Agreement and the mezzanine financing
discussed above, Holdings, the Companies, the Mezzanine Warrant Holders and the
Individual Investors have agreed to provide for certain restrictions with
respect to the ownership and transfer of the shares of Stock owned by them and
certain rights incident to the ownership of shares of Stock pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and undertakings of the Companies set forth below, the
parties hereto, intending to be legally bound hereby, agree with each other as
follows:
1. Certain Defined Terms. Capitalized terms used in
this Agreement have the meanings set forth in this Section 1, or are defined in
the provisions of this Agreement identified in this Section 1.
(a) "Adjusted Common Equity Percentage" shall
mean, with respect to a Shareholder, such Shareholder's Common Equity Percentage
calculated without taking Offered Shares into account.
(b) "Advent" shall mean Advent International
Corporation, a Delaware corporation, and any Affiliate of Advent
International Corporation.
(c) "Affiliate" of a Person shall mean any
Person which, directly or indirectly, controls, is controlled by, is under
common control with, or under a common management agreement with, such Person.
For purposes hereof (i) each Mezzanine Investor shall be deemed to be an
Affiliate of each other Mezzanine Investor, (ii) the partners or shareholders of
a Mezzanine Investor shall be deemed to be Affiliates of that Mezzanine Investor
(but only to the extent of their pro rata interest therein), (iii) the members
of Holdings shall be
-3-
<PAGE> 7
considered to be Affiliates of Holdings (but only to the extent of their pro
rata interest therein).
(d) "Agreement" means this Shareholders
Agreement, as the same may be amended from time to time in accordance herewith.
(e) "Board Expansion Right" shall mean the right
granted to the holders of the Class A Preferred Stock pursuant to Section 5.4(c)
of the Recapitalization Agreement to elect two (2) additional directors to the
Boards of Directors of the Companies.
(f) "Bona Fide Offer" shall mean a bona fide
written offer from any Person other than any of the Companies to purchase any
Securities owned by a Shareholder; provided, that if such offer includes an
offer to purchase any Preferred Stock, the offer must set forth the aggregate
stated value of Preferred Stock which the offeror desires to purchase, which may
be accepted through the sale of shares of either Class A Preferred Stock, Class
B Preferred Stock or Class C Preferred Stock having an aggregate stated value
equal to the amount set forth.
(g) "Class A Preferred Amendment" shall mean the
amendment to the Companies' Articles or Certificates of Incorporation and Bylaws
effected pursuant to Section 5.4(b) of the Recapitalization Agreement and
pursuant to which the special voting rights and restrictions of the Class A
Preferred Stock, Class B Preferred Stock and Class C Preferred Stock are
eliminated, the Non-Voting Common Stock becomes voting stock, and after which no
Preferred Stock and all Common Stock will have voting rights, except as required
by law.
(h) "Closing" shall mean the closing of the
transactions contemplated by the Recapitalization Agreement.
(i) "Common Equity Percentage" shall mean, as to
any Shareholder, the percentage that (i) the outstanding shares of Common Stock
then owned by such Shareholder and any shares of Common Stock issuable upon
exercise of any warrants (including any Mezzanine Warrants or Mezzanine
Contingent Warrants) or Options, in each case which are fully vested and then
owned by such Shareholder, is of (ii) the aggregate outstanding number of shares
of Common Stock then owned by all of the Shareholders plus all shares of Common
Stock issuable upon exercise of any warrants (including any Mezzanine Warrants
or Mezzanine Contingent Warrants) or Options, in each case which are fully
vested and then owned by any Shareholder.
(j) "Common Shares" shall mean issued and
outstanding shares of Common Stock.
-4-
<PAGE> 8
(k) "Common Stock" shall mean the common stock,
par value $.01 per share, of each of the Companies.
(l) "Consulting Agreement" shall mean the
Consulting Agreement by and between Robert Kirkland and the Companies and dated
on or about the date hereof.
(m) "Counterpart" shall mean a counterpart to
this Agreement in the form of Exhibit A hereto, pursuant to the execution of
which a Person shall become bound by all of the terms and conditions to this
Agreement.
(n) "Equity" means all initial capital
contributed to all of the Companies by the Shareholders as of the date hereof,
including in the form of continuing ownership as well as subsequent capital
contributions by the Shareholders. For all purposes hereof (i) the Equity shall
be considered to have a value of Forty-five Million Dollars ($45,000,000) as of
the date hereof and shall be deemed to have been contributed to the Company on
the date hereof; (ii) shares of capital stock shall be valued without regard to
voting rights, and (iii) the Class C Preferred Stock shall not be considered
Equity.
(o) "Excluded Securities" shall mean,
collectively:
(i) the Option Shares, Warrant Shares
and Contingent Warrant Shares;
(ii) Common Stock to be issued as a
stock dividend;
(iii) Shares of any class of a Company's
capital stock to be issued upon any subdivision, combination, stock split or
reverse stock split of all the outstanding shares of such class of capital stock
of a Company;
(iv) Any securities to be issued by a
Company pursuant to the acquisition by a Company of any Person by means of
merger, stock purchase, reorganization, purchase of substantially all the assets
or otherwise in which such Company, or its shareholders of record immediately
prior to the effective date of such transaction, directly or indirectly, own at
least a majority of the voting power of the acquired or resulting entity after
such transaction; provided, that such recipient(s) of shares of Stock execute(s)
a Counterpart and agree(s) to be bound by the terms and conditions hereof; and
(v) Any securities to be issued
pursuant to a Public Offering.
-5-
<PAGE> 9
(p) "Fully Diluted Common Stock" means the
number of Common Shares plus the number of shares of Common Stock issuable upon
conversion or exercise of other outstanding securities of the Companies.
(q) "Group A Companies" shall mean Company Nos.
100, 123, 125, 126 and 128 through 204, such Companies being those which
commenced business prior to May 1, 1995 in which Carl Kirkland, Robert Kirkland,
Bruce Moore and Robert Alderson owned 37.5%, 37.5%, 15% and 10%, respectively,
of the issued and outstanding common stock (measured prior to giving effect to
any of the transactions contemplated by the Recapitalization Agreement).
(r) "Group B Companies" shall mean Company Nos.
205 through 214, such Companies being those which commenced business after April
30, 1995 but before January 1, 1996 in which Carl Kirkland, Robert Kirkland,
Bruce Moore and Robert Alderson owned 37.5%, 37.5%, 15% and 10%, respectively,
of the issued and outstanding common stock (measured prior to giving effect to
any of the transactions contemplated by the Recapitalization Agreement).
(s) "Group C Companies" shall mean Company Nos.
101 through 104, 107, 109 through 111, 115 through 120, 122 and 127, which are
all of the Companies other than Group A, B or D Companies. Group C Companies are
the Companies in which the shares of the Individual Investors were not owned in
the same percentages as the shares of the Group A, B or D Companies prior to the
Recapitalization.
(t) "Group D Companies" shall mean Company Nos.
215 through 224, such Companies being those commencing business in 1996.
(u) "Management Investors" shall mean Kirkland,
Bruce Moore and Robert Alderson.
(v) "Mezzanine Investor" shall mean any
Mezzanine Warrant Holder or any other Person who holds, from time to time, any
Mezzanine Warrants, Mezzanine Contingent Warrants, Warrant Shares or Contingent
Warrant Shares, and who is or who becomes a party to this Agreement pursuant to
the terms hereof.
(w) "Management Agreements" shall mean those
letter agreements providing for employment of the Management Investors with the
Companies and dated on or about the date hereof.
(x) "Management Pledge Agreement" shall mean the
Management Pledge Agreement executed by the Individual Investors
-6-
<PAGE> 10
in favor of the First National Bank of Boston, as Administrative Agent, on the
date hereof.
(y) "Options" shall mean incentive stock or non-
qualified options granted pursuant to the Stock Option Plan as in effect on the
date hereof, including without limitation the Options granted to the Management
Investors to purchase the Option Shares.
(z) "Parent Pledge Agreement" shall mean the
Parent Pledge Agreement executed by Holdings in favor of The First National Bank
of Boston, as Administrative Agent, on the date hereof.
(aa) "Permitted Transferee" shall mean, with
respect to any Individual Investor (i) such Person's spouse, (ii) any lineal
descendant of such Person, (iii) spouses of such lineal descendants, (iv) trusts
for the benefit of any such spouse, lineal descendant or spouse of a lineal
descendant, or (v) organizations exempt from federal income taxation under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided
that such 501(c)(3) organizations shall only constitute Permitted Transferees
where the Individual Investor Transfers Stock to such organization for purposes
of permitting such organization either to (x) register and sell such Stock in a
Public Offering, or (y) sell such Stock to either a Non-Selling Shareholder or a
Third Party Offeror pursuant to Section 4 hereof.
(ab) "Person" shall mean an individual, a sole
proprietorship, a corporation, a partnership, limited liability company, limited
liability partnership, a joint venture, an association, a trust, or any other
entity or organization, including a government or a political subdivision,
agency or instrumentality thereof.
(ac) "Preferred Stock" shall mean the Class A
Preferred Stock, the Class B Preferred Stock and, where applicable, the Class C
Preferred Stock, of each of the Companies.
(ad) "Public Offering" shall mean the sale of
shares of Common Stock in a registered underwritten public offering resulting in
gross proceeds to the Companies of at least Thirty Million Dollars
($30,000,000), if Holdings and the Individual Investors realize a Rate of Return
of at least thirty-five percent (35%) on their Equity, after taking into account
the amount and timing of all capital contributions (and distributions) to (from)
the Companies by (to) Holdings and the Individual Investors.
-7-
<PAGE> 11
(ae) "Recapitalization" shall mean the
Recapitalization as defined in the Recapitalization Agreement.
(af) "Recapitalization Agreement" shall mean the
Recapitalization Agreement, dated April 26, 1996, among Holdings, the Companies
and the Individual Investors.
(ag) "Rate of Return" shall mean the internal
rate of return for the investment by the Shareholders in the Equity. In the
context of a Public Offering, Rate of Return shall be calculated based on the
amount that would be realized by the Shareholders if all Shareholders then sold
their Common Stock and Class A Preferred Stock and Class B Preferred Stock and
realized (A) for their Common Stock the price per share at which Common Stock is
sold in the Public Offering (before commissions but after other transaction
expenses) and (B) for their Class A Preferred Stock or Class B Preferred Stock,
its aggregate stated value plus all accrued and unpaid dividends.
(ah) "Securities" shall mean all shares of
capital stock, options, warrants, notes, bonds or other equity or debt
securities offered or sold by the Companies from time to time on or after the
date hereof.
(ai) "Shareholder" shall mean any Person who
holds, from time to time, any Shares, Mezzanine Warrants or Contingent Mezzanine
Warrants, and who or which is or becomes a party to this Agreement pursuant to
the terms hereof.
(aj) "Shares" shall mean and include all issued
and outstanding shares of Common Stock or Preferred Stock now owned or hereafter
acquired by the Shareholders.
(ak) "Stock" shall mean and include all shares of
Common Stock and Preferred Stock of each of the Companies, including without
limitation, shares of Common Stock issued, issuable or transferable on the
exercise of Options, Mezzanine Warrants, Contingent Mezzanine Warrants, or other
rights to acquire shares of Common Stock or on the conversion or exchange of
securities convertible into or exchangeable for Common Stock, and all other
securities of any of the Companies which may be issued in exchange for or in
respect of shares of Common Stock or Preferred Stock (whether by way of stock
split, stock dividend, combination, reclassification, reorganization or any
other means).
(al) "Stock Option Plan" shall mean any Stock
Option Plan adopted by the Companies on the date hereof providing for the
issuance of the shares of Common Stock to certain employees of the Companies or
such Companies' subsidiaries.
-8-
<PAGE> 12
(am) "Transfer" shall mean any transfer of Stock,
whether by sale, assignment, gift, will, devise, bequest, operation of the laws
of descent and distribution, or in trust, pledge, hypothecation, mortgage,
encumbrance or other disposition. The verb to "Transfer" shall mean to sell,
assign, give, transfer (including by gift, will, devise, bequest, or operation
of laws of descent and distribution, or in trust), pledge, hypothecate,
mortgage, encumber or dispose of.
Other capitalized terms used in this Agreement have the
definitions set forth in the following sections:
Capitalized Term Section
---------------- -------
10-Day Period 3(d)
30-Day Exercise Period 4(c)
30-Day Period 3(b)
90-Day Period 3(f)
Accepting Shareholders 3(d)
Allied Preamble
Class A Preferred Stock Preamble
Class B Preferred Stock Preamble
Class C Preferred Stock Preamble
Companies Preamble
Company Notice 4(b)
Company Option Period 4(b)
Contingent Warrant Shares Preamble
CRL Preamble
CT Preamble
Exercise Notice 4(c)
Fair Market Value 6(d)
Final Purchase Notice 4(f)
Final Remaining Shares 4(g)(iv)
First Option 4(c)
First Refusal Notice 4(a)
Holdings Preamble
Initiating Holders 6(a)
Kirkland's Preamble
Individual Investors Preamble
Marlborough Preamble
Mezzanine Contingent Warrants Preamble
Mezzanine Purchase Agreement Preamble
Mezzanine Warrant Holders Preamble
Mezzanine Warrants Preamble
Non-Selling Shareholders 4(a)
Non-Voting Class B Preferred Stock Preamble
Notice of Acceptance 3(c)
Notice of Refused Securities 3(c)
Offer 3(b)
Offered A/B Preferred Shares 4(g)(ii)(B)
Offered C Preferred Shares 4(g)(ii)(C)
Offered Common Shares 4(g)(ii)(A)
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<PAGE> 13
Offered Shares 4(a)
Option Agreements Preamble
Option Shares Preamble
Outside Offer 3(f)
Participating Shareholder 4(g)(i)
Participation Right 4(g)(ii)
Preemptive Offer 3(a)
Preferred A/B Value 4(g)(ii)(B)
Preferred C Value 4(g)(ii)(C)
Preferred Initiating Holders 6(b)
Preferred Purchase Percentage 6(b)
Preferred Stock Preamble
Purchase Percentage 6(a)
Purchasers 4(g)(i)
Recapitalization Agreement Preamble
Refused Securities 3(c)
Remaining Offered Shares 4(b)
Representative Preamble
Second Option 4(c)
Selling Shareholder 4(a)
Third Party Offer Terms 4(b)
Third Party Offeror 4(f)
Transferred Companies 7
Transferring Shareholder 7
Unpurchased Remaining Offered Shares 4(c)
Unpurchased Remaining Shares Notice 4(c)
Voting Class B Preferred Stock Preamble
Voting Common Stock Preamble
Voting Preferred Stock 11(a)(ii)
Voting Stock Preamble
Warrant Shares Preamble
2. Prohibited Transfers.
(a) Each Shareholder hereby agrees that it shall
not Transfer all or any of his or its Stock except to the Companies which
originally issued the Stock or as expressly provided in this Agreement. No
Transfer shall be effective and the Companies shall not, and shall not be
compelled to, recognize any Transfer or record any Transfer on their books made
other than in accordance with the terms of this Agreement, or issue any
certificate representing any Stock to any Person who has received such Stock in
a Transfer made other than in accordance with the terms of this Agreement or to
any Person who has not delivered to it an executed Counterpart.
(b) Each Shareholder shall be permitted to
Transfer its Stock to any Affiliate of such Shareholder without compliance with
Section 4 hereof, provided that any such transferee shall, as a condition to
such Transfer, execute a Counterpart and thereafter the transferee shall be
treated as a Shareholder for all purposes under this Agreement; and provided
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<PAGE> 14
further that if the Notes (as defined in the Mezzanine Agreement) shall be
bearing interest at thirteen and one-half percent (13.5%) pursuant to Section
2.06(b) of the Mezzanine Agreement, then, until such Notes shall be redeemed,
Holdings shall not be permitted to transfer any of its Common Stock except to
its members and then only if the members agree in writing to be bound by the
terms of Section 2.06(b) of the Mezzanine Agreement (imposing transfer
restrictions).
(c) Each Individual Investor shall be permitted
to Transfer all or any of his Stock to such Individual Investor's Permitted
Transferees without compliance with Section 4 hereof, provided that such
Permitted Transferee executes a Counterpart, and, except in the case of a
Transfer occasioned as a result of the death of an Individual Investor:
(i) notwithstanding such Transfer, the
Individual Investor making such Transfer shall remain jointly and severally
liable for any breach by the Permitted Transferee of the provisions of this
Agreement; and
(ii) any Individual Investor who
Transfers any or all of his Voting Stock to a Permitted Transferee shall, except
with the consent of the holders of a majority of the Shares other than the
Shares of the Transferring Individual Investor, retain the right to vote the
transferred Stock on any matter on which such Stock is entitled to vote under
the provisions of the applicable Company's Certificate of Incorporation.
(d) Nothing in this Section 2, shall be
construed to restrict the merger of any two or more Companies with each other,
notwithstanding that such a merger may be deemed to cause a Transfer of Stock,
provided such merger does not cause any material change in the aggregate
ownership of Stock.
(e) Notwithstanding this Section 2, the
Individual Investors and Holdings shall be permitted to pledge their shares in
favor of The First National Bank of Boston, as Administrative Agent, pursuant to
the Management Pledge Agreement and the Parent Pledge Agreement, both dated the
date hereof.
(f) Notwithstanding this Section 2, any
Individual Investor shall be permitted to pledge his shares of Class C Preferred
Stock to a lender to the pledging Individual Investor provided that (i) prior to
completing the pledge, the lender undertakes in a writing (in form and substance
acceptable to the lender and the Companies) delivered to the Companies that (A)
such lender is prohibited from selling or syndicating all, or any portion of the
debt obligation secured by the pledge, and (B) in the event of any default on
the debt secured by such pledge, all or any portion of the pledged shares (as
determined by the
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<PAGE> 15
Companies) may be purchased by the Companies for a price equal to the lowest of
(1) the aggregate Stated Value of the shares being purchased, (2) the Fair
Market Value (as determined under procedures comparable to those set forth in
Section 6(d) hereof with decisions as to choice of the valuation determiner
being made by the Representative and the lender) of the shares being purchased,
or (3) the unpaid principal, plus accrued interest, plus all other amounts
accrued and owing to the lender in respect of such indebtedness, secured by the
pledge, (ii) if Robert Kirkland is the borrower and pledgor, the Consulting
Agreement will terminate in the event the Companies exercise their right to
purchase, as set forth in section (i)(B) of this section (f), and the pledged
shares are not delivered to the Companies concurrently with the purchase, (iii)
if any other Individual Investor is the borrower and pledgor, the Management
Agreement of such Individual Investor will terminate in the event the Companies
exercise their right to purchase, as set forth in section (i)(B) of this section
(f), and the pledged shares are not delivered to the Companies concurrently with
the purchase, and (iv) the lender is an institution normally engaged in the
business of making commercial loans.
3. Preemptive Rights.
(a) Except in the case of Excluded Securities,
no Company shall issue, sell or exchange, agree to issue, sell or exchange, or
reserve or set aside for issuance, sale or exchange, any Securities unless (i)
such Company shall have first offered (the "Preemptive Offer") to sell such
Securities to the Company's Shareholders on the terms set forth herein and (ii)
all other Companies simultaneously undertake identical action (except, if
applicable, as to the amount of Securities proposed to be sold by such other
Company) and make identical Preemptive Offers. Each Shareholder shall have a
preemptive right to purchase up to such Shareholder's Common Equity Percentage
of such Securities. Each Shareholder may assign all or any part of its rights
and responsibilities with respect to such Offer (as defined below) to an
Affiliate. Such Affiliate or Affiliates which are such assignees shall
thereafter be deemed to be such assigning Shareholder (to the extent of such
assignment) for purposes of applying this Section 3 to such Preemptive Offer.
Each such Affiliate shall agree in writing, as a condition to such assignment,
to execute a Counterpart in the event of a purchase of Securities pursuant to
such assignment.
(b) The Companies shall deliver to each
Shareholder written notice of the Preemptive Offer, specifying the price and
terms and conditions of the offer, including without limitation, the minimum and
maximum limits on the amount of Securities proposed to be sold by the Companies
pursuant to the offer (the "Offer"), and the Common Equity Percentage applicable
to the Shareholder receiving such notice. The
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<PAGE> 16
Preemptive Offer by its terms shall remain open and irrevocable for a period of
thirty (30) days from the date such notice is given (the "30-Day Period").
(c) If a Shareholder desires to purchase
Securities pursuant to the Preemptive Offer, such Shareholder shall evidence his
or its intention to accept the Preemptive Offer by delivering a written notice
to the Representative, signed by the Shareholder, setting forth the percentage
of the Securities (not exceeding such Shareholder's Common Equity Percentage of
such Securities) that the Shareholder elects to purchase (the "Notice of
Acceptance"). Provided the minimum number of Securities set forth in the
Preemptive Offer has been sold after conclusion of all procedures set forth in
this Section 3, then, upon closing of the Preemptive Offer, each Shareholder
shall be obligated to buy the percentage set forth in such Shareholder's Notice
of Acceptance times the number of Securities being sold at such closing. No
Company shall be permitted to sell at such closing (or any subsequent closing
with respect to which the procedures set forth in this Section 3 have not again
been followed, except as provided in this Section 3) more than the maximum
number of Securities set forth in the Preemptive Offer. The Notice of Acceptance
must be given, if at all, prior to the end of the 30-Day Period. Within five (5)
days following the end of the 30-Day Period, the Representative shall give
written notice (the "Notice of Refused Securities") to the Shareholders setting
forth the percentage of Securities for which a Notice of Acceptance was not
received (the "Refused Securities").
(d) If the Shareholders give Notices of
Acceptance to the Representative prior to the end of the 30-Day Period
indicating their intention to purchase, in the aggregate, less than the maximum
amount of Securities set forth in the Preemptive Offer, each Shareholder giving
a Notice of Acceptance ("Accepting Shareholders") shall be entitled to purchase
by an additional Notice of Acceptance given to the Representative within ten
(10) days after the date the Notice of Refused Securities is given (the "10-Day
Period"), that proportion of the Refused Securities which the Common Equity
Percentage of such Accepting Shareholder (prior to the Offer) bears to the
Common Equity Percentage of all Accepting Shareholders.
(e) If the Shareholders give Notices of
Acceptance prior to the end of the 30-Day Period or 10-Day Period, as
applicable, indicating their intention to purchase, in the aggregate, at least
the minimum amount of Securities set forth in the Preemptive Offer, the
Representative shall schedule a closing of the sale of the Securities to occur
on a date not more than sixty (60) days nor less than twenty (20) days after the
termination of the 30-Day Period or 10-Day Period, as applicable. Upon the
closing of the sale of the Securities, each
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<PAGE> 17
Accepting Shareholder shall purchase those Securities for which it tendered a
Notice of Acceptance upon the terms specified in the Offer.
(f) Regardless of whether the Shareholders
tender Notices of Acceptance pursuant to subsection (c) and (d) of this Section
3 for at least the minimum amount of Securities set forth in the Offer within
the 30-Day Period or the 10-Day Period, as applicable, any remaining Refused
Securities may be sold for a period of ninety (90) days after the expiration of
the 30-Day Period or 10-Day Period, as applicable (the "90-Day Period"), to any
other Person or Persons (including without limitation, executive officers of any
Company), upon terms and conditions which are in all material respects
(including without limitation, price, form of consideration, payment period and
interest rates) the same as those set forth in the Preemptive Offer. The closing
of the sale of such Refused Securities (which shall include full payment to the
Companies in cash or notes in accordance with the terms of such offer (the
"Outside Offer")) shall take place not more than thirty (30) days after the
expiration of such 90-Day Period and not less than twenty (20) days after notice
of said closing shall have been given by the Representative to each Accepting
Shareholder. In the event Accepting Shareholders gave Notices of Acceptance for
less than the minimum number of Securities set forth in the Preemptive Offer,
provided the Refused Securities agreed to be purchased plus the Securities for
which Accepting Shareholders gave Notices of Acceptance exceeds such minimum,
then at the same time as the closing of the sale of Refused Securities, each
Accepting Shareholder shall purchase those Securities for which it tendered a
Notice of Acceptance upon the terms specified in the Preemptive Offer.
(g) (i) If at least the minimum amount of
the Securities set forth in the Preemptive Offer and the Outside Offer are not
agreed to be purchased within the 90-Day Period, the Representative may rescind
all Notices of Acceptance tendered by Shareholders by providing written notice
of such rescission to each Accepting Shareholder and the Companies shall not
sell any Securities pursuant to the Outside Offer.
(ii) Any Securities as to which Notices
of Acceptance are rescinded, and any Refused Securities not purchased in the
Outside Offer may not be sold or otherwise disposed of until they are again
offered to the Shareholders under the procedures specified in subsections (a)
through (g) hereof.
(h) The transferability of Securities purchased
by any Shareholder or other Person pursuant to this Section 3 shall be subject
to the terms and conditions set forth in this Agreement and any Person who is
not then a Shareholder and who purchases Securities shall execute a Counterpart
as a condition
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<PAGE> 18
precedent to such purchase. The obligation of any Shareholder to purchase such
Securities is further conditioned upon the preparation of a purchase agreement
embodying the terms of the Preemptive Offer or Outside Offer which shall be
reasonably satisfactory in form and substance to the Representative and its
counsel, and such Shareholder or other purchaser and such Shareholder's or other
purchaser's counsel.
4. Third Party Offers to Shareholders; Participation
Rights.
(a) If any Shareholder (a "Selling Shareholder")
receives a Bona Fide Offer to purchase part or all of the Selling Shareholder's
Stock in all (and not less than all) of the Companies ("Offered Shares") which
it desires to accept, it must give written notice ("First Refusal Notice") to
the Representative and comply with this Section 4 before accepting such Bona
Fide Offer. Any Bona Fide Offer offering to purchase less than all a
Shareholder's Stock shall either be rejected or be an offer to purchase the same
percentage of Stock of each Company. The First Refusal Notice shall identify the
third party purchaser and the terms of the Bona Fide Offer to purchase the
Offered Shares. The Representative shall, within five (5) days of receipt of the
First Refusal Notice, provide copies thereof to all other Shareholders (the
"Non-Selling Shareholders") and shall simultaneously notify each Non-Selling
Shareholder of such Non-Selling Shareholder's Adjusted Common Equity Percentage.
The Companies and the Non-Selling Shareholders shall have the options and rights
set forth in this Section 4. Each Shareholder may assign all or any part of its
rights and obligations with respect to such Bona Fide Offer to an Affiliate.
Such Affiliate or Affiliates who are such assignees shall thereafter be deemed
to be such assigning Shareholder (to the extent of such assignment) for purposes
of applying this Section 4 to such Bona Fide Offer. Each Affiliate shall agree
in writing, as a condition to such assignment, to execute a Counterpart, in the
event of a purchase of Offered Shares pursuant to such assignment.
(b) For a period of up to thirty (30) days after
receipt of the First Refusal Notice ("Company Option Period") each of the
Companies shall have the right to purchase up to all of the Offered Shares which
it has issued at the price and on the other terms and conditions contained in
the Bona Fide Offer (the "Third Party Offer Terms"). Unless all of the Companies
exercise such right, none of the Companies shall exercise such right. The
Representative shall notify the Selling Shareholder within the Company Option
Period whether the Companies will exercise such right, such notice (the "Company
Notice") specifying the amount of Offered Shares to be purchased by the
Companies, if any (any remaining amount being the "Remaining Offered Shares"). A
notice by the Companies that they will purchase Offered Shares is herein
referred to as a "Company Purchase Notice.") The Company Option
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<PAGE> 19
Period shall expire on the thirtieth day after the First Refusal Notice or the
date the Representative gives a Company Notice indicating that the Companies
will not purchase any Offered Shares.
(c) Each Non-Selling Shareholder shall have the
option (the "First Option") to purchase up to such Non-Selling Shareholder's
Adjusted Common Equity Percentage of the Remaining Offered Shares (provided it
is the same percentage in each of the Companies), on the Third Party Offer
Terms. The First Option may be exercised by giving written notice (an "Exercise
Notice") to the Selling Shareholder within thirty (30) days after the expiration
of the Company Option Period (the "30-Day Exercise Period"). The Exercise Notice
given by a Non-Selling Shareholder shall state the number of Offered Shares (up
to such Non-Selling Shareholder's Adjusted Common Equity Percentage of the
Remaining Offered Shares) which such Non-Selling Shareholder is willing to
purchase. Within five (5) days following expiration of the 30-Day Exercise
Period, the Selling Shareholder shall give a written notice ("Unpurchased
Remaining Shares Notice") to the Non-Selling Shareholders setting forth the
number of Remaining Offered Shares for which an Exercise Notice was not received
("Unpurchased Remaining Offered Shares"). Any Non-Selling Shareholder who
exercised its option under this Section 4(b) to purchase such Non-Selling
Shareholders' entire Adjusted Common Equity Percentage of the Remaining Offered
Shares, shall have an option ("Second Option") to purchase such amount of the
Unpurchased Remaining Offered Shares as such Non-Selling Shareholders shall
agree upon or, failing such agreement, that proportion of the Unpurchased
Remaining Offered Shares which such Non-Selling Shareholder's Common Equity
Percentage bears to the aggregate Common Equity Percentage of all such
Non-Selling Shareholders. A Non-Selling Shareholder shall exercise the Second
Option, if at all, by giving a written second Exercise Notice to the Selling
Shareholder within fifteen (15) days after the Selling Shareholder shall have
given the Unpurchased Remaining Shares Notice relating to the Unpurchased
Remaining Offered Shares.
(d) Unless otherwise agreed to by the Selling
Shareholder, all Company Purchase Notices and Exercise Notices given by the
Companies and Non-Selling Shareholders shall be deemed rescinded if all of the
Offered Shares are not to be purchased pursuant thereto.
(e) If the Companies or Non-Selling Shareholders
shall have given Company Purchase Notices or Exercise Notices as to all of the
Offered Shares, all certificates for the Offered Shares shall be delivered to
the purchaser(s) thereof, duly endorsed for transfer, at a closing held within
not more than thirty (30) days nor less than twenty (20) days after the last
such Exercise Notice is given at the then principal office of the Representative
or such other place as the Selling Shareholder and
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<PAGE> 20
the Companies (if the Companies are purchasers) and Non-Selling Shareholders who
are purchasers of such Offered Shares shall agree.
(f) If all of the Offered Shares are not agreed
to be purchased by the Companies and Non-Selling Shareholders, then, within ten
(10) days after the earlier of (i) the expiration of the applicable periods in
which Non-Selling Shareholders could have exercised the First Option or, if
applicable, the Second Option, or (ii) the date on which the Non-Selling
Shareholders shall have declined in writing to purchase all of the Offered
Shares, the Selling Shareholder shall give notice to all Non-Selling
Shareholders and the Representative of the Offered Shares not intended to be
purchased pursuant to the operation of Section 4(b) (c) and (d) (the "Final
Purchase Notice"). For a period of thirty (30) days after the date the Final
Purchase Notice is given, the Selling Shareholder may, subject to Section 4(g)
and 4(h) below, sell the Offered Shares to the Person who made the Bona Fide
Offer ("Third Party Offeror"); provided, however, that such Offered Shares are
sold to the Third Party Offeror upon the Third Party Offer Terms, and that such
Third Party Offeror executes a Counterpart. If the Selling Shareholder elects
not to rescind Company Purchase Notices and Exercise Notices pursuant to Section
4(d) hereof, the sale of Offered Shares to the Companies and the purchasing
Non-Selling Shareholders shall take place at the closing of the sale of the
balance of the Offered Shares to the Third Party Offeror and, unless such
Non-Selling Shareholders otherwise agree, shall be conditioned on the occurrence
of said closing. If the Selling Shareholder wishes to sell all or any part of
the Offered Shares on terms other than the Third Party Offer Terms or does not
sell such Offered Shares on the Third Party Offer Terms within the
aforementioned thirty (30) day period, the Selling Shareholder shall be
obligated to make new offers and re-offers to the Companies and the Non-Selling
Shareholders, in accordance with this Section 4, before it shall be permitted to
Transfer its Shares, or any part thereof, to any Person.
(g) (i) If a Non-Selling Shareholder does
not exercise its First Option or if such exercise is rescinded pursuant to
Section 4(d) above, such Non-Selling Shareholder may elect to participate (each
Shareholder so electing being herein a "Participating Shareholder") in the
Selling Shareholder's sale of Remaining Offered Shares to the Companies and the
Non-Selling Shareholders whose Company Purchase Notices and Exercise Notices
have not been rescinded (if any) and the Third Party Offeror (collectively, the
"Purchasers"), in accordance with this subsection (g);
(ii) Each such Participating Shareholder
shall have the right ("Participation Right") to Transfer to the Purchasers on
the Third Party Offer Terms:
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<PAGE> 21
(A) if the Offered Shares include
Common Stock (the "Offered Common Shares"), a number of shares of Common Stock
equal to the product of the number of Offered Common Shares times a fraction,
the numerator of which is the Common Equity Percentage of such Participating
Shareholder and the denominator of which is the aggregate Common Equity
Percentage of all Participating Shareholders and the Selling Shareholder. The
number of shares of Common Stock to be sold by the Selling Shareholder to the
Purchasers shall be reduced by the number of shares of Common Stock to be sold
to the Purchasers by a Participating Shareholder pursuant to the exercise of a
Participation Right; and
(B) if the Offered Shares include
Class A Preferred Stock or Class B Preferred Stock (the "Offered A/B Preferred
Shares," and the aggregate stated value of the Offered A/B Preferred Shares
being herein referred to as the "Preferred A/B Value"), a number of shares of
Class A Preferred Stock or Class B Preferred Stock (without regard to voting
rights) having an aggregate stated value equal to the product of the Preferred
A/B Value times a fraction, the numerator of which is the aggregate stated value
of the shares of Class A Preferred Stock or Class B Preferred Stock owned by
such Participating Shareholder and the denominator of which is the sum of the
Preferred A/B Value and the aggregate stated value of all shares of Class A
Preferred Stock and Class B Preferred Stock owned by all Participating
Shareholders and the Selling Shareholder. The number of Offered A/B Preferred
Shares to be sold by the Selling Shareholder to the Purchasers shall be reduced
by the number of Offered A/B Preferred Shares having an aggregate stated value
equal to the aggregate stated value of the shares of Class A Preferred Stock or
Class B Preferred Stock to be sold to the Purchasers by Participating
Shareholders pursuant to the exercise of Participation Rights;
(C) if the Offered Shares include
Class C Preferred Stock (the "Offered C Preferred Shares," and the aggregate
stated value of the Offered C Preferred Shares being herein referred to as the
"Preferred C Value"), a number of shares of Class C Preferred Stock (without
regard to voting rights) having an aggregate stated value equal to the product
of the Preferred C Value times a fraction, the numerator of which is the
aggregate stated value of the shares of Class C Preferred Stock owned by such
Participating Shareholder and the denominator of which is the sum of the
Preferred C Value and the aggregate stated value of all shares of Class C
Preferred Stock owned by all Participating Shareholders and the Selling
Shareholder. The number of Offered C Preferred Shares to be sold by the Selling
Shareholder to the Purchasers shall be reduced by the number of Offered C
Preferred Shares having an aggregate stated value equal to the aggregate stated
value of the shares of Class C Preferred
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<PAGE> 22
Stock to be sold to the Purchasers by Participating Shareholders pursuant to the
exercise of Participation Rights;
(iii) The Participation Right shall be
exercised, if at all, by the Participating Shareholder giving written notice of
exercise of the Participation Right to the Selling Shareholder and each of the
other Non-Selling Shareholders within fifteen (15) days after the Final Purchase
Notice is given pursuant to Section 4(f);
(iv) If the Selling Shareholder would
retain ownership of Offered Shares by reason of the exercise of Participation
Rights (such remaining shares being herein the "Final Remaining Shares"), the
Selling Shareholder may either (i) rescind all exercises of Participation
Rights, reject the Bona Fide Offer and retain ownership of the Offered Shares,
or (ii) negotiate with the Purchasers to purchase the Final Remaining Shares on
the Third Party Offer Terms or terms less advantageous to the Selling
Shareholder than the Third Party Offer Terms. Any such sale of the Final
Remaining Shares to the Purchasers shall not be subject to the provisions of
Sections 2 or 4 of this Agreement, except the obligation on the part of the
Third Party Offeror to execute a Counterpart. A Transfer of Shares pursuant to
the exercise of a Participation Right shall not be subject to the provisions of
Sections 2 and 4 of this Agreement.
(h) Notwithstanding anything to the contrary
contained in this Section 4, (i) any Transfer permitted by Section 2 hereof
shall not be restricted by this Section 4, (ii) any sale of Stock in connection
with a Public Offering, or pursuant to the provisions of Rule 144 of the
Securities Act of 1933, as amended, shall not be restricted by this Section 4.
5. Stock Splits, Etc. If there shall be any change in
the Stock of a Company as a result of any merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination or exchange of Shares,
or otherwise, the provisions of this Agreement shall apply with equal force to
additional and/or substitute Securities, if any, received by each Shareholder in
exchange for or by virtue of its ownership of Shares.
6. Joinder Requirements.
(a) If at any time holders (the "Initiating
Holders") of a majority of the outstanding shares of Common Stock desire to sell
at least a majority of the outstanding shares of Common Stock to a prospective
purchaser which is not an Affiliate of any of such holders at a per share price
of at least ninety percent (90%) of the Fair Market Value (as defined in Section
6(d) below), and the purchaser of such Shares requires, as a condition of the
sale, that the purchaser acquire more than a
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<PAGE> 23
majority of the outstanding shares of the Common Stock (the percentage of Common
Stock sought to be purchased by the purchaser being herein referred to as the
"Purchase Percentage"), then (i) all of the holders of Mezzanine Warrants shall
be required to exercise the Purchase Percentage of their Mezzanine Warrants and
sell such Mezzanine Warrant Shares, and (ii) all Management Investors or other
holders of Options shall be required to exercise the Purchase Percentage of
their vested Options and sell the Shares purchased pursuant to such exercise,
and (iii) all of the Shareholders (including the Initiating Holders) shall be
required to sell the Purchase Percentage (and shall not sell more than the
Purchase Percentage) of their Stock (as constituted after such exercise of
Mezzanine Warrants), to the purchaser on the same price and other terms and
conditions as those offered to the Initiating Holders.
(b) If at any time holders ("Preferred
Initiating Holders") of at least a majority of the outstanding shares of
Preferred Stock desire to sell at least a majority of the outstanding Preferred
Stock to a prospective purchaser which is not an Affiliate of any of such
holders, and the purchaser of such Preferred Stock requires, as a condition of
the sale, that the purchaser acquire more than a majority of the outstanding
shares of Preferred Stock of all Shareholders (the percentage of Preferred Stock
sought to be purchased by the purchaser being herein referred to as the
"Preferred Purchase Percentage"), then all of the Shareholders shall be required
to sell the Preferred Purchase Percentage of their Preferred Stock to the
purchaser on the same price and other terms and conditions as those offered to
the Preferred Initiating Holders.
(c) For purposes of Section 6(b), the term
"Preferred Stock" shall not include the Class C Preferred Stock. Any sale of
Common Stock or Preferred Stock pursuant to this Section 6, including the sale
by the Initiating Holders or Preferred Initiating Holders, shall not be subject
to the provisions of Sections 2 and 4 of this Agreement.
(d) For purposes of this Agreement, "Fair Market
Value" of a share of Stock shall mean such value as determined by an investment
banking firm mutually acceptable to both the Board of Directors of the Company
and holders of a majority of Stock being involuntarily required to join in the
sale under Section 6 hereof. In the event an investment banking firm cannot be
mutually agreed upon, such value shall be a value per share of Stock as
determined by a nationally recognized firm engaged in the business of (among
other things) valuing privately held businesses, which is not an Affiliate of
the Company, any director of the Company, or any of the Shareholders, and which
is selected by the mutual agreement of the holders of a majority of the Stock
being involuntarily required to join in the sale under Section 6 hereof. If such
holders are unable to agree, then
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<PAGE> 24
holders of the Mezzanine Warrants and the Management Investors shall agree on
one appraiser, and if they cannot agree the Mezzanine Warrant holders shall
select one appraiser and the Management Investors shall select one appraiser.
The appraiser or appraisers so selected shall determine the Fair Market Value.
An average of all appraisals shall be the Fair Market Value if more than one
appraisal is used. If the Fair Market Value is more than ninety percent (90%) of
the sale price, the fees paid to the investment banking firm or appraiser or
appraisers for determining the Fair Market Value shall be borne by the holders
of Stock who are being required to involuntarily join the sale under Section
6(a). Otherwise, such cost shall be borne by the Initiating Holders.
7. Failure to Deliver Shares. If a Shareholder (the
"Transferring Shareholder") becomes obligated to Transfer any Stock to any of
the Companies or to another Shareholder pursuant to this Agreement (including a
Transfer to another Shareholder for purposes of Transfer to another purchaser
pursuant to Section 6 or otherwise) and fails to deliver such Stock in
accordance with the terms of this Agreement, the Company or Companies whose
Stock the Transferring Shareholder is obligated to transfer (the "Transferred
Companies") or such other Shareholder, as the case may be, may, at its or their
option, in addition to all other remedies it may have, either (i) send to the
Transferring Shareholder the purchase price for such Stock as is herein
specified, or (ii) deposit such amount with a trustee or escrow agent for the
benefit of the Transferring Shareholder for release upon delivery of such Stock
to the trustee or escrow agent in accordance with the terms of this Agreement.
Thereupon, the Transferred Companies, upon written notice to the Transferring
Shareholder, (a) shall cancel on its books the certificate or certificates
representing the Stock so required to be transferred by the Transferring
Shareholder and (b) shall issue, in lieu thereof, in the name of the Transferred
Companies, such other Shareholder or purchaser, as the case may be, a new
certificate or certificates representing such Stock; provided, however, the
Transferred Companies shall be under no obligation to so cancel and issue Stock
unless the other Shareholder or purchaser, as the case may be, delivers to the
Transferred Companies its agreement to indemnify, defend and hold harmless the
Transferred Companies, its officers and employees, successors and assigns, from
any and all losses, claims, damages or liabilities (or actions in respect
thereof) to which the Transferred Companies may become subject as a result of,
arising out of, or based upon the Transferred Companies so canceling and issuing
Stock, and such other Shareholder or purchaser, as the case may be, shall
reimburse the Transferred Companies for any legal or other expenses reasonably
incurred by the Transferred Companies in connection therewith. All of the
Transferring Shareholder's rights in and to such Stock shall terminate as of the
date of such Notice.
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<PAGE> 25
8. Termination. Except as provided in Section 15
hereof, this Agreement shall terminate upon (i) the consummation of a Public
Offering or (ii) the earlier mutual agreement of Shareholders having an
aggregate Common Equity Percentage of at least eighty percent (80%).
9. Registration Rights. The Shareholders shall have
the registration and other rights set forth in the Registration Rights Agreement
dated the date hereof and among the parties hereto.
10. Financial Reports and Information.
(a) Within ninety (90) days after the end of
each fiscal year of the Companies, for so long as this Agreement shall be in
effect, the Companies agree to furnish each of the Shareholders with audited
consolidated and consolidating financial statements of the Companies for such
fiscal year (showing comparison to the prior fiscal year) which shall include a
statement of income and retained earnings for each such fiscal year, a balance
sheet as at the last day thereof, and a statement of cash flows prepared in
accordance with generally accepted accounting principles consistently applied,
and accompanied by the report, without qualification, of the Companies'
independent certified public accountants (which shall be of recognized national
standing), including such accountant's management letters to the Companies and a
breakdown of all the Shareholders of each Company, listing next to each
Shareholder's name, the Shareholder's Common Equity Percentage.
(b) If for any period any Company shall have any
subsidiary or subsidiaries whose accounts are consolidated with those of such
Company, then in respect of such period the financial statements delivered
pursuant to the foregoing Section 11(a) shall be the consolidated financial
statements of such Company and all such consolidated subsidiaries.
(c) Promptly upon becoming available, copies of
all financial statements, reports, press releases, notices, proxy statements and
other documents sent by any of the Companies to their lenders or released to the
public and copies of all regular and periodic reports, if any, filed by the
Companies with the Securities and Exchange Commission or any securities
exchange.
(d) Upon request from any Shareholder including
any Selling Shareholder to any of the Companies, such Company shall disclose to
such Shareholder, in writing, the name and address of such Shareholder (as it
then appears on the records of the Company) and such Shareholder's Common Equity
Percentage.
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<PAGE> 26
11. Company Governance Provisions.
(a) Unless and until holders of Class A
Preferred Stock exercise the Board Expansion Right or effect the Class A
Preferred Amendment, each Company's Board of Directors shall have nine (9)
seats, at least seven (7) of which shall be filled at all times. The Members of
the Board of Directors shall be elected in the following manner:
(i) If seven (7) directors of the
Company's Board of Directors are appointed, the holders of a majority of the
outstanding shares of Voting Common Stock, shall have the special and exclusive
right at all times to elect three (3) directors to the Board of Directors of
each Company. To the extent all nine (9) of the directors of the Company's Board
of Directors are appointed, such holders shall have the special and exclusive
right at all times to elect four (4) directors to the Board of Directors of each
Company (in either event, the directors appointed under this Section 11(a)(i)
shall be referred to herein as the "Holdings Representatives"). A Holdings
Representative shall not be subject to removal, other than for cause, unless
such removal is approved by a majority of all the votes entitled to be cast in
an election for such directors by the holders of the Voting Common Stock. A
majority of the Holdings Representatives shall have the right to make all
determinations concerning the taking of action by the Companies to enforce the
Companies' rights under the Recapitalization Agreement.
(ii) If seven (7) directors of the
Company's Board of Directors are appointed, the holders of outstanding shares of
Voting Class B Preferred Stock and Class C Preferred Stock ("Voting Preferred
Stock"), voting as a separate voting group, shall have the special and exclusive
right at all times to elect four (4) directors to the Board of Directors of each
Company. To the extent all nine (9) directors of the Company's Board of
Directors are appointed, such holders shall have the special and exclusive right
at all times to elect five (5) directors to the Board of Directors of each
Company (in either event, the directors appointed under this Section 11(a)(ii)
shall be referred to herein as "Management Representatives"). Any Management
Representative shall not be subject to removal, other than for cause, unless
such removal is approved by a majority of all the votes entitled to be cast in
an election for such directors by the holders of the Voting Preferred Stock.
(iii) If only seven (7) directors of a
Company's initial Board of Directors are appointed, either the holders of a
majority of the outstanding shares of Voting Common Stock or the holders of the
Voting Preferred Stock may, at any time, appoint an additional director to the
Board of Directors of the Company. If Holdings on the one hand, or the holders
of the
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<PAGE> 27
Voting Preferred Stock on the other hand, appoint an additional director under
this Section 11(a)(iii), the other must appoint an additional director to the
Board of Directors such that the Board of Directors shall then consist of nine
(9) directors.
(iv) Unless an individual nominated to
serve on the Board of Directors of the Kirkland Companies hereunder expressly
agrees in writing otherwise, such nomine shall not be deemed to be the deputy of
or otherwise required to discharge his or her duties on such Boards under the
direction of, or with special attention to the interests of, the person
designating such nominee to serve on the Boards.
(b) The initial board of directors shall be
comprised of the following individuals and each Shareholder agrees to vote such
Shareholder's Shares accordingly:
(i) The Holding Representatives shall
be:
(A) David M. Mussafer
(B) John P. Oswald
(C) Alexander S. McGrath
(ii) The Management Representatives
shall be:
(A) R. Wilson Orr, III
(B) Carl Kirkland, Chairman
(C) Robert Alderson
(D) Bruce Moore
(c) From and after the date hereof, each
Shareholder agrees to vote (including by execution of a written consent or in
any other manner permitted by law and each of the Companies' certificate or
articles of incorporation and by-laws) all of his or its Shares over which he or
it has voting control, and will take all other necessary or desirable actions
within his or its control, and the Companies will take all necessary or
desirable actions within its control, in order to cause:
(i) the election to the Board of
Directors of each Company of the Holdings Representatives, such directors to be
nominated by Holdings, as follows:
(A) one (1) (if seven (7) seats
are filled on the Board) or two (2) (if all nine (9) seats are filled on the
Board) representatives designated by Advent International Corporation, but only
for so long as investment funds affiliated
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<PAGE> 28
with Advent International Corporation have a Common Equity Percentage (directly
or indirectly through Holdings) of at least fifteen percent (15%).
(B) one representative designated by
Capital Trust, but only for so long as Capital Trust (or any of its Affiliates)
has (directly or indirectly through Holdings) a Common Equity Percentage of at
least two percent (2%), or holds $900,000 aggregate principal amount of Senior
Subordinated Notes (as defined in the Mezzanine Agreement); and
(C) one representative designated by
CRL (or if CRL distributes any of its Warrant Shares to any of its partners, by
a majority in interest of the holders of such Warrant Shares, or if CRL
transfers its Warrant Shares, by the holder of the highest aggregate principal
amount of the Senior Subordinated Notes (as defined in the Mezzanine Agreement)
owned by CRL, its successors or assigns), but only for so long as CRL (or any of
its partners) has a Common Equity Percentage of at least three percent (3%).
(ii) the election to the Board of
Directors of each Company of the Management Representatives, such directors to
be nominated by the holders of Class B Preferred Stock and Class C Preferred
Stock, as follows:
(A) One (1) representative
designated by Carl Kirkland, so long as he remains an employee (or retired
employee) of the Companies and he has a Common Equity Percentage of at least
four percent (4%) of the outstanding shares of Common Stock;
(B) One (1) representative
designated by Bruce Moore, so long as he remains an employee (or retired
employee) of the Companies and he has a Common Equity Percentage of at least
four percent (4%) of the outstanding shares of Common Stock;
(C) One (1) representative
designated by Robert Alderson, so long as he remains an employee (or retired
employee) of the Companies and he has a Common Equity Percentage of at least
four percent (4%) of the outstanding shares of Common Stock;
(D) One (1) representative
designated by SSM/Kirkland Equity Partners, L.P. but only for so long as such
entity (or any of its partners) has a Common Equity Percentage (directly or
indirectly through Holdings) of at least two percent (2%);
(E) If and only if all nine (9)
seats are to be filled on the Board, one (1) individual designated by
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<PAGE> 29
the majority decision of the Management Investors, which person shall be an
individual unrelated to any of the investors in Holdings and any of the
Mezzanine Investors.
(iii) the removal from the Board of any
representative designated as provided in this Section 11(c) upon the express
written request of the designator thereof or upon the failure of any of the
thresholds specified in Section 11(c) with respect to such particular
designator; and
(iv) in the event that any representative
designated as provided in this Section 11(c) for any reason ceases to serve as a
member of the Board of Directors of any of the Companies during his term of
office, the resulting vacancy on each Board to be filled by a representative
designated by the person who or which designated the ceasing director; provided
that if such person ceases to serve as a member of the Board of Directors
because the designator thereof ceases to meet the thresholds set forth in
Section 11(c), such vacancy shall be filled as required by the bylaws of the
Companies, as amended from time to time.
(d) Nothing herein shall diminish the rights of the
holders of the Class A Preferred Stock set forth in Section 5.4 of the
Recapitalization Agreement and all Shareholders agree to vote their Stock to
cause compliance with such provisions.
(e) The initial director designated in Section
11(b)(i)(A) or his successor elected pursuant to Section 11(c)(i)(A) shall be
the director whose approval is required pursuant to Section 14 of Article III of
the bylaws of the Companies (as required pursuant to Section 5.7 of the
Recapitalization Agreement).
(f) If the Company receives a written notice requesting
that any action be taken to implement the provisions of this Section 11, the
Companies and each Shareholder agree promptly to take such action as may be
necessary so to implement such provisions in accordance with this Section,
including, without limitation, the calling of a special meeting, the voting of
Shares, the execution of written consents or any other necessary action in
connection therewith.
(g) Absent cause, neither the Company nor the
Shareholders will take any action to remove any Board representative designated
pursuant to Section 11(c) without the advance written consent of the Person who
or which designated that director.
(h) The Companies shall cause (i) the number of directors
of each Company to be the same at all times and (ii) any person serving as a
director or a member of a committee of
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<PAGE> 30
the Board of Directors of any Company to also serve concurrently as a director
of each other Company. Each of Capital Trust and CRL shall, at all times that it
has a right to designate directors pursuant to Section 11(c)(i)(B) or (C)
hereof, have a representative on each committee of the Board of Directors of
each of the Companies unless, and only for so long as, it waives in writing such
right with respect to a specific committee.
(i) Each Shareholder agrees to vote (including by
execution of a written consent or in any other manner permitted by law and each
of the Companies' respective certificate or articles of incorporation and by
laws) all of his or its Shares over which he or it has voting control, and will
take all other necessary or desirable actions within his or its control, and the
Companies will take all necessary or desirable action within its control, to
cause (i) from and after any exercise of the Board Expansion Right, the Board of
Directors of each of the Companies to be comprised of two (2) more directors
than it is then comprised of, with the original seven (7) or nine (9), as
applicable, elected as provided in Section 11(c) hereof and two (2) additional
representatives designated by Advent International Corporation; and (ii) from
and after the effectiveness of the Class A Preferred Amendment, the Board of
Directors of each of the Companies to be comprised of not less than seven (7)
members, provided that at least seven (7) members of the Board after any
increase in the number of Board seats shall be representatives of Shareholders
(if threshold ownership percentages are met) as contemplated by subsections (A)
(for one (1) director), (B) and (C) of Section 11(c)(i), and (A), (B), (C) and
(D) of Section 11(c)(ii).
(j) The Class A Preferred Amendment shall be effected no
later than the date the Companies and each of the Shareholders engage an
investment banking firm to undertake an offering of Common Stock or similar
affirmative steps are taken by the Companies to cause a public market to exist
for the Common Stock.
12. Specific Performance. Because of the unique character of the
shares of Stock, the Companies will be irreparably damaged if this Agreement is
not specifically enforced. Should any dispute arise concerning the Transfer of
Stock, an injunction may be issued restraining any Transfer pending the
determination of such controversy. In the event of any controversy concerning
the right or obligation to Transfer any such Stock, such right or obligation
shall be enforceable in a court of equity by a decree of specific performance.
Such remedy shall be cumulative and not exclusive, and shall be in addition to
any other remedy which the Companies or the other Shareholders of the Companies
may have.
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<PAGE> 31
13. Legend. Each certificate evidencing any of the
Shares shall bear a legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of
except in accordance with and subject to all the terms and
conditions of a certain Shareholders Agreement dated as of
June 12, 1996, among the Company, certain affiliates of the
Company and their shareholders, a copy of which the Company
will furnish to the holder of this certificate upon request
and without charge."
14. Notices. All notices and other communications
hereunder shall be in writing and shall be given to the person either personally
or by sending a copy thereof by first class or express mail, postage prepaid, or
by telegram (with messenger service specified), telex or TWX (with answer back
received) or courier services, charges prepaid, or by telecopier, to such
party's address (or to such party's telex, TWX, telecopier or telephone number).
If the notice is sent by mail, it shall be deemed to have been to the person
entitled thereto five (5) business days after being deposited in the United
States mail, and if the notice is sent by telegraph or courier services, it
shall be deemed to have been given to the person entitled thereto one (1)
business day after deposited with a telegraph office or courier service for
delivery to that person or, in the case of telex, TWX or telecopy when
dispatched.
If to Holdings, to:
Kirkland Holdings L.L.C.
101 Federal Street
Boston, MA 02110
Attention: David M. Mussafer
Telecopy No.: (617)951-0566
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Julia D. Corelli, Esq.
Telecopy No.: (215)981-4750
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<PAGE> 32
If to the Management Investors or any Company (including the
Representative), to:
Kirkland's, Inc.
P.O. Box 7222
Jackson, TN 38303-7222
Attention: Carl Kirkland
Telecopy No.: (901)664-9345
With a copy to:
Baker, Donelson, Bearman & Caldwell
20th Floor
First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: Robert Walker, Esq.
Telecopy No.: (901)577-2303
If to Robert Kirkland, to:
CBK, Ltd.
600 East Sherwood
Union City, Tennessee 38261
Attention: Robert Kirkland
Telecopy No.: (901)885-3857
With a copy to:
Wyatt, Tarrant & Combs
6075 Poplar Avenue, Suite 650
Memphis, Tennessee 38119
Attention: Nash Neyland, Esquire
Telecopy No.: (901)537-1010
If to Mezzanine Warrant Holders, to:
Capital Resource Lenders II, L.P.
85 Merrimac Street
Suite 200
Boston, MA 02114
Attention: Alexander S. McGrath
Telecopy No.: (617)723-9819
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<PAGE> 33
Allied Capital Corporation
and
Allied Capital Corporation II
1666 K Street, N.W.
Suite 901
Washington, D.C. 20006
Attention: Susan Gallagher
Telecopy No.: (202)659-2053
The Marlborough Capital Investment Fund, L.P.
399 Boylston Street
Boston, MA 02116
Attention: Margaret Lanoix
Telecopy No.: (617)421-9631
Capital Trust Investments, Ltd.
575 Fifth Avenue, 40th Floor
New York, NY 10017
Attention: John P. Oswald
Telecopy No.: (212)490-6950
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Andrew E. Taylor, Jr., Esquire
Telecopy No.: (617)248-7100
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
15. Entire Agreement and Amendments. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and, except as provided in clause (i) of Section 8 hereof, neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a writing duly executed by holders of Stock having an
aggregate Common Equity Percentage of at least eighty percent (80%), and, if the
waiver, modification, amendment or termination would affect the rights or
obligations of a holder of Preferred Stock, by holders of at least eighty
percent (80%) of the aggregate stated value of the class of Preferred Stock so
affected; provided, that (i) until the termination of this Agreement pursuant to
clause (i) of Section 8 hereof, and except as otherwise provided by operation of
the terms of Section 11 hereof, the right of any Shareholder to nominate a
director in accordance with the provisions of Section 11 hereof may not be
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<PAGE> 34
modified, amended or terminated without the consent of such Shareholder, (ii)
any such waiver, amendment or modification shall affect all Shareholders equally
unless the Shareholder affected differently shall have specifically approved the
waiver, amendment or modification, and (iii) the terms and provisions of this
Section 15 shall not be modified or amended without the prior written consent of
each of the Shareholders. To the extent any term or other provision of any other
indenture, agreement or instrument by which any party hereto is bound conflicts
with this Agreement, this Agreement shall have precedence over such conflicting
term or provision. In the event Holdings dissolves, each of the members of
Holdings shall execute a Counterpart to this Agreement and shall thereafter be
deemed to be a Shareholder hereunder for all purposes of this Agreement.
16. Expenses. The Companies shall reimburse the Shareholders
for expenses incurred by them (or by the members of Holdings to the extent such
expenses are to be paid by Holdings), including the reasonable expenses of
counsel, in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement, the Operating Agreement of Holdings, and the
Agreements of Limited Partnership of CT/Kirkland Equity Partners, L.P.,
Marlborough/Kirkland Equity Partners, L.P., TCW/Kirkland Equity Partners, L.P.
and SSM/Kirkland Equity Partners, L.P., or (ii) the administration of such
entities, including the filing of tax returns and preparation of financial
reports provided that the expenses reimbursed under clause (ii) above shall not
exceed $5,000 per year.
17. Dividends. Each Company shall not allow the payment of
dividends on the Class A Preferred Stock or the Class B Preferred Stock unless
and until any and all payments required to be made by the Company under the
Management Agreements have been paid to the Management Investors and any and all
payments required to be made by the Company under the Consulting Agreement shall
have been made to Robert Kirkland.
18. Amendment to Charter. From and after the date hereof, each
Shareholder agrees to vote all of his or its shares over which he or it has
voting control, and will take all other necessary or desirable actions within
his or its control, and the Companies will take all necessary or desirable
actions within its control, in order to cause an amendment to the Companies'
charter to increase the authorized Common Stock of the Companies upon exercise
by holders of Class A Preferred Stock and/or Class B Preferred Stock of their
rights to convert such stock into shares of Common Stock.
19. Company Joinders. The Companies and Shareholders
shall cause all future companies formed in connection with the expansion of the
Companies' operations (i) to be owned either by Kirkland's, Inc. or by the
Shareholders in the same manner as
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<PAGE> 35
Group D Companies, and (ii) if owned by the Shareholders, to become parties to
this Agreement and the Registration Rights Agreement. Kirkland's specifically
agrees that it shall not transfer any of the capital stock of any such future
subsidiaries without either following the provisions of Section 4 hereof or
obtaining the prior approval of Shareholders having an aggregate Common Equity
Percentage of at least eighty percent (80%).
20. Governing Law; Successors and Assigns. This Agreement
shall be construed and enforced in accordance with Delaware law and shall be
binding upon the parties hereto and their respective successors and assigns. The
parties hereto agree that any action to enforce this Agreement may be properly
brought in any court within the State of Delaware or in the United States
District Court for the District of Delaware, and the parties hereto agree that
the courts of the State of Delaware and the United States District Court for the
District of Delaware shall have jurisdiction with respect to the subject matter
hereof and the person of the parties hereto.
21. Waivers. The failure of any party to insist upon strict
performance of any of the terms or conditions of this Agreement will not
constitute a waiver of any of its rights hereunder.
22. Severability. If any provision of this Agreement is held
illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability will not affect any other provision hereof. This Agreement
shall, in such circumstances, be deemed modified to the extent necessary to
render enforceable the provisions hereof.
23. Captions. Captions are for convenience only and are not
deemed to be part of this Agreement.
24. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Attorney's Fees. In the event of litigation of any dispute
or controversy arising from, in, under or concerning this Agreement or any
amendment hereof, including, without limiting the generality of the foregoing,
any claimed breach hereof or thereof, the prevailing party in such action shall
be entitled to recover from the other party in such action, such sum
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<PAGE> 36
as the court shall fix as reasonable attorney's fees incurred by
such prevailing party.
26. Parties Benefitted. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities.
27. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns.
[SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this
Shareholders Agreement under seal on the date first above written.
CAPITAL RESOURCE LENDERS II, L.P., by
CAPITAL RESOURCE PARTNERS II, L.P., its
General Partner
By: Robert C. Ammerman
-----------------------------------
Title: General Partner
ALLIED CAPITAL CORPORATION
By: Susan Gallagher
-----------------------------------
Title: SVP
--------------------------------
ALLIED CAPITAL CORPORATION II
By: Susan Gallagher
-----------------------------------
Title: SVP
--------------------------------
THE MARLBOROUGH CAPITAL INVESTMENT FUND,
L.P., by MARLBOROUGH CAPITAL MANAGEMENT,
L.P., its general partner,
By: /s/ Margaret Lanoix
-----------------------------------
Name: Margaret Lanoix, its authorized
partner
[EXECUTIONS CONTINUED]
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<PAGE> 38
CAPITAL TRUST INVESTMENTS, LTD.
By: John P. Oswald
-----------------------------------
Title: Attorney-in-Fact
--------------------------------
KIRKLAND HOLDINGS L.L.C.
By: David Mussafer
-----------------------------------
Title:
--------------------------------
ATTEST: KIRKLAND'S, INC.
By: /s/ Robert E. Alderson By: /s/ Carl Kirkland
-------------------------- -----------------------------------
Title: VP/Sec Title: President
----------------------- --------------------------------
[EXECUTIONS CONTINUED]
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<PAGE> 39
Corporate Name
--------------
101 Kirkland's of Carolina, Inc.
102 Kirkland's of Charlotte, Eastland Mall, Inc.
103 Kirkland's of Tennessee, Inc.
104 K. C. Corp. Inc.
107 Kirkland's of Greensboro, Four Seasons Mall, Inc.
109 Kirkland's of Fayetteville, Cross Creek Mall, Inc.
110 Kirkland's of Wilmington, Independence Mall, Inc.
111 Kirkland's III, Jackson-Metro Center, Inc.
114 Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center, Inc.
115 Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
116 Kirkland's of Knoxville, East Towne Mall, Inc.
117 Kirkland's of Huntsville, Madison Square Mall, Inc.
118 Kirkland's of Valley View Mall, Roanoke, VA, Inc.
119 Kirkland's of Nashville, Hickory Hollow Mall, Inc.
120 Kirkland's of Birmingham, Riverchase Galleria, Inc.
122 Kirkland's of BriarCliffe Mall, Myrtle Beach, South Carolina, Inc.
123 Kirkland's of Pecanland Mall, Monroe, LA, Inc.
125 Kirkland's of Towne Center at Cobb, Atlanta, GA, Inc.
126 Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
127 Kirkland's of Rivergate Mall, Nashville, TN, Inc.
128 Kirkland's of Peachtree Mall, Columbus, GA, Inc.
129 Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
130 Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
131 Kirkland's of Houston Galleria, Houston, TX, Inc.
132 Kirkland's of Mall of Memphis, Memphis, TN, Inc.
134 Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
135 Kirkland's of Dayton Mall, Dayton, OH, Inc.
136 Kirkland's of Oxmoor Center, Louisville, KY, Inc.
137 Kirkland's of South Square Mall, Durham, NC, Inc.
138 Kirkland's of Valley View Center, Dallas, TX, Inc.
139 Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
140 Kirkland's of Park Plaza, Little Rock, AR, Inc.
141 Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
142 Kirkland's of Southlake Mall, Atlanta, GA, Inc.
143 Kirkland's of Southpark Mall, Richmond, VA, Inc.
144 Kirkland's of Eastland Mall, Evansville, IN, Inc.
145 Kirkland's of Fayette Mall, Lexington, KY, Inc.
146 Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
148 Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
149 Kirkland's of McCain Mall, Little Rock, AR, Inc.
150 Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
151 Kirkland's of Bel Air Mall, Mobile, AL, Inc.
152 Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
153 Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
154 Kirkland's of Bellevue Center, Nashville, TN, Inc.
155 Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
156 Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
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<PAGE> 40
# Corporate Name
- - --------------
157 Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
158 Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
159 Kirkland's of Carolina Place, Charlotte, N.C., Inc.
160 Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
161 Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
162 Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
163 Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
164 Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
165 Kirkland's of Regency Mall, Richmond, VA, Inc.
166 Kirkland's of Florence, Florence, KY, Inc.
167 Kirkland's of Acadiana Mall, Lafayette, LA, Inc.
168 Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
169 Kirkland's of Belden Village, Canton, OH, Inc.
170 Kirkland's of West Oaks Mall, Houston, TX, Inc.
171 Kirkland's of Charleston Town Center, Charleston, W. VA, Inc.
172 Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
173 Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
174 Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
175 Kirkland's of Baybrook Mall, Houston, TX, Inc.
176 Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
178 Kirkland's of Barton Creek Mall, Austin, TX, Inc.
179 Kirkland's of Highland Mall, Austin, TX, Inc.
180 Kirkland's of Battlefield Mall, Springfield, MO, Inc.
181 Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
182 Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
183 Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
184 Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
185 Kirkland's of Oakwood Center, New Orleans, LA, Inc.
186 Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
187 Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
188 Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
189 Kirkland's of Northpark Mall, Joplin, MO, Inc.
190 Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
191 Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
192 Kirkland's of St. Charles Towne Center, Waldorf, MD Inc.
193 Kirkland's of Regency Mall, Florence, AL, Inc.
194 Kirkland's of South Plains Mall, Lubbock, TX, Inc.
195 Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
196 Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
197 Kirkland's of St. Clair Square, St. Louis, MO, Inc.
198 Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
199 Kirkland's of The Woodlands, Houston, TX, Inc.
200 Kirkland's of Brandon Town Center, Tampa, FL, Inc.
201 Kirkland's of Memorial City Mall, Houston, TX, Inc.
202 Kirkland's of University Mall, Tuscaloosa, AL, Inc.
203 Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
204 Kirkland's of Panama City Mall, Panama City, FL, Inc.
205 Kirkland's of Town East Mall, Mesquite, TX, Inc.
-37-
<PAGE> 41
# Corporate Name
- - --------------
206 Kirkland's of Kentucky Oaks Mall, Paducah, KY, Inc.
207 Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
208 Kirkland's of Oak Hollow Mall, High Point, N.C., Inc.
209 Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
210 Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
211 Kirkland's of Stratford Square, Chicago, IL, Inc.
212 Kirkland's of Orland Square, Chicago, IL, Inc.
214 Kirkland's of Coastland Mall, Naples, FL, Inc.
215 Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
216 Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
217 Kirkland's of Castleton Square, Indianapolis, IN., Inc.
218 Kirkland's of Cordova Mall, Pensacola, FL, Inc.
219 Kirkland's of University Park, South Bend, IN, Inc.
220 Kirkland's of Westgate Mall, Amarillo, TX, Inc.
221 Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
222 Kirkland's of Meridian Mall, Lansing, MI, Inc.
223 Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
224 Kirkland's of University Mall, Tampa, FL, Inc.
By: /s/ Carl Kirkland
----------------------------
Title: President
--------------------------
ATTEST:
By: /s/ Robert E. Alderson
----------------------------
Title: VP/Sec
--------------------------
-38-
<PAGE> 42
/s/ Carl Kirkland
-----------------------------
CARL KIRKLAND
/s/ Robert E. Kirkland
-----------------------------
ROBERT KIRKLAND
/s/ Robert E. Alderson
-----------------------------
ROBERT ALDERSON
/s/ Bruce Moore
-----------------------------
BRUCE MOORE
[END OF SIGNATURES]
-39-
<PAGE> 43
EXHIBIT A
TO
SHAREHOLDERS AGREEMENT
COUNTERPART
THIS INSTRUMENT forms part of the Shareholders Agreement (the
"Agreement") made as of the __th day of June, 1996, among Kirkland Holdings
L.L.C., Kirkland's, Inc., affiliates of Kirkland's, Inc., Carl Kirkland, Robert
Kirkland, Bruce Moore, Robert Alderson, Capital Resource Lenders II, L.P.,
Allied Capital Corporation, Allied Capital Corporation II, The Marlborough
Capital Investment Fund, L.P. and Capital Trust Investments, Ltd., and any
additional Shareholders of the Companies (as defined in the Agreement), from
time to time, which Agreement permits execution by counterpart. The undersigned
hereby acknowledges having received a copy of the said Agreement (which is
annexed hereto as Schedule I) and having read the said Agreement in its
entirety, and for good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, hereby agrees that the terms and conditions of the
said Agreement shall be binding upon the undersigned as a Shareholder and such
terms and conditions shall inure to the benefit of and be binding upon the
undersigned and its successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this ____ day of ___________, 199 .
_________________________________
(Signature of Shareholder)
_________________________________
(Name in block letters)
-40-
<PAGE> 1
EXHIBIT 10.14
REDEMPTION AGREEMENT
THIS REDEMPTION AGREEMENT (the "Agreement") made and entered into this
26th day of December, 1997, by and among BRUCE MOORE, a resident of the state of
North Carolina ("Moore"), KIRKLAND'S, INC., a corporation organized and existing
under the laws of the State of Tennessee ("Kirkland's") and the other
undersigned corporations hereto, each a corporation organized and existing under
the laws of the State of Tennessee (Kirkland's and such other corporations
hereinafter referred to individually as a "Corporation" and collectively the
"Corporations").
RECITALS OF FACT
Moore is the owner of the issued and outstanding Stock of the
Corporations set forth on Exhibit A attached hereto ("Shares"). Moore has served
as an employee, officer and director of the Corporations. On even date herewith,
Moore tendered his resignation as an officer and director of the Corporations
effective the later of January 7, 1998, or the date of payment in full of the
Note referenced in Paragraph 2 hereof.
Moore has determined that it is in his best interest to retire from
active business with Corporations to allow him to pursue other interests. To
accomplish this, Moore desires to realize the value of his investment in the
Corporations, and has therefore proposed to tender all of his Shares in the
Corporations for redemption at a value and upon certain terms and conditions as
hereinafter provided.
Moore and the Corporations desire to establish and confirm their
understanding with regard to that certain letter agreement dated June 12, 1996,
executed by Kirkland's and agreed to and accepted by Moore (the "Employment
Agreement"), and the continuing rights and obligations of the parties
thereunder. The Employment Agreement is attached hereto for reference as Exhibit
B.
NOW, THEREFORE, in consideration of the promises and undertaking as
herein provided, the parties hereto do covenant and agree as follows:
1. Redemption of Stock. On the date hereof, Moore has tendered and
delivered to Kirkland's, as agent for each of the Corporations, as applicable,
certificates evidencing his ownership of the Shares, properly endorsed for
redemption, which Shares constitute all of the shares of the capital stock of
the Corporations owned by Moore. By execution of this Agreement the Corporations
acknowledge receipt of such stock certificates.
2. Redemption Price and Payment. On January 7, 1998, the Corporations
will pay to Moore the aggregate sum of Six Million Eight Hundred Eighty Eight
Thousand Five Hundred Sixty Six Dollars ($6,888,566) (the "Redemption Price"),
which obligation is represented by the promissory note of the Corporations, a
copy of which is attached hereto as Exhibit C, (the "Note") which Note has been
duly executed, approved and authorized by the Corporations and this date
<PAGE> 2
delivered to Moore. By execution of this Agreement Moore acknowledges receipt of
such Note. It is specifically understood and agreed among all parties hereto
that the Redemption Price constitutes the fair market value for the Shares. The
parties agree that the Redemption Price shall be allocated among the Shares in
accordance with the Purchase Price Allocation Statement attached hereto as
Exhibit D. Each Corporation shall be liable to pay the portion of the aggregate
Redemption Price set forth on Exhibit "D" as its allocable share.
3. Payment of Redemption Price; Other Payment By Moore. The Redemption
Price will be paid via wire transfer to the financial institution designated to
the Corporations by Moore, which information Moore will provide in writing at
least five business days prior to January 7, 1998. On January 7, 1998, Moore
will pay to the Corporations $2,686.00 by check, which amount represents the
balance due on capital contributions by Moore to certain of the newer
Corporations.
4. Representations and Warranties of Moore. Moore represents and
warrants to the Corporations that Moore is the legal owner of the Shares, that
he has the full right, title, and interest to such Shares, that he has the right
and power to sell and transfer such Shares to the Corporations, and that such
Shares are unencumbered, except for a pledge by Moore to BankBoston, N.A., as
Agent in connection with the Credit Agreement dated as of June 12, 1996 , as
amended, among Kirkland's Holdings L.L.C., the Borrowers named therein
(including Kirkland's, Inc.), the Banks named therein, BankBoston, N.A., as
Administrative Agent (the "Administrative Agent"), and Lehman Commercial Paper,
Inc., as Arranger. The parties will obtain a release of such pledge of stock by
the Administrative Agent, as represented by a letter from the Administrative
Agent, to be attached hereto as Exhibit E on or before January 7, 1998. Moore
further represents and warrants to the Corporations that he has not employed any
broker or finder in connection with this transaction, and that no broker or
finders fee is due to any person in connection with this transaction. The
representations and warranties made by Moore in this paragraph shall survive the
execution of this Agreement and the closing of the transactions contemplated
herein.
5. Representations and Warranties of the Corporations. The Corporations
represent and warrant to Moore that this Agreement and the Note constitute the
valid and binding obligation of each of the Corporations, and that this
Agreement and the Note have been authorized and approved by all necessary
corporate action of each of the Corporations.
6. Rights and Obligations Under Employment Agreement. (a) Kirkland's
agrees, notwithstanding Moore's resignation of his employment under the
Employment Agreement, (i) to make a one-time compensation payment to Moore of
$259,000 on January 7, 1998, and (ii) to continue to pay to Moore only the
portion of the "Annual Salary" (as such term is defined and used in the
Employment Agreement) represented by the annual amount of $275,000, or $22,917
per month , which is payable through the term ending June 12, 2000, as provided
for in the Employment Agreement, and (iii) to pay for the benefit of Moore and
his immediate family premiums for the health, medical and hospitalization
insurance on the same basis currently provided to Moore and other Company
employees, so long as the salary payments to Moore in (ii) above are in effect.
Moore acknowledges that, except as provided in the preceding sentence, he will
receive, or be
-2-
<PAGE> 3
entitled to receive, no other compensation or benefits from the Corporations
under the Employment Agreement or otherwise.
(b) Aside from payment of the portion of the Annual Salary as
provided in Section 6(a) above, Moore hereby releases Kirkland's, and each of
the other Corporations, from any and all liabilities and obligations of the
Corporations under the Employment Agreement.
(c) Moore acknowledges and agrees that the restrictive
covenants set forth in Section 6.1 of the Employment Agreement, as well as the
other provisions of Section 6 of the Employment Agreement, (i) are incorporated
herein by reference as fully as if set out verbatim, (ii) are an ongoing and
integral element of this Agreement, and (iii) shall continue in full force and
effect until June 11, 2003, all as provided in the Employment Agreement.
7. General Release. Except for the matters in the Employment Agreement
as set forth in Paragraph 5 hereof, the payment obligation to Moore provided for
in Paragraph 2 hereof, and the survival of the representations and warranties
made by Moore in Paragraph 4 hereof, the parties hereunder each fully and
unconditionally release the other party from any and all claims, liabilities,
contracts, actions, debts, chooses in action, and any and all other matters, it
being the intent of each of the parties to grant to the other a full and
complete general release, as more particularly set forth in the General Release
executed by each of the parties and attached hereto as Collective Exhibit F.
Each of the parties by execution of this Agreement acknowledges receipt of each
of such General Releases.
8. Other Documents. The parties agree to execute and deliver all such
other and further documents, instruments and papers as may reasonably be deemed
necessary or advisable to carry out the intent and purpose of this Redemption
Agreement.
9. Binding Effect. The terms and conditions of this Redemption
Agreement are binding upon and shall inure to the benefit of the parties hereto,
their heirs, executors, administrators, successors and assigns.
10. Controlling Law. This Agreement shall be construed and enforced in
accordance with Tennessee law, without regard to conflicts of laws principles.
In the event of any subsequent question or dispute as to the meaning of any
provision herein, the laws of the State of Tennessee, shall be relied upon to
resolve such question.
11. Entire Agreement. This document contains the entire agreement among
the parties, and any amendments or alterations hereof or additions hereto shall
be of no force or effect whatsoever unless in writing and signed by all the
parties.
12. Exhibits. The Exhibits attached hereto and referenced herein are
incorporated into this Agreement by such references.
-3-
<PAGE> 4
13. Severability. If any provisions of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity or unenforceability will
not affect any other provisions hereof.
IN WITNESS WHEREOF, the parties have signed this Redemption Agreement,
or caused this Redemption Agreement to be executed by their duly authorized
representative, as of the date first written above.
/s/ Bruce Moore
------------------------------------------------------------------
Bruce Moore
/s/ Carl Kirkland
------------------------------------------------------------------
Carl Kirkland, President and Chief Executive Officer
of each of the companies listed below
Kirkland's, Inc.
Kirkland's of Pecanland Mall, Monroe, LA, Inc.
Kirkland's of Town Center at Cobb, Atlanta, GA, Inc.
Kirkland's of Gwinnett Place, Atlanta, GA, Inc.
Kirkland's of Peachtree Mall, Columbus, GA, Inc.
Kirkland's of Cumberland Mall, Atlanta, GA, Inc.
Kirkland's of Hamilton Place Mall, Chattanooga, TN, Inc.
Kirkland's of Houston Galleria, Houston, TX, Inc.
Kirkland's of Mall of Memphis, Memphis, TN, Inc.
Kirkland's of Woodland Hills Mall, Tulsa, OK, Inc.
Kirkland's of Dayton Mall, Dayton, OH, Inc.
Kirkland's of Oxmoor Center, Louisville, KY, Inc.
Kirkland's of South Square Mall, Durham, NC, Inc.
Kirkland's of Valley View Center, Dallas, TX, Inc.
Kirkland's of Chesterfield Towne Center, Richmond, VA, Inc.
Kirkland's of Park Plaza Mall, Little Rock, AR, Inc.
Kirkland's of Montgomery Mall, Montgomery, AL, Inc.
Kirkland's of Southlake Mall, Atlanta, GA, Inc.
Kirkland's of Southpark Mall, Richmond, VA, Inc.
Kirkland's of Eastland Mall, Evansville, IN, Inc.
Kirkland's of Fayette Mall, Lexington, KY, Inc.
Kirkland's of Hickory Ridge Mall, Memphis, TN, Inc.
Kirkland's of Regency Square Mall, Jacksonville, FL, Inc.
Kirkland's of McCain Mall, Little Rock, AR, Inc.
Kirkland's of River Ridge Mall, Lynchburg, VA, Inc.
Kirkland's of Bel Air Mall, Mobile, AL, Inc.
Kirkland's of The Mall at Barnes Crossing, Tupelo, MS, Inc.
Kirkland's of Cortana Mall, Baton Rouge, LA, Inc.
Kirkland's of Bellevue Center, Nashville, TN, Inc.
Kirkland's of Tri-County Mall, Cincinnati, OH, Inc.
Kirkland's of The Mall of the Avenues, Jacksonville, FL, Inc.
Kirkland's of Eastwood Mall, Birmingham, AL, Inc.
-4-
<PAGE> 5
Kirkland's of Lakeside Mall, New Orleans, LA, Inc.
Kirkland's of Carolina Place, Charlotte, N.C., Inc.
Kirkland's of Cary Village Mall, Raleigh, N.C., Inc.
Kirkland's of Cool Springs Galleria, Nashville, TN, Inc.
Kirkland's of Kenwood Towne Centre, Cincinnati, OH, Inc.
Kirkland's of St. Louis Galleria, St. Louis, MO, Inc.
Kirkland's of Wiregrass Commons Mall, Dothan, AL, Inc.
Kirkland's of Regency Mall, Richmond, VA, Inc.
Kirkland's of Florence Mall, Florence, KY, Inc.
Kirkland's of Acadiana Mall, Lafayette, LA., Inc.
Kirkland's of Padre Staples Mall, Corpus Christi, TX, Inc.
Kirkland's of Belden Village, Canton, OH, Inc.
Kirkland's of West Oaks Mall, Houston, TX, Inc.
Kirkland's of Charleston Town Center, Charleston, W. VA, Inc.
Kirkland's of Crestwood Plaza, St. Louis, MO, Inc.
Kirkland's of White Marsh Mall, Baltimore, MD, Inc.
Kirkland's of Collin Creek Mall, Dallas, TX, Inc.
Kirkland's of Baybrook Mall, Houston, TX, Inc.
Kirkland's of Governor's Square Mall, Tallahassee, FL, Inc.
Kirkland's of Barton Creek Mall, Austin, TX, Inc.
Kirkland's of Highland Mall, Austin, TX, Inc.
Kirkland's of Battlefield Mall, Springfield, MO, Inc.
Kirkland's of Penn Square Mall, Oklahoma City, OK, Inc.
Kirkland's of Oak Park Mall, Kansas City, KS, Inc.
Kirkland's of Mall St. Vincent, Shreveport, LA, Inc.
Kirkland's of Owings Mills Mall, Baltimore, MD, Inc.
Kirkland's of Oakwood Center, New Orleans, LA, Inc.
Kirkland's of The Mall at Johnson City, Johnson City, TN, Inc.
Kirkland's of Glenbrook Mall, Ft. Wayne, IN, Inc.
Kirkland's of North Pointe Mall, Atlanta, GA, Inc.
Kirkland's of Northpark Mall, Joplin, MO, Inc.
Kirkland's of Orlando Fashion Square, Orlando, FL, Inc.
Kirkland's of The Mall at Fairfield Commons, Dayton, OH, Inc.
Kirkland's of St. Charles Towne Center, Waldorf, MD, Inc.
Kirkland's of Regency Mall, Florence, AL, Inc.
Kirkland's of South Plains Mall, Lubbock, TX, Inc.
Kirkland's of The Parks at Arlington, Ft. Worth, TX, Inc.
Kirkland's of Parma Town Mall, Cleveland, OH, Inc.
Kirkland's of St. Clair Square, St. Louis, MO, Inc.
Kirkland's of Turtle Creek Mall, Hattiesburg, MS, Inc.
Kirkland's of The Woodlands, Houston, TX, Inc.
Kirkland's of Brandon Town Center, Tampa, FL, Inc.
Kirkland's of Memorial City Mall, Houston, TX, Inc.
Kirkland's of University Mall, Tuscaloosa, AL, Inc.
Kirkland's of Santa Rosa Mall, Fort Walton, FL, Inc.
Kirkland's of Panama City Mall, Panama City, FL, Inc.
Kirkland's of Town East Mall, Mesquite, TX, Inc.
Kirkland's of Kentucky Oaks Mall, Paducah, Ky, Inc.
Kirkland's of Crabtree Valley Mall, Raleigh, N.C., Inc.
Kirkland's of Oak Hollow Mall, Highpoint, N. C., Inc.
-5-
<PAGE> 6
Kirkland's of Fox Valley Mall, Chicago, IL, Inc.
Kirkland's of Hawthorne Mall, Chicago, IL, Inc.
Kirkland's of Stratford Square, Chicago, IL, Inc.
Kirkland's of Orland Square, Chicago, IL, Inc.
Kirkland's of Coastland Mall, Naples, FL, Inc.
Kirkland's of Carolina, Inc.
Kirkland's of Charlotte, Eastland Mall, Inc.
Kirkland's of Tennessee, Inc.
K. C. Corp., Inc.
Kirkland's of Greensboro, Four Seasons Mall, Inc.
Kirkland's of Fayetteville, Cross Creek Mall, Inc.
Kirkland's of Wilmington, Independence Mall, Inc.
Kirkland's III, Jackson-Metro Center, Inc.
Kirkland's of Memphis, Tennessee, Laurelwood Shopping Center, Inc.
Kirkland's of Ridgeland, Mississippi, Northpark Mall, Inc.
Kirkland's of Knoxville, East Towne Mall, Inc.
Kirkland's of Huntsville, Madison Square Mall, Inc.
Kirkland's of Valley View Mall, Roanoke, VA, Inc.
Kirkland's of Nashville, Hickory Hollow Mall, Inc.
Kirkland's of Birmingham, Riverchase Galleria, Inc.
Kirkland's of Briar Cliffe Mall, Myrtle Beach, South Carolina, Inc.
Kirkland's of Rivergate Mall, Nashville, TN, Inc.
Kirkland's of Edgewater Mall, Biloxi, MS, Inc.
Kirkland's of Town Center Plaza, Kansas City, KS, Inc.
Kirkland's of Castleton Square, Indianapolis, IN., Inc.
Kirkland's of Cordova Mall, Pensacola, FL, Inc.
Kirkland's of University Park, South Bend, IN, Inc.
Kirkland's of Westgate Mall, Spartanburg, SC, Inc.
Kirkland's of Westgate mall, Amarillo, TX, Inc.
Kirkland's of Meridian Mall, Lansing, MI, Inc.
Kirkland's of Cottonwood Mall, Albuquerque, NM, Inc.
Kirkland's of University Mall, Tampa, FL, Inc.
Kirkland's of Northwest Arkansas Mall, Fayetteville, AR, Inc.
Kirkland's of Indian River Mall, Vero Beach, FL, Inc.
Kirkland's of Tyrone Square, St. Petersburg, FL, Inc.
Kirkland's of Northgate Mall, Cincinnati, OH, Inc.
Kirkland's of West Oaks Mall, Orlando, FL, Inc.
Kirkland's of Park City Center, Lancaster, PA, Inc.
Kirkland's of Northpark Mall, Davenport, IA, Inc.
Kirkland's of Perimeter Mall, Atlanta, GA, Inc.
Kirkland's of Wolfchase Galleria, Memphis, TN, Inc.
Kirkland's of Lindale Mall, Cedar Rapids, IA, Inc.
Kirkland's of Coronado Mall, Albuquerque, NM, Inc.
Kirkland's of Willowbrook Mall, Houston, TX, Inc.
-6-
<PAGE> 7
Exhibit A
Shares of Stock
<TABLE>
<CAPTION>
Corporation Shares Class of Stock Certificate
----------- ------ -------------- -----------
<S> <C> <C> <C>
Group A and B 7,250 Common 4
Companies (Voting)
650 Common 1
(Non-Voting)
7,900 Class B 3
Preferred
2,878 Class C 3
Preferred
Group C 7,900 Common 1
Companies (Non-Voting)
3,000 Class B 3
Preferred
(Voting)
4,900 Class B 1
Preferred
(Non-Voting)
Group D 7,900 Common 4
Companies (Voting)
7,900 Class B 3
Preferred
Group E 79 Common 4
Companies
</TABLE>
The listing of Group A, B, C, D, and E Companies begins on the next page (A-2).
A-1
<PAGE> 1
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-1 of our report dated February 13, 1998
(except for Note 8 which is as of April 27, 1998) relating to the combined
financial statements of Kirkland's, Inc. and Affiliates, which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Combined Financial Data" in such Prospectus. However,
it should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Combined Financial Data."
PRICE WATERHOUSE LLP
Memphis, Tennessee
April 28, 1998
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Kirkland's Inc., and Affiliates:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Experts" and "Selected Combined Financial Data" in the
Prospectus.
KPMG Peat Marwick LLP
Memphis, Tennessee
April 28, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 112,035
<TOTAL-REVENUES> 112,035
<CGS> 68,835
<TOTAL-COSTS> 68,835
<OTHER-EXPENSES> 40,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,415
<INCOME-PRETAX> 1,688
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,688
<EPS-PRIMARY> 16,880
<EPS-DILUTED> 16,880
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,228
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,985
<CURRENT-ASSETS> 29,587
<PP&E> 25,211
<DEPRECIATION> 14,598
<TOTAL-ASSETS> 45,636
<CURRENT-LIABILITIES> 12,414
<BONDS> 89,041
46,836
0
<COMMON> 235
<OTHER-SE> (102,890)
<TOTAL-LIABILITY-AND-EQUITY> 45,636
<SALES> 127,946
<TOTAL-REVENUES> 127,946
<CGS> 80,438
<TOTAL-COSTS> 80,438
<OTHER-EXPENSES> 31,958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,294
<INCOME-PRETAX> 9,256
<INCOME-TAX> 2,693
<INCOME-CONTINUING> 6,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,563
<EPS-PRIMARY> 76.18
<EPS-DILUTED> 67.47
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,881
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,036
<CURRENT-ASSETS> 32,518
<PP&E> 29,303
<DEPRECIATION> 16,408
<TOTAL-ASSETS> 49,884
<CURRENT-LIABILITIES> 16,726
<BONDS> 85,055
50,591
0
<COMMON> 210
<OTHER-SE> (102,698)
<TOTAL-LIABILITY-AND-EQUITY> 49,884
<SALES> 153,584
<TOTAL-REVENUES> 153,584
<CGS> 96,998
<TOTAL-COSTS> 96,998
<OTHER-EXPENSES> 39,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,179
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
0
<COMMON> 0
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<NET-INCOME> (2,364)
<EPS-PRIMARY> (33.03)
<EPS-DILUTED> (33.03)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> MAR-31-1998
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<PP&E> 30,206
<DEPRECIATION> 17,312
<TOTAL-ASSETS> 44,596
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47,584
0
<COMMON> 203
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<NET-INCOME> (2,158)
<EPS-PRIMARY> (34.04)
<EPS-DILUTED> (34.04)
</TABLE>
