<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1998
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NBC ACQUISITION CORP.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6719 47-0793347
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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4700 SOUTH 19TH STREET
LINCOLN, NE 68501-0529
(402) 421-7300
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
MARK W. OPPEGARD
4700 SOUTH 19TH STREET
LINCOLN, NE 68501-0529
(402) 421-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
MITCHELL S. FISHMAN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
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APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
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10 3/4% Senior Discount
Debentures due 2009........ $76,000,000 59.207%(1) $43,422,600(1) $12,809.67(2)
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(1) Plus accreted original issue discount, if any, from the Issue Date.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
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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.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 19, 1998
NBC ACQUISITION CORP.
[LOGO]
OFFER TO EXCHANGE ITS 10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009 WHICH HAVE
BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED.
NBC Acquisition Corp., a Delaware corporation ("Holdings"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange its 10 3/4%
Senior Discount Debentures due 2009 (the "Exchange Debentures") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus
constitutes a part, for any and all outstanding 10 3/4% Senior Discount
Debentures due 2009 (the "Initial Debentures," and, together with the Exchange
Debentures, the "Debentures"), of which $76,000,000 principal amount is
outstanding. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Initial Debentures being tendered for exchange. However, the
Exchange Offer is subject to the absence of certain conditions which may be
waived by Holdings. See "The Exchange Offer -- Certain Conditions to the
Exchange Offer." Subject to the absence or waiver of such conditions, Holdings
will accept for exchange any and all Initial Debentures validly tendered on or
prior to 5:00 p.m., New York City time, on , 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Initial Debentures may be
tendered only in integral multiples of $1,000. The date of acceptance and
exchange of the Initial Debentures (the "Exchange Date") will be the fourth
business day following the Expiration Date, unless an earlier date is selected
by Holdings. Initial Debentures tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. The Exchange Debentures will be
issued and delivered promptly after the Exchange Date.
The terms of the Exchange Debentures are identical in all material respects
to the terms of the Initial Debentures, except that the Exchange Debentures have
been registered under the Securities Act and are generally freely transferable
by holders thereof and are issued without any covenant upon Holdings regarding
registration under the Securities Act. See "The Exchange Offer -- Resale of
Exchange Debentures." The Exchange Debentures will evidence the same debt as the
Initial Debentures and will be issued under and be entitled to the benefits of
the Indenture (as defined). For a complete description of the terms of the
Exchange Debentures, see "Description of Debentures." There will be no cash
proceeds to Holdings from this Exchange Offer.
The Exchange Debentures are unsecured senior obligations of Holdings and
will rank pari passu in right of payment with all existing and future Senior
Indebtedness (as defined) of Holdings, including Holdings' guarantee of
indebtedness under the Credit Facilities (as defined). The obligations of
Holdings' only subsidiary, Nebraska Book Company, Inc. ("Nebraska Book") under
the Credit Facilities are secured by a first priority lien on substantially all
of Nebraska Book's tangible and intangible assets. As of December 31, 1997, on a
pro forma basis, Holdings would have had no indebtedness outstanding on a
stand-alone basis (other than the Debentures and Holdings' guarantee of the
Credit Facilities) and the outstanding indebtedness of Nebraska Book would have
been $170.6 million (exclusive of unused commitments), and Holdings had no
indebtedness that was subordinate or junior in right of repayment to the
indebtedness represented by the Debentures. Upon the occurrence of a Change of
Control (as defined), each holder will have the right to require Holdings to
make an offer to repurchase all of the outstanding Debentures at a price equal
to 101% of the Accreted Value (as defined) thereof, together with accrued and
unpaid interest, if any, to the date of repurchase. There can be no assurance,
however, that in the event of a Change in Control, Holdings will have, or will
have access to, sufficient funds to repurchase the Debentures.
The Initial Debentures were originally issued and sold on February 13, 1998,
in a transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act. Accordingly, the
Initial Debentures may not be reoffered, resold, or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. Based upon interpretations by the staff of the Securities and
Exchange Commission (the "SEC") issued to third parties, Holdings believes that
Exchange Debentures issued pursuant to the Exchange Offer in exchange for
Initial Debentures may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is a broker-dealer or an
"affiliate" of Holdings within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Debentures are acquired in the
ordinary course of business and such holders have no arrangement with any person
to participate in the distribution of such Exchange Debentures.
Each broker-dealer that receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Debentures. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Debentures received in exchange for Initial Debentures
where such Initial Debentures were acquired by such broker-dealer as a result of
market-making activities or other trading activities. See "The Exchange
Offer -- Resale of Exchange Debentures." Holdings has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Exchange Debentures will constitute a new issue of securities with no
established trading market. Holdings does not intend to list any Debentures on a
national securities exchange or to apply for quotation of any Debentures through
the National Association of Securities Dealers Automated Quotation System. Any
Initial Debentures not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Initial Debentures are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Initial Debentures could be adversely affected. Following
consummation of the Exchange Offer, the holders of Initial Debentures will
continue to be subject to the existing restrictions on transfers thereof, and
Holdings will have no further obligation to such holders to provide for the
registration under the Securities Act of the Initial Debentures held by them. No
assurance can be given as to the liquidity of the trading market for either the
Initial Debentures or the Exchange Debentures.
SEE "RISK FACTORS" ON THE BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE EXCHANGE DEBENTURES.
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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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "USE OF PROCEEDS," "CAPITALIZATION,"
"SUMMARY," "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON
ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH ESTIMATES WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL
RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED
COMPETITION; (2) ABILITY TO INTEGRATE RECENT ACQUISITIONS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL;
(5) INABILITY TO PURCHASE A SUFFICIENT SUPPLY OF USED TEXTBOOKS; (6) CHANGES IN
PRICING OF NEW AND/OR USED TEXTBOOKS; AND (7) CHANGES IN GENERAL ECONOMIC
CONDITIONS AND/OR IN THE MARKETS IN WHICH THE COMPANY COMPETES OR MAY, FROM TIME
TO TIME, COMPETE. MANY OF SUCH FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK
FACTORS."
TRADEMARK NOTICE
THE NAMES, LOGOS AND INSIGNIAS OF THE COLLEGES AND UNIVERSITIES PRINTED
HEREIN ARE TRADEMARKS AND SERVICE MARKS OF SUCH INSTITUTIONS, AND SUCH
INSTITUTIONS HAVE NOT SPONSORED, ENDORSED OR PASSED ON THE MERITS OF THIS
OFFERING OR THE SECURITIES OFFERED HEREBY. NO AFFILIATION, CONNECTION OR
ASSOCIATION BETWEEN SUCH INSTITUTIONS AND THE COMPANY OR THE SECURITIES OFFERED
HEREBY IS INTENDED OR SHOULD BE INFERRED.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus. All references in this Prospectus to "Holdings" or the "Company"
mean NBC Acquisition Corp. or NBC Acquisition Corp. together with its
subsidiaries, as applicable, and references to "Nebraska Book" mean Nebraska
Book Company, Inc. Unless otherwise indicated, references to the business of the
Company and Nebraska Book include (i) the business of Collegiate Stores
Corporation ("CSC"), a centralized buying service for college bookstores
acquired in January 1998, and (ii) the operations of Specialty Books, Inc.
("Specialty Books"), a provider of distance education materials acquired in May
1997, and South Carolina Bookstore, Inc. ("SCB"), a company owning and operating
four bookstores in the southeastern United States acquired in November 1997 (the
acquisitions of Specialty Books and SCB are collectively referred to as the
"Acquisitions"). Unless otherwise noted, all market data presented in this
Prospectus is based on the Company's research and estimates and all financial
information presented for wholesale, college bookstores and services operations
includes intercompany sales. References herein to "fiscal year" or "fiscal"
refer to the Company's financial reporting years ending on March 31 in each
calendar year.
THE COMPANY
Nebraska Book is one of the largest wholesale distributors of used college
textbooks in North America, offering approximately 90,000 textbook titles and
selling more than 7.1 million books annually at approximately 2,000 college
campuses. In addition, Nebraska Book owns or manages 54 bookstores on or
adjacent to college campuses through which it sells a variety of new and used
textbooks and general merchandise. Nebraska Book also distributes new textbooks
to college bookstores and is a leading provider of distance education materials
to students in nontraditional courses, which include correspondence and
corporate education courses. Furthermore, Nebraska Book provides the college
bookstore industry with a variety of services including in-store promotions,
buying programs, marketing services and proprietary information systems. With
origins dating to 1915, Nebraska Book has built a consistent reputation for
excellence in order fulfillment, shipping performance and customer service. On a
pro forma basis, for the twelve months ended December 31, 1997, the Company's
revenues and EBITDA (as defined) would have been $209.2 million and $28.2
million, respectively.
According to the National Association of College Stores, in the academic
year 1995-1996 approximately 4,600 college stores generated a total of $7.9
billion in annual sales to college students and other consumers in North
America. Sales of textbooks and other educational materials used for classroom
instruction comprised approximately 64% of this amount. The Company expects this
market will grow as a result of anticipated increases in enrollment at U.S.
colleges. The National Center for Education Statistics estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
Sales of textbooks to college stores have grown at a compound annual rate
of 5.4% from $2.3 billion in sales in 1990 to $3.0 billion in 1995, as estimated
by Cowles/Simba Information Inc., a market research firm. Over the same period,
Cowles/Simba Information Inc. estimated that sales of used textbooks have grown
at a compound annual rate of 12.7%, increasing their share of all textbook sales
from 20% in 1990 to 28% in 1995. The Company believes that sales of used
textbooks will continue to grow because used textbooks provide students with a
lower-cost alternative to new textbooks, and because bookstores typically
achieve higher margins through the sale of used rather than new textbooks.
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The Company considers itself well positioned to capitalize on these
opportunities because of its leading market position, its strong customer
relationships, its broad product and service offerings and its superior order
fulfillment capabilities. These factors have also contributed to the strong,
stable growth of Nebraska Book. The following chart illustrates Nebraska Book's
consistent revenue growth over the last 20 fiscal years, even during economic
downturns, resulting in a compound annual growth rate of over 10%.
[FISCAL YEARS SALES GRAPH]
WHOLESALE. The Company is one of the largest wholesale distributors of used
college textbooks in North America. Its wholesale operations consist primarily
of selling used textbooks to college bookstores, buying them back from students
or college bookstores at the end of each school semester and then reselling them
to college bookstores. The Company purchases used textbooks from and resells
them to college bookstores at many of the nation's largest college campuses,
including: University of Texas, University of Southern California, Indiana
University, University of Florida, University of Arizona, Brigham Young
University, University of Washington and University of Minnesota. Historically,
because the demand for used textbooks has consistently outpaced supply, the
Company's wholesale sales have been determined primarily by the amount of used
textbooks that it could purchase. The Company's strong relationships with the
management of approximately 2,000 independently-owned college bookstores have
provided important access to valuable market information regarding the
campus-by-campus supply and demand of textbooks, as well as an ability to
procure large quantities of a wide variety of textbooks. The Company provides a
proprietary Buyer's Guide to its customers, which lists over 36,000 textbook
titles with such details as author, new copy retail price and the Company's
repurchase price. With the January 1998 acquisition of CSC, the Company intends
to significantly expand its wholesale distribution of new textbooks.
COLLEGE BOOKSTORES. College bookstores are the primary outlets for sales of
new and used textbooks to students. The Company operates 54 college bookstores
on or adjacent to college campuses of which eight are managed by the Company at
institution-owned stores (i.e., contract-managed). Its college bookstores are
located at some of the nation's largest college campuses including: University
of Nebraska, University of Michigan, University of Maryland, Arizona State
University, Pennsylvania State University, University of Kansas, Cornell
University, Baylor University, Oklahoma State University, University of
Tennessee and Ohio University. In addition to generating profits, the Company's
college bookstore operations provide an exclusive source of used textbooks for
sale across the Company's wholesale distribution network. The Company generally
focuses its college bookstore operations at colleges where the Company otherwise
would not have a significant representation.
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SERVICES. In the last year, the Company has completed two acquisitions
representing new initiatives for it in the college bookstore industry. In
January 1998, the Company acquired CSC, a centralized buying service for over
500 college bookstores across the United States. Through the enhanced purchasing
power of such a large group of bookstores, participating bookstores are able to
purchase certain books and general merchandise at lower prices than those that
would be paid by the stores individually. CSC also provides the Company with
increased contact with bookstores from which the Company will seek to source
additional used textbooks. With its acquisition of Specialty Books in May 1997,
the Company entered the distance education market, which consists of providing
education materials to students in nontraditional college and other courses
(such as correspondence courses, continuing and corporate education courses and
courses offered through electronic media such as the Internet). Other services
offered to college bookstores include the sale of computer hardware and
software, such as the Company's turnkey bookstore management software, and
related maintenance contracts. These services generate revenue and assist the
Company in enhancing and developing customer relationships.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading provider
of products and services to the college bookstore market, thereby increasing
revenue and cash flow. In order to accomplish its goal, the Company intends to
pursue the following strategies:
ENHANCE GROWTH IN WHOLESALE OPERATIONS. The Company expects the stable
growth of its wholesale operations to continue, primarily as a result of an
expected increase in college enrollments and increased utilization of used
textbooks, as well as the expansion of its own college bookstore network. The
Company's enhanced presence as a distributor of new textbooks (resulting from
its CSC acquisition) is also expected to positively impact the Company's
wholesale operations.
CAPITALIZE ON COLLEGE BOOKSTORE OPPORTUNITIES. The Company intends to
expand sales for its college bookstore operations by acquiring and opening
bookstores at selected college campuses, increasing its contract-managed store
base and offering additional specialty products and services at its existing
bookstores. The Company also believes there are significant opportunities to
improve cash flow at its college bookstores by reducing certain selling, general
and administrative expenses and by realizing economies of scale through
increased purchasing power for textbooks and general merchandise as a result of
its affiliation with CSC.
PURSUE ADDITIONAL GROWTH OPPORTUNITIES. The Company intends to aggressively
pursue selected growth opportunities in several related markets, including:
- Complementary Services. The Company believes that its acquisition of
CSC will greatly enhance the Company's sales and marketing capabilities,
bolstering growth and positioning the Company as a dominant full-service
provider within the college bookstore industry, by increasing its sources
of used textbooks and providing access to CSC's marketing programs and
capabilities.
- Distance Education. The distance education market is growing due to
the increased popularity of correspondence courses, continuing and
corporate education courses and courses offered through electronic media
such as the Internet. Through its acquisition of Specialty Books, the
Company believes that it is well positioned to take advantage of this
growth trend.
MANAGEMENT AND OWNERSHIP
The Company's seven senior managers, led by Mark W. Oppegard, President,
have an average of over 28 years of diverse experience in the college bookstore
industry (of which an average of 22 years has been with Nebraska Book), as well
as experience in managing within the constraints of a leveraged capital
structure. Their experience within the college bookstore industry equips them
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with superior knowledge of the Company's business, thereby enabling them to
effectively manage the business and to position the Company to capitalize on
opportunities within the industry. These senior executive officers reinvested an
aggregate of approximately $4.3 million in Holdings as part of the
Recapitalization (as defined), which gave them ownership of approximately 8.6%
of the common stock of Holdings ("Holdings Common Stock").
Haas Wheat & Partners Incorporated ("Haas Wheat") and its predecessors and
affiliates have been engaged in the merchant banking and buyout business for 14
years, and have completed over $7 billion of transactions. Robert B. Haas and
Douglas D. Wheat are the managing officers of Haas Wheat, which is based in
Dallas, Texas. Haas Wheat manages an investment partnership, HWH Capital
Partners, L.P. ("HWH"), which is comprised of limited partners who are
experienced investors in the buyout industry.
THE RECAPITALIZATION
Effective September 1, 1995, Nebraska Book was acquired in a leveraged
buyout by Holdings, a corporation owned by investment partnerships affiliated
with Olympus Advisory Partners, Inc. ("Olympus") and certain other investors
(the "1995 Transaction"). The 1995 Transaction was accounted for as a purchase
business combination.
Pursuant to a Merger Agreement (the "Merger Agreement") dated January 6,
1998 among Holdings, certain shareholders of Holdings, including members of
senior management, and NBC Merger Corp., a newly created, indirect wholly-owned
subsidiary of HWH ("Mergerco"), Mergerco merged with and into Holdings (the
"Merger") with Holdings as the surviving corporation. The Merger Agreement
contains customary representations, warranties, covenants and closing
conditions. As a result of the Merger, which occurred on February 13, 1998,
certain stockholders of Holdings received a total of approximately $165.1
million. In addition, upon the consummation of the Merger, Nebraska Book repaid
approximately $82.1 million of outstanding indebtedness.
Concurrently with the consummation of the Recapitalization, Nebraska Book
entered into a senior secured credit agreement (the "Credit Agreement") with The
Chase Manhattan Bank ("Chase"), as administrative agent, and other lenders
providing for the following facilities (the "Credit Facilities"): (i) a $50.0
million revolving credit facility maturing on March 31, 2004 which was undrawn
at closing (the "Revolving Credit Facility"); (ii) a $27.5 million tranche A
term loan, maturing on March 31, 2004 (the "Tranche A Term Loan"); and (iii) a
$32.5 million tranche B term loan, maturing on March 31, 2006 (the "Tranche B
Term Loan" and, together with the Tranche A Term Loan, the "Term Loans"). In
addition, Nebraska Book also raised approximately $103.6 million from the
issuance of the Senior Subordinated Notes. Holdings raised a total of $91.6
million, which it contributed to Nebraska Book as equity (the "Equity
Contribution"), through: (i) the sale of approximately $45.7 million of Holdings
Common Stock to HWH; (ii) the reinvestment of approximately $4.3 million in
Holdings Common Stock by the Company's senior management; and (iii) net proceeds
of approximately $41.6 million from the issuance of the Debentures offered
hereby.
The Merger, the acquisition of CSC, the repayment of substantially all of
Nebraska Book's outstanding indebtedness, the Equity Contribution, the issuance
by Nebraska Book of the Senior Subordinated Notes, Nebraska Book's borrowings
under the Credit Facilities and the application of all proceeds thereof are
collectively referred to as the "Recapitalization."
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The following table sets forth the sources and uses of funds in connection
with the Recapitalization, as if the closing of the Recapitalization had
occurred on December 31, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
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Sources:
Credit Facilities:
Revolving Credit Facility(1).............................. $ --
Tranche A Term Loans...................................... 27,500
Tranche B Term Loans...................................... 32,500
Senior Subordinated Notes due 2008(2)....................... 110,000
Holdings Senior Discount Debentures due 2009................ 45,000
Holdings Common Stock(3).................................... 50,000
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Total sources of funds............................ $ 265,000
=========
Uses:
Purchase of common stock(4)................................. $ 138,926
Repayment of existing indebtedness(5)....................... 106,074
Payment of fees and expenses................................ 15,490
Excess cash................................................. 4,510
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Total uses of funds............................... $ 265,000
=========
</TABLE>
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(1) Total borrowings of up to $50.0 million under the Revolving Credit Facility
are available, subject to borrowing base limitations, for working capital
and general corporate purposes. At December 31, 1997, on a pro forma basis
after giving effect to the Recapitalization, Nebraska Book believes that it
would have had the ability to borrow the full amount under the Revolving
Credit Facility. See "Description of Other Indebtedness."
(2) As part of the Recapitalization, Nebraska Book issued (the "Subordinated
Notes Offering") $110.0 million aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2008.
(3) HWH invested approximately $45.7 million and senior management of the
Company reinvested approximately $4.3 million in Holdings Common Stock.
(4) The actual payment to stockholders was $165.1 million, which reflected the
actual amount of debt as of the closing date. The amount of debt is impacted
by various factors including seasonality of the Company's operations.
Immediately prior to the closing of the Recapitalization, there were no
amounts outstanding under Nebraska Book's revolving credit facility.
(5) Includes $2.3 million of discount on the Nebraska Book's existing
subordinated notes. See "Capitalization."
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THE EXCHANGE OFFER
The Exchange Offer......... Holdings is offering to exchange pursuant to the
Exchange Offer up to $76,000,000 aggregate
principal amount of the Exchange Debentures for any
and all of its outstanding Initial Debentures. The
terms of the Exchange Debentures are identical in
all material respects (including principal amount,
interest rate and maturity) to the terms of the
Initial Debentures for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Debentures have been registered under the
Securities Act and are freely transferrable by
holders thereof (other than as provided herein),
and are not subject to any covenant regarding
registration under the Securities Act. See "The
Exchange Offer."
Expiration Date; Withdrawal
of Tender.................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the
Exchange Offer is extended by Holdings, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extension; Termination; Amendment." Tenders
may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See
"The Exchange Offer -- Withdrawal Rights."
Interest Payments.......... Interest on the Exchange Debentures shall accrue
from the last interest payment date (February 15 or
August 15, each an "Interest Payment Date") on
which interest was paid on the Initial Debentures
so surrendered or, if no interest has been paid on
such Initial Debentures, from February 13, 1998.
No Minimum Condition....... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial
Debentures being tendered for exchange.
Exchange Date.............. The date of acceptance and exchange (the "Exchange
Date") of the Initial Debentures will be the fourth
business day following the Expiration Date, unless
an earlier date is selected by Holdings and
Holdings notifies the Exchange Agent (as defined)
of such earlier date.
Conditions to the Exchange
Offer.................... Holdings shall not be required to accept for
exchange, or to issue Exchange Debentures in
exchange for, any Initial Debentures and may
terminate or amend the Exchange Offer, if any of
certain customary conditions exist, the occurrence
of which may be waived by Holdings. Holdings
currently expects that each of the conditions will
be satisfied and that no waivers will be necessary.
See "The Exchange Offer -- Certain Conditions to
the Exchange Offer."
Procedures for Tendering
Initial Debentures....... Each holder of Initial Debentures wishing to tender
such debentures must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Initial Debentures and any other required
documentation to the Exchange Agent at the address
set forth in the Letter of Transmittal. See "The
6
<PAGE> 10
Exchange Offer -- Procedures for Tendering Initial
Debentures" and "Plan of Distribution."
Use of Proceeds............ There will be no proceeds to Holdings from the
exchange of Debentures pursuant to the Exchange
Offer. For a discussion of the use of the net
proceeds received by Holdings from the issuance of
the Initial Debentures see "Use of Proceeds."
Federal Income Tax
Consequences............. In the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to Holdings, the exchange
pursuant to the Exchange Offer will not be a
taxable event for federal income tax purposes, and
the holder will not recognize any taxable gain or
loss as a result of the exchange. See "Certain
Federal Income Tax Considerations."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Initial Debentures are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering the Initial
Debentures, either make appropriate arrangements to
register ownership of the Initial Debentures in
such beneficial owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering Initial
Debentures."
Guaranteed Delivery
Procedures............... Holders of Initial Debentures who wish to tender
their Initial Debentures and whose Initial
Debentures are not immediately available or who
cannot deliver their Initial Debentures, the Letter
of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their
Initial Debentures according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering Initial
Debentures."
Acceptance of Initial
Debentures and Delivery
of Exchange Debentures... On the Exchange Date, Holdings will accept for
exchange any and all Initial Debentures which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Debentures issued pursuant to
the Exchange Offer will be delivered promptly
following the Exchange Date. See "The Exchange
Offer -- Acceptance of Initial Debentures for
Exchange; Delivery of Exchange Debentures."
Consequences of Failure to
Exchange................. Holders of the Initial Debentures who do not tender
their Initial Debentures in the Exchange Offer will
continue to hold such Initial Debentures and will
be entitled to all the rights and limitations
applicable thereto under the Indenture dated as of
February 13, 1998 between Holdings and United
States Trust Company of New York relating to the
Initial Debentures and the Exchange Debentures (the
"Indenture"), except for any such rights under the
Registration Rights Agreement (as defined) that by
their terms terminate or cease to have further
effectiveness as a result of the
7
<PAGE> 11
making of, and the acceptance for exchange of all
validly tendered Initial Debentures pursuant to,
the Exchange Offer.
Holders of Initial Debentures who do not exchange
their Initial Debentures for Exchange Debentures
pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such
Initial Debentures as set forth in the legend
thereon as a consequence of the offer or sale of
the Initial Debentures pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act and
applicable state securities laws. In general, the
Initial Debentures may not be offered or sold,
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws. Holdings does not currently
anticipate that it will register the Initial
Debentures under the Securities Act. To the extent
that Initial Debentures are tendered and accepted
in the Exchange Offer, the trading market for
untendered or tendered but unaccepted Initial
Debentures could be adversely affected. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
Registration Rights........ Holdings entered into an Exchange and Registration
Rights Agreement dated as of February 13, 1998 (the
"Registration Rights Agreement") with Chase
Securities, Inc. (the "Initial Purchaser"), for the
benefit of all holders of Initial Debentures, in
which it agreed to make the Exchange Offer. The
Registration Rights Agreement provides that if
Holdings fails to consummate the Exchange Offer on
or prior to August 12, 1998, Holdings will file a
shelf registration statement (the "Shelf
Registration Statement") to cover resales of
Debentures by holders who provide certain
information required for inclusion in the Shelf
Registration Statement, and who agree to be bound
by the terms of the Registration Rights Agreement.
Upon a Registration Default (as defined), Holdings
will be required to pay certain Liquidated Damages
(as defined) to the affected holders of Debentures.
See "Exchange Offer; Registration Rights."
Exchange Agent............. United States Trust Company of New York is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
Resale of Exchange
Debentures............... Based upon interpretations by the staff of the SEC
issued to third parties, Holdings believes that
Exchange Debentures issued pursuant to the Exchange
Offer in exchange for Initial Debentures may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is a broker-dealer or an "affiliate"
of Holdings within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act provided that such Exchange
Debentures are acquired in the ordinary course of
business and such holders have no arrangement with
any person to participate in the distribution of
such Exchange Debentures. Each broker-dealer that
receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with the resale of such Exchange Debentures. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by such
broker-dealers in connection with such resales. See
"The Exchange Offer -- Resale of Exchange
Debentures."
8
<PAGE> 12
THE EXCHANGE DEBENTURES
Issuer..................... NBC Acquisition Corp.
Securities Offered......... $76,000,000 aggregate principal amount of 10 3/4%
Senior Discount Debentures due 2009.
Maturity Date.............. February 15, 2009.
Interest Rate and Payment
Dates.................... The Exchange Debentures will accrete in value until
February 15, 2003 at a rate per annum of 10 3/4%,
compounded semi-annually. Cash interest will not
accrue on the Exchange Debentures prior to February
15, 2003. Thereafter, interest on the Exchange
Debentures will accrue at a rate per annum of
10 3/4% and will be payable in cash semi-annually
on February 15 and August 15 of each year,
commencing August 15, 2003.
Original Issue Discount.... The Exchange Debentures are being offered at an
original issue discount for United States federal
income tax purposes. Thus, although cash interest
will not be payable on the Exchange Debentures
prior to August 15, 2003, original issue discount
will accrue from the Issue Date of the Exchange
Debentures and will be included as interest income
periodically (including for periods ending prior to
February 15, 2003) in a holder's gross income for
United States federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Federal
Income Tax Consequences."
Optional Redemption........ Except as described below, Holdings may not redeem
the Exchange Debentures prior to February 15, 2003.
On or after such date, Holdings may redeem the
Exchange Debentures, in whole or in part, at the
redemption prices set forth herein together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to
February 15, 2001, Holdings may, at its option,
redeem up to 35% of the original principal amount
of the Exchange Debentures with the net proceeds of
one or more Equity Offerings (as defined) received
by, or invested in, Holdings so long as there is a
Public Market (as defined) at the time of such
redemption, at a redemption price equal to 110.75%
of the Accreted Value thereof to be redeemed, to
the date of redemption; provided that at least 65%
of the original principal amount of the Exchange
Debentures remains outstanding immediately after
each such redemption. See "Description of
Debentures -- Optional Redemption."
Change of Control.......... Upon a Change of Control, each holder will have the
right to require Holdings to make an offer to
repurchase the Exchange Debentures at a price equal
to 101% of the Accreted Value thereof, together
with accrued and unpaid interest, if any, to the
date of repurchase. See "Description of
Debentures -- Change of Control."
Ranking.................... The Exchange Debentures will be unsecured, senior
obligations of Holdings and will rank pari passu in
right of payment to all existing and future senior
indebtedness of Holdings (including the guarantee
by Holdings of the Credit Facilities, which is
secured by a pledge of the capital stock of
Nebraska Book) and will rank senior in right of
payment to all future subordinated indebtedness of
Holdings. All the operations of Holdings are
conducted through Nebraska Book and therefore
Holdings is dependent upon the cash flow of
Nebraska Book to meet its obligations, including
its obligations on the Exchange Debentures. The
Credit Facilities and the Senior Subordinated Notes
will restrict Nebraska Book's
9
<PAGE> 13
ability to pay dividends or make other
distributions to Holdings. The Exchange Debentures
will be effectively subordinated to all existing
and future indebtedness and liabilities of
Holdings' subsidiaries (including the Senior
Subordinated Notes and indebtedness of Nebraska
Book in respect of the Credit Facilities). At
December 31, 1997, on a pro forma basis, Holdings
would have had no Indebtedness (as defined)
outstanding on a stand alone basis (other than the
Initial Debentures and Holdings' guarantee of the
Credit Facilities) and the outstanding Indebtedness
of Nebraska Book would have been $170.6 million
including $110.0 million in aggregate principal
amount of the Senior Subordinated Notes, $60.0
million of indebtedness in respect of the Credit
Facilities and $0.6 million of other indebtedness.
See "Description of Debentures -- Terms of
Debentures" and "Risk Factors -- Limitation on
Access to Cash Flow of Subsidiaries; Holding
Company Structure."
Future Guarantees.......... The Indenture provides that any Restricted
Subsidiary (as defined) of Holdings which
guarantees Indebtedness of Holdings will guarantee
the Exchange Debentures. See "Description of
Debentures -- Certain Covenants -- Future
Subsidiary Guarantors."
Restrictive Covenants...... The Indenture limits: (i) the incurrence of
additional indebtedness by Holdings, (ii)
investments, (iii) the payment of dividends on, and
redemption of, capital stock of Holdings and the
redemption of certain subordinated obligations of
Holdings, (iv) sale/leaseback transactions, (v)
sales of assets and subsidiary stock, (vi) certain
transactions with affiliates, (vii) the creation
and existence of liens, (viii) the types of
businesses that Holdings may operate, (ix)
restrictions on distributions from Restricted
Subsidiaries, (x) the sale of capital stock of
Restricted Subsidiaries and (xi) consolidations,
mergers and transfers of all or substantially all
of Holdings' assets. However, all of these
limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of Debentures -- Certain
Covenants."
Absence of Public Market... There is no public market for the Exchange
Debentures, and the Exchange Debentures will not be
listed on any securities exchange. Holdings has
been advised by Chase Securities Inc. (the "Initial
Purchaser") that, following consummation of the
Exchange Offer, the Initial Purchaser intends to
make a market in the Exchange Debentures; however,
any market making may be discontinued at any time
without notice. If an active public market does not
develop, the market price and liquidity of the
Exchange Debentures may be adversely effected. See
"Risk Factors."
For definitions of certain capitalized terms used herein, see "Description
of Debentures."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" for risks involved with an investment in the
Exchange Debentures.
10
<PAGE> 14
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma
consolidated statement of operations data of the Company for the fiscal year
ended March 31, 1997, for the last twelve months ended December 31, 1997 and for
the nine months ended December 31, 1996 and 1997, and certain unaudited
historical and pro forma consolidated balance sheet data at December 31, 1997.
The pro forma unaudited consolidated statement of operations data for the fiscal
year ended March 31, 1997, for the last twelve months ended December 31, 1997
and for the nine months ended December 31, 1996 and 1997 give effect to the
Acquisitions and the Recapitalization as if they had occurred at April 1, 1996.
The pro forma unaudited consolidated balance sheet data at December 31, 1997
give effect to the Recapitalization as if it had occurred on December 31, 1997.
The data presented below should be read in conjunction with "Unaudited Pro Forma
Consolidated Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated financial statements
of the Company and the notes thereto included herein.
<TABLE>
<CAPTION>
LAST
NINE MONTHS ENDED FISCAL TWELVE MONTHS
---------------------------- YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1997 1997 1997
------------ ------------ ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 151,025 $ 161,471 $198,729 $209,175
Gross profit...................................... 50,702 57,581 69,165 76,044
Selling, general, and administrative
expenses(1)..................................... 33,191 37,094 45,183 49,086
Income from operations............................ 11,724 14,138 16,128 18,542
Other income(2)................................... 609 670 765 826
Net income (loss)(1).............................. (2,276) (927) (2,563) (1,214)
Earnings (loss) per share(3)
Basic........................................... $ (2.32) $ (0.95) $ (2.61) $ (1.24)
Diluted......................................... $ (2.32) $ (0.95) $ (2.61) $ (1.24)
OTHER DATA:
Gross margin...................................... 33.6% 35.7% 34.8% 36.4%
EBITDA(4)......................................... $ 18,343 $ 21,480 $ 25,044 $ 28,181
EBITDA margin..................................... 12.1% 13.3% 12.6% 13.5%
Depreciation and amortization..................... $ 5,787 $ 6,349 $ 7,854 $ 8,416
Cash interest expense(1)(5)....................... 14,917
Total interest expense(1)(6)...................... 19,755
Ratio of EBITDA to cash interest expense.......... 1.9x
Ratio of EBITDA to total interest expense......... 1.4x
Ratio of net debt to EBITDA(7).................... 7.3x
Ratio of earnings to fixed charges(8)............. (9)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,256 $ 7,992
Working capital............................................. 57,967 88,931
Total assets................................................ 156,350 183,813
Total debt, including current maturities.................... 104,363 215,589
Stockholders' equity (deficit).............................. 35,830 (53,750)
</TABLE>
- ---------------
(1) Excludes certain non-recurring charges attributable to the Recapitalization.
See Note 6 to the "Unaudited Pro Forma Consolidated Statements of
Operations" included herein.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Earnings (loss) per share have been calculated assuming 980,400 shares of
common stock were outstanding for all periods presented.
(4) EBITDA is defined as income from operations plus other income, depreciation,
amortization and non-cash charges relating to stock based compensation
expense in the amounts of $223 and $323 for the nine months ended December
31, 1996 and 1997, respectively, $297 for the year ended March 31, 1997 and
$397 for the last twelve months ended December 31, 1997. The Company
believes that EBITDA provides additional information for determining its
ability to meet debt service requirements. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements. EBITDA should not be considered by
11
<PAGE> 15
investors as an indicator of cash flows from operating activities, investing
activities and financing activities as determined in accordance with
generally accepted accounting principles. Items excluded from EBITDA, such
as depreciation and amortization, are significant components in
understanding and assessing the Company's financial performance. EBITDA
measures presented may not be comparable to similarly titled measures
presented by other issuers.
(5) Cash interest expense excludes amortization of certain deferred finance
costs of $1,840 and accretion of discount of $4,838 on Holdings Senior
Discount Debentures. This definition differs from the definition of
Consolidated Interest Expense in the Indenture. See "Description of
Debentures."
(6) Total interest expense excludes amortization of certain deferred finance
costs of $1,840. This definition differs from the definition of Consolidated
Interest Expense in the Indenture. See "Description of Debentures."
(7) For purposes of this calculation, net debt consists of total debt
outstanding (including current maturities), net of cash and cash
equivalents.
(8) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of Nebraska Book's
rent expense.
(9) Earnings were insufficient to cover pro forma fixed charges for the last
twelve months ended December 31, 1997 by $1,687,000.
12
<PAGE> 16
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
and other data for the Company and its predecessor for the five fiscal years
ended March 31, 1997 and for the nine months ended December 31, 1996 and 1997.
For purposes of this table, fiscal 1996 information is the summation of the five
months ended August 31, 1995 for Nebraska Book prior to the 1995 Transaction and
the seven months ended March 31, 1996 for the Company subsequent to the 1995
Transaction. The data presented below should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
notes thereto included herein.
<TABLE>
<CAPTION>
FIVE SEVEN FISCAL NINE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, MONTHS ENDED MONTHS ENDED YEAR ENDED DECEMBER 31,
------------------------------ AUGUST 31, MARCH 31, MARCH 31, -------------------
1993 1994 1995 1995 1996(1) 1997 1996 1997
-------- -------- -------- ------------ ------------ ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $136,695 $139,437 $149,227 $83,328 $79,423 $172,600 $132,108 $144,922
Gross profit.................... 49,065 48,780 52,910 30,575 27,557 62,134 46,878 53,426
Selling, general, and
administrative expenses........ 31,644 33,063 35,325 14,729 22,599 39,788 29,281 33,788
Income from operations.......... 15,477 13,963 15,696 14,974 1,401 14,893 12,104 13,577
Interest expense................ 704 616 766 952 5,641 10,085 7,780 7,473
Interest income................. 155 180 224 51 433 561 349 227
Other income(2)................. 348 563 416 469 339 390 293 312
Income (loss) before income
taxes.......................... 15,276 14,090 15,570 14,542 (3,468) 5,759 4,966 6,643
Net income (loss)............... 9,726 8,707 9,620 8,959 (2,501) 3,434 2,980 3,986
Earnings (loss) per share(3)
Basic.......................... $ (0.89) $ 1.23 $ 1.06 $ 1.42
Diluted........................ $ (0.89) $ 1.16 $ 1.01 $ 1.28
OTHER DATA:
Gross margin.................... 35.9% 35.0% 35.5% 36.7% 34.7% 36.0% 35.5% 36.9%
EBITDA(4)....................... $ 17,769 $ 16,280 $ 18,001 $16,315 $ 5,379 $ 23,033 $ 18,113 $ 20,273
EBITDA margin................... 13.0% 11.7% 12.1% 19.6% 6.8% 13.3% 13.7% 14.0%
Depreciation and amortization... $ 1,944 $ 1,754 $ 1,889 $ 872 $ 3,557 $ 7,453 $ 5,493 $ 6,061
Capital expenditures............ 2,175 1,374 8,260 801 838 2,243 1,359 2,887
Business acquisition
expenditures(5)................ -- -- 100 -- 551 1,252 22 4,593
Ratio of earnings to fixed
charges(6)(7).................. 9.5x 8.9x 8.5x NM 2.3x 1.5x 1.5x 1.7x
Number of bookstores open at end
of the period.................. 27 29 34 35 38 46 40 54
OPERATING DATA:
Revenues:
Wholesale...................... $ 73,040 $ 72,920 $ 75,747 $54,328 $27,350 $ 84,487 $ 73,879 $ 79,178
College bookstores............. 69,095 70,759 77,667 33,024 52,396 92,508 61,687 69,561
Services....................... 453 1,018 2,769 1,905 1,599 4,922 3,881 7,316
Intercompany eliminations...... (5,893) (5,260) (6,956) (5,929) (1,922) (9,317) (7,339) (11,133)
-------- -------- -------- ------- ------- -------- -------- --------
Total.................... $136,695 $139,437 $149,227 $83,328 $79,423 $172,600 $132,108 $144,922
======== ======== ======== ======= ======= ======== ======== ========
</TABLE>
- ---------------
(1) Effective September 1, 1995, the Company purchased all the outstanding
capital stock of Nebraska Book in a transaction accounted for as a purchase
business combination. Following the 1995 Transaction, the consolidated
results of operations of the Company included higher interest costs due to
the financing of the acquisition and higher amortization expense for
goodwill and other intangibles created by the acquisition.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Earnings (loss) per share has not been presented for the fiscal years ended
March 31, 1993, 1994 and 1995 and for the five months ended August 31, 1995,
as such presentation would not be meaningful.
(4) EBITDA is defined as income from operations plus other income, depreciation,
amortization and non-cash charges relating to stock based compensation
expense in the amounts of $82 and $297 for the years ended March 31, 1996
and 1997, respectively, and $223 and $323 for the nine months ended December
31, 1996 and 1997, respectively. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
13
<PAGE> 17
requirements. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA does not necessarily
indicate whether cash flow will be sufficient for cash requirements. EBITDA
should not be considered by investors as an indicator of cash flows from
operating activities, investing activities and financing activities as
determined in accordance with generally accepted accounting principles.
Items excluded from EBITDA, such as depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance. EBITDA measures presented may not be comparable to
similarly titled measures presented by other issuers.
(5) Business acquisition expenditures represent established businesses purchased
by the Company.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of Nebraska Book's
rent expense.
(7) For purposes of the ratio of earnings to fixed charges, the operating
results for the five months ended August 31, 1995 and the seven months ended
March 31, 1996 have been combined in order to calculate the applicable data
for the twelve months ended March 31, 1996.
14
<PAGE> 18
RISK FACTORS
In evaluating an investment in the Exchange Debentures, prospective
investors should carefully consider the following risk factors as well as the
other information set forth elsewhere in this Prospectus.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Debentures who do not exchange their Initial Debentures
for Exchange Debentures pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Initial Debentures as set forth
in the legend thereon as a consequence of the issuance of the Initial Debentures
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Debentures may not be offered or sold unless registered
under the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Holdings does not intend to register the Initial Debentures
under the Securities Act, other than in the limited circumstances contemplated
by the Registration Rights Agreement. In addition, any holder of Initial
Debentures who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Debentures may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent that Initial Debentures
are tendered and accepted in the Exchange Offer, the trading market for
untendered or tendered but unaccepted Initial Debentures could be adversely
affected. See "The Exchange Offer" and "Exchange Offer; Registration Rights."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS; INTEREST RATE FLUCTUATIONS
The Company is highly leveraged. As of December 31, 1997, on an adjusted
pro forma basis after giving effect to the Recapitalization and the Offering as
if they had occurred on such date, the Company would have had an aggregate of
$215.6 million of outstanding long-term indebtedness (including current portion)
and there would have been $50.0 million available under the Revolving Credit
Facility. The Indenture permits the Company to incur additional indebtedness,
subject to certain limitations. The degree to which the Company is leveraged
could have important consequences to holders of the Debentures, including the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the Senior Subordinated Notes,
the Debentures and other indebtedness, thereby reducing the funds available to
the Company for other purposes; (iii) all of the indebtedness outstanding under
the Credit Facilities is secured by substantially all the assets of the Company,
and will mature prior to the Debentures; (iv) the Company is substantially more
leveraged than certain of its competitors, which might place the Company at a
competitive disadvantage; (v) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (vi) the Company may be more
vulnerable in the event of a downturn in general economic conditions or in its
industry or business. See "Capitalization," "Description of Other Indebtedness"
and "Description of Debentures."
The Company's ability to pay the interest on and retire principal of the
Debentures and the Company's other indebtedness is dependent upon its future
operating performance, which in turn is subject to general economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. In the event that the Company is unable to generate cash flow
that is sufficient to service its obligations in respect of the Debentures and
its other indebtedness, the Company may be forced to adopt one or more
alternatives, such as reducing or delaying capital expenditures, attempting to
refinance or restructure its indebtedness, selling material assets or operations
or selling equity. There can be no assurance that any of such actions could be
effected on satisfactory terms or at all, that they would enable the Company to
satisfy its debt service requirements or that they would be permitted by the
Credit Facilities, the Senior Subordinated Note
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Indenture or the Indenture. The failure to generate such sufficient cash flow or
to achieve such alternatives could significantly adversely affect the market
value of the Debentures and the Company's ability to pay principal of and
interest on the Debentures.
A significant portion of the indebtedness of the Company outstanding as a
result of the Recapitalization bears interest at variable rates. Although the
Company will enter into interest rate protection agreements to limit its
exposure to increases in such interest rates, such agreements will not eliminate
the exposure to variable rates. Any increase in the interest rates on the
Company's indebtedness will reduce funds available to the Company for its
operations and future business opportunities as well as for meeting its debt
servicing obligations.
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
Holdings is a holding company and its ability to pay interest on the
Exchange Debentures is dependent upon the receipt of dividends from its direct
and indirect subsidiaries. Holdings does not have, and may not in the future
have, any assets other than the common stock of Nebraska Book. Nebraska Book is
a party to the Credit Facilities and the Senior Subordinated Note Indenture,
each of which imposes substantial restrictions on Nebraska Book's ability to pay
dividends to Holdings. Any payment of dividends will be subject to the
satisfaction of certain financial conditions set forth in the Credit Facilities
and the Senior Subordinated Note Indenture. The ability of Nebraska Book to
comply with such conditions in the Credit Facilities and the Senior Subordinated
Note Indenture may be affected by events that are beyond the control of
Holdings. If the loans under the Credit Facilities or the maturity of the Senior
Subordinated Notes were to be accelerated as a result of an event of default
thereunder, all such outstanding debt would be required to be paid in full
before Nebraska Book would be permitted to distribute any assets or cash to
Holdings. There can be no assurance that the assets of Nebraska Book would be
sufficient to repay all of such outstanding debt and to enable Holdings to meet
its obligations under the Indenture. Future borrowings by Nebraska Book can be
expected to contain restrictions or prohibitions on the payment of dividends by
Nebraska Book to Holdings. Applicable state laws, under certain circumstances,
may also impose significant restrictions on the payment of dividends by Nebraska
Book to Holdings.
As a result of the holding company structure of Holdings, the holders of
the Debentures will be structurally subordinate to all creditors of Holdings'
subsidiaries. In the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of Holdings' subsidiaries, Holdings will not
receive any funds available to pay to creditors of the subsidiaries. As of
December 31, 1997, on a pro forma basis after giving effect to the
Recapitalization and the Offering and the application of the net proceeds
therefrom, the aggregate amount of Indebtedness of Holdings' subsidiaries would
have been approximately $170.6 million.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture and the Senior Subordinated Note Indenture restrict, among
other things, the Company's ability to incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, create liens on assets, enter into transactions with affiliates, make
investments, loans or advances, consolidate or merge with or into any other
person or convey, transfer or lease all or substantially all of its assets or
change the business conducted by the Company. In addition, the Credit Facilities
contain certain other and more restrictive covenants and prohibit the Company
from prepaying other indebtedness, including the Debentures. In addition, under
the Credit Facilities, Nebraska Book is required to comply with specified
financial ratios and tests, including a minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum leverage ratio. Nebraska Book's ability
to meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that Nebraska Book will satisfy these
requirements in the future. A breach of any of these covenants could result in a
default under the Credit Facilities the Senior Subordinated Note Indenture,
and/or the Indenture. Upon the occurrence of an event of default under the
Credit Facilities and the Senior Subordinated Notes, the
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lenders could elect to declare all amounts outstanding under the Credit
Facilities to be due and payable, together with accrued and unpaid interest, and
could terminate their commitments to make further extensions of credit under the
Credit Facilities and the holders of the Senior Subordinated Notes could elect
to declare all amounts outstanding under the Senior Subordinated Notes to be
immediately due and payable. If Nebraska Book were unable to repay its
indebtedness under the Credit Facilities, the lenders could proceed against the
collateral securing such indebtedness. If the indebtedness under the Credit
Facilities were accelerated, there could be no assurance that the assets of
Nebraska Book would be sufficient to repay in full such indebtedness and the
other indebtedness of the Company, including the Debentures. Substantially all
of the assets of the Company are pledged as security under the Credit
Facilities. See "Description of Other Indebtedness" and "Description of
Debentures -- Certain Covenants."
INTEGRATION OF ACQUISITIONS
No assurance can be given that the integration of CSC or future
acquisitions will be successful or that the anticipated strategic benefits of
the CSC acquisition or future acquisitions will be realized or that they will be
realized within time frames contemplated by the Company's management.
Acquisitions may involve a number of special risks, including, but not limited
to, adverse short-term effects on the Company's reported operating results,
diversion of management's attention, standardization of accounting systems,
dependence on retaining, hiring and training key personnel, unanticipated
problems or legal liabilities and actions of the Company's competitors and
customers. If the Company is unable to successfully integrate CSC or future
acquisitions for these or other reasons, the Company's results from operations
may be adversely affected.
Part of the Company's business strategy is to expand sales for its college
bookstore operations by acquiring bookstores. There can be no assurance that the
Company will be able to identify additional bookstores for acquisition or that
any anticipated benefits will be realized from any such acquisitions. Due to the
seasonal nature of business in the Company's bookstores, operations may be
affected by the time of year when a bookstore is acquired. Acquisitions of
bookstores that the Company may make will involve risks, including the
successful integration and management of acquired operations and retention of
key personnel. The process of integrating acquired operations into the Company's
existing operations may result in unforeseen operating difficulties, may require
substantial attention from members of the Company's senior management and may
require financial resources that would otherwise be available for the Company's
existing operations.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. See "Business -- Competition."
There can be no assurance that the Company's business will not be adversely
affected by increased competition in the markets in which it currently operates
or in markets in which it will operate in the future, or that the Company will
be able to improve or maintain its profit margins. In recent years, an
increasing number of institution-owned college stores have decided to
subcontract their bookstore operations; as of 1996, approximately 25% of such
stores, according to The National Association of College Stores, were contract-
managed. The leading managers of such stores include two of the Company's
principal competitors in the wholesale textbook distribution business.
Contract-managed stores primarily purchase their used textbook requirements from
and sell their available supply of used textbooks to their affiliated
operations. A significant increase in the number of contract-managed stores,
particularly at large campuses, could adversely affect the Company's ability to
acquire an adequate supply of used textbooks. The Company is also experiencing
growing competition from the use of course packs, which are collections of
copyrighted materials and professors' original content which are produced by
college bookstores and sold to students, and from alternative media such as
on-line or CD-ROM material, all of which have the potential to reduce or replace
the need for textbooks. A substantial
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increase in the use of course packs or other compilations of course materials,
or in the availability of course materials on CD-ROM or over the Internet, could
significantly reduce college students' use of traditional textbooks and thus
have a material adverse effect on the Company's business and results of
operations.
SEASONALITY
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experience two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and in May. In fiscal 1997, approximately 44% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 23% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. A significant reduction in sales during such periods could have a
material adverse effect on the Company's financial condition or results of
operations for the year.
INABILITY TO OBTAIN SUFFICIENT SUPPLY; PRICE INCREASES
The Company is generally able to sell all of its available used textbooks
and, therefore, the Company's ability to purchase a sufficient number of used
textbooks in one semester largely determines its used textbook sales for the
next semester. Successfully acquiring books requires a visible presence on
college campuses at the end of each semester, which requires hiring a
significant number of temporary personnel, and on the Company's access to
sufficient funds under its revolving credit facility or other financing
alternatives. Textbook acquisition also depends upon college students'
willingness to sell their used textbooks at the end of each semester. The
unavailability of sufficient personnel or credit, or a shift in student
preferences, could impair the Company's ability to acquire sufficient used
textbooks to meet its sales objectives and adversely affect its results of
operations.
The Company buys used textbooks based on publishers' prevailing prices for
new textbooks just prior to the implementation by such publishers of their
annual price increases (which historically have been 4% to 5%) and resells such
textbooks shortly thereafter based upon the new higher prices, thereby creating
an immediate margin increase. The Company's ability to increase its used
textbook prices each year depends on annual price increases on new textbooks
implemented by publishers. The failure of publishers to continue such annual
increases could have an adverse effect on the Company's results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the efforts
and abilities of its management team. The Company's senior managers own in the
aggregate approximately 8.6% of Holdings Common Stock and hold options to
purchase additional shares of Holdings Common Stock over a period of time, so
long as they remain employed by the Company. The loss of the services of certain
of these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations.
OWNERSHIP OF THE COMPANY
HWH owns approximately 91.4% of Holdings' issued and outstanding voting
securities. As a result, Haas Wheat, which manages HWH, is able to control all
matters submitted to a vote of shareholders, including the election of a
majority of Holdings' and the Company's board of directors,
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the approval of amendments to Holdings' and the Company's certificate of
incorporation and fundamental corporate transactions such as mergers and asset
sales. See "Principal Stockholders."
OBLIGATION TO PURCHASE THE DEBENTURES UPON CHANGE OF CONTROL
A Change of Control (as defined in the Indenture) could require the Company
to refinance substantial amounts of its indebtedness. Upon the occurrence of a
Change of Control, the holders of the Debentures would be entitled to require
Holdings to repurchase the Debentures at a purchase price equal to 101% of the
Accreted Value of such Debentures, plus accrued and unpaid interest, if any, to
the date of purchase. The occurrence of a Change of Control also gives the
holders of the Senior Subordinated Notes the right to require Nebraska Book to
repurchase the Senior Subordinated Notes. In addition, the occurrence of certain
of the events that would constitute a Change of Control would constitute a
default under the Credit Agreement. Future Indebtedness of Nebraska Book and its
Subsidiaries may also contain prohibitions of certain events that would
constitute a Change of Control or require such Indebtedness to be repurchased
upon a Change of Control. Moreover, the exercise by the holders of their right
to require Holdings to repurchase the Debentures could cause a default under
such Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on Holdings. The Credit Agreement and the
Senior Subordinated Notes restrict Nebraska Book from paying any dividends or
making any other distributions to Holdings. If Holdings is unable to obtain
dividends from Nebraska Book sufficient to permit the repurchase of the
Debentures, Holdings will likely not have the financial resources to purchase
the Debentures. In any event, there can be no assurance that the Subsidiaries or
Holdings will have the resources available to pay any such dividend or make any
such distribution. Finally, Holdings' ability to pay cash to the holders upon a
repurchase may be limited by Holdings' then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. Consequently, if Nebraska Book is not able to (i)
prepay the Credit Agreement and any other indebtedness containing similar
restrictions or obtain requisite consents, as described above, or (ii) to make a
dividend payment to Holdings in an amount sufficient to permit Holdings to
repurchase the Debentures, Holdings will be unable to fulfill its repurchase
obligations if holders of Debentures exercise their repurchase rights following
a Change of Control, thereby resulting in a default under the Indenture. The
provisions of the Indenture may not afford holders of the Debentures the right
to require Holdings to repurchase the Debentures in the event of a highly
leveraged transaction that may adversely affect the holders of the Debentures if
such transaction is not a transaction defined as a Change of Control. See
"Description of Other Indebtedness" and "Description of Debentures -- Change of
Control."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDER'S CLAIMS
The Initial Debentures were and the Exchange Debentures will be issued at a
discount from their principal amount at maturity. Consequently, purchasers of
the Debentures will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Federal Income Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the purchasers of
the Debentures resulting from the purchase, ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Debentures upon the occurrence of an Event of Default (as defined), the holders
of the Debentures may be entitled to recover only the amount which may be
declared due and payable pursuant to the Indenture, which will be less than the
principal amount at maturity of such Debentures. See "Description of
Debentures -- Events of Default."
If a bankruptcy case is commenced by or against Holdings under the
Bankruptcy Code (as defined), the claim of a holder of Debentures with respect
to the principal amount thereof may be limited to an amount equal to the sum of
(i) the issue price of the Debentures as set forth on the
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cover page hereof and (ii) that portion of the original issue discount (as
determined on the basis of such issue price) which is not deemed to constitute
"unmatured interest" for purposes of the Bankruptcy Code. Any original issue
discount that was not amortized as of any such bankruptcy filing would
constitute "unmatured interest."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Debentures) and the use of
proceeds thereof are subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of Holdings. Under these statutes, if a
court were to find that obligations (such as the Debentures) were incurred with
the intent of hindering, delaying or defrauding present or future creditors or
that Holdings received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the occurrence of the
obligations, the obligor (i) was insolvent or rendered insolvent by reason
thereof, (ii) was engaged or was about to engage in a business or transaction
for which its remaining unencumbered assets constituted unreasonably small
capital or (iii) intended to or believed that it would incur debts beyond its
ability to pay such debts as they matured or became due, such court could void
Holdings' obligations under the Debentures, subordinate the Debentures to other
indebtedness of Holdings or take other action detrimental to the holders of the
Debentures.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. Holdings believes that, after giving effect to
the Recapitalization, Holdings was (i) neither insolvent nor rendered insolvent
by the incurrence of indebtedness in connection with the Recapitalization, (ii)
in possession of sufficient capital to run its business effectively and (iii)
incurring debts within its ability to pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would apply to
evaluate the parties' intent or to determine whether Holdings was insolvent at
the time of, or rendered insolvent upon consummation of, the Recapitalization or
that, regardless of the standard, a court would not determine that Holdings was
insolvent at the time of, or rendered insolvent upon consummation of, the
Recapitalization.
ABSENCE OF A PUBLIC MARKET FOR EXCHANGE DEBENTURES
The Exchange Debentures will constitute a new issue of securities for which
there is no established trading market. Holdings does not intend to list the
Exchange Debentures on any national securities exchange or to seek the admission
of the Exchange Debentures for quotation through the National Association of
Securities Dealers Automated Quotation System. Although the Initial Purchaser
has advised Holdings that it currently intends to make a market in the Exchange
Debentures, it is not obligated to do so and may discontinue such market making
at any time without notice. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Securites Exchange
Act of 1934, as amended (the "Exchange Act"), and may be limited during the
pendency of any Shelf Registration Statement. See "Exchange Offer; Registration
Rights." There can be no assurance as to the development or liquidity of any
market for the Exchange Debentures, the ability of the holders of the Exchange
Debentures to sell their Exchange Debentures or the price at which the holders
would be able to sell their Exchange Debentures. Future trading prices of the
Exchange Debentures will depend on many factors, including, among other things,
prevailing interest rates, Holdings' operating results and the market for
similar securities.
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THE EXCHANGE OFFER
GENERAL
Holdings hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $76 million aggregate
principal amount of Exchange Debentures for a like aggregate principal amount of
Initial Debentures properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to any and all of the Initial Debentures.
As of the date of this Prospectus, $76 million aggregate principal amount
of the Initial Debentures is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998, to
all holders of Initial Debentures registered on the debenture register of
Holdings. Holdings' obligation to accept Initial Debentures for exchange
pursuant to the Exchange Offer is subject to certain conditions set forth under
"Certain Conditions to the Exchange Offer" below. Holdings currently expects
that each of the conditions will be satisfied and that no waivers will be
necessary.
PURPOSE OF THE EXCHANGE OFFER
The Initial Debentures were issued on February 13, 1998 in a transaction
exempt from the registration requirements of the Securities Act. Accordingly,
the Initial Debentures may not be reoffered, resold, or otherwise transferred
unless so registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Initial Debentures,
Holdings entered into the Registration Rights Agreement, which requires Holdings
to file with the SEC a registration statement relating to the Exchange Offer not
later than 45 days after the date of issuance of the Initial Debentures, and to
use its reasonable best efforts to cause the registration statement relating to
the Exchange Offer to become effective under the Securities Act not later than
150 days after the date of issuance of the Initial Debentures and the Exchange
Offer to be consummated not later than 30 days after the date of the
effectiveness of the Registration Statement (or use its reasonable best efforts
to cause to become effective a shelf registration statement with respect to
resales of the Initial Debentures by the 150th day after the date of issuance of
the Initial Debentures). A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement.
The Exchange Offer is being made by Holdings to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Initial Debentures
are registered on the note register of Holdings or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Initial Debentures are held of record by The Depository Trust
Company. Other than pursuant to the Registration Rights Agreement, Holdings is
not required to file any registration statement to register any outstanding
Initial Debentures. Holders of Initial Debentures who do not tender their
Initial Debentures or whose Initial Debentures are tendered but not accepted
would have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Initial Debentures.
Holdings is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, Holdings has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, Holdings believes that the Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for resale,
resold and otherwise transferred by a holder (other than any holder who is a
broker-dealer or an "affiliate" of Holdings within the meaning of Rule 405 of
the Securities Act)
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without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Debentures are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Debentures. See "-- Resale of Exchange Debentures." Each
broker-dealer that receives Exchange Debentures for its own account in exchange
for Initial Debentures, where such Initial Debentures were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Debentures. See "Plan of Distribution."
TERMS OF THE EXCHANGE
Holdings hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Debentures for each $1,000 in principal amount of
the Initial Debentures. The terms of the Exchange Debentures are identical in
all material respects to the terms of the Initial Debentures for which they may
be exchanged pursuant to this Exchange Offer, except that the Exchange
Debentures will generally be freely transferable by holders thereof and will not
be subject to any covenant regarding registration under the Securities Act. The
Exchange Debentures will evidence the same indebtedness as the Initial
Debentures and will be entitled to the benefits of the Indenture. See
"Description of Debentures."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Debentures being tendered for exchange.
Holdings has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the Exchange
Debentures issued pursuant to the Exchange Offer in exchange for the Initial
Debentures may be offered for sale, resold or otherwise transferred by any
holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Instead, based on an interpretation by the
staff of the SEC set forth in a series of no-action letters issued to third
parties, Holdings believes that Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for sale,
resold and otherwise transferred by any holder of such Exchange Debentures
(other than any such holder that is a broker-dealer or is an "affiliate" of
Holdings within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Debentures are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Debentures and neither such holder nor any other such person is
engaging in or intends to engage in a distribution of such Exchange Debentures.
Since the SEC has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the staff of the SEC would make
a similar determination with respect to the Exchange Offer. Any holder who is an
affiliate of Holdings or who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Debentures may be deemed to have
received restricted securities and cannot rely on such interpretation by the
staff of the SEC and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Exchange Debentures.
Each broker-dealer that receives Exchange Debentures for its own account in
exchange for Initial Debentures, where such Initial Debentures were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Debentures. See "Plan of Distribution."
Interest on the Exchange Debentures will accrue from the last Interest
Payment Date on which interest was paid on the Initial Debentures so surrendered
or, if no interest has been paid on such Initial Debentures, from February 13,
1998.
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Tendering holders of the Initial Debentures shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Initial
Debentures pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless Holdings, has extended the period of time for which
the Exchange Offer is open (such date, as it may be extended, is referred to
herein as the "Expiration Date"). The Expiration Date will be at least 20
business days after the commencement of the Exchange Offer in accordance with
Rule 14e-1(a) under the Exchange Act. Holdings expressly reserves the right, at
any time or from time to time, in its sole discretion, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Initial Debentures, by giving oral or written notice to the
Exchange Agent and by timely public announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. During any such extension, all Initial Debentures previously
tendered will remain subject to the Exchange Offer unless properly withdrawn.
Holdings expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Initial Debentures not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "Certain Conditions to the Exchange Offer" which have not
been waived by Holdings and (ii) amend the terms of the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to the holders of the
Initial Debentures, whether before or after any tender of the Initial
Debentures. If any such termination or amendment occurs, Holdings will notify
the Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Initial Debentures as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless Holdings
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, Holdings will, subject to the conditions described under
"-- Certain Conditions to the Exchange Offer," exchange the Exchange Debentures
for the Initial Debentures on the Exchange Date.
PROCEDURES FOR TENDERING INITIAL DEBENTURES
The tender to Holdings of Initial Debentures by a holder thereof as set
forth below and the acceptance thereof by Holdings will constitute a binding
agreement between the tendering holder and Holdings upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal.
A holder of Initial Debentures may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Initial Debentures being tendered
and any required signature guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its address set forth below on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with guaranteed delivery procedures
described below.
Any beneficial owner whose Initial Debentures are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering the
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Initial Debentures, either make appropriate arrangements to register ownership
of the Initial Debentures in such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
THE METHOD OF DELIVERY OF INITIAL DEBENTURES, LETTERS OF TRANSMITTAL AND
ALL OF THE REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO INITIAL DEBENTURES OR LETTERS OF
TRANSMITTAL SHOULD BE SENT TO HOLDINGS.
If tendered Initial Debentures are registered in the name of the signer of
the Letter of Transmittal and the Exchange Debentures to be issued in exchange
therefor are to be issued (and any untendered Initial Debentures are to be
reissued) in the name of the registered holder (which term, for the purposes
described herein, shall include any participant in The Depository Trust Company
(the "Book-Entry Transfer Facility") whose name appears on a security listing as
the owner of Initial Debentures), the signature of such signer need not be
guaranteed. In any other case, the tendered Initial Debentures must be endorsed
or accompanied by written instruments of transfer in form satisfactory to
Holdings and duly executed by the registered holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Debentures and/or Initial Debentures not exchanged
are to be delivered to an address other than that of the registered holder
appearing on the debenture register for the Initial Debentures, the signature in
the Letter of Transmittal must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Initial Debentures at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Initial Debentures by causing
such Book-Entry Transfer Facility to transfer such Initial Debentures into the
Exchange Agent's account with respect to the Initial Debentures in accordance
with the Book-Entry Transfer Facility's procedures for such transfer. Although
delivery of Initial Debentures may be effected through book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
If a holder desires to tender Initial Debentures in the Exchange Offer and
time will not permit a Letter of Transmittal or Initial Debentures to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address set forth below on or prior to the
Expiration Date, a letter, telegram or facsimile transmission (receipt confirmed
by telephone and an original delivered by guaranteed overnight courier) from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Initial Debentures are registered and, if possible, the
certificate numbers of the Initial Debentures to be tendered, and stating that
the tender is being made thereby and guaranteeing that within three business
days after the Expiration Date, the Initial Debentures in proper form for
transfer (or a confirmation of book-entry transfer of such Initial Debentures
into the Exchange Agent's account at the Book-Entry Transfer Facility), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Initial Debentures being tendered by the above-described method are deposited
with the Exchange Agent within the time period set forth
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<PAGE> 28
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), Holdings may, at its option, reject the tender.
Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery")
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Initial Debentures (or a confirmation of book-entry transfer
of such Initial Debentures into the Exchange Agent's account at the Book-Entry
Transfer Facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Debentures in exchange for Initial
Debentures tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Initial
Debentures.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Initial Debentures tendered for exchange will be
determined by Holdings in its sole discretion, which determination shall be
final and binding on all parties. Holdings reserves the absolute right to reject
any and all tenders of any particular Initial Debentures not properly tendered
or not to accept any particular Initial Debentures which acceptance might, in
the judgment of Holdings or its counsel, be unlawful. Holdings also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Initial Debentures either before or after
the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Initial Debentures in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) by Holdings shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Debentures for exchange must be cured within
such reasonable period of time as Holdings shall determine. Neither Holdings,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Initial
Debentures for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Debentures, such Initial Debentures
must be endorsed or accompanied by appropriate powers of attorney, in either
case signed exactly as the name or names of the registered holder or holders
appear on the Initial Debentures.
If the Letter of Transmittal or any Initial Debentures or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by Holdings, proper evidence satisfactory to Holdings of their
authority to so act must be submitted.
By tendering, each holder will represent to Holdings that, among other
things, the Exchange Debentures acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
Exchange Debentures, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Debentures and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of Holdings, or if it is an affiliate, it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Debentures for its own account in
exchange for Initial Debentures where such Initial Debentures were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Initial Debentures acquired directly
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<PAGE> 29
from Holdings) must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Debentures. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Initial Debentures for exchange (the "Transferor")
exchanges, assigns and transfers the Initial Debentures to Holdings and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Initial Debentures to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Initial
Debentures and to acquire Exchange Debentures issuable upon the exchange of such
tendered Initial Debentures, and that, when the same are accepted for exchange,
Holdings will acquire good and unencumbered title to the tendered Initial
Debentures, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or Holdings to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Initial Debentures or transfer
ownership of such Initial Debentures on the account books maintained by a
Book-Entry Transfer Facility. The Transferor further agrees that acceptance of
any tendered Initial Debentures by Holdings and the issuance of Exchange
Debentures in exchange therefor shall constitute performance in full by Holdings
of certain of its obligations under the Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
The Transferor certifies that it is not an "affiliate" of Holdings within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Debentures offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Debentures. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Debentures. Each Transferor
which is a broker-dealer receiving Exchange Debentures for its own account must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Debentures. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Debentures received in exchange for Initial Debentures
where such Initial Debentures were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Holdings will, for a
period of 180 days after the Exchange Date, make copies of this Prospectus
available to any broker-dealer for use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Initial Debentures may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Initial Debentures to be withdrawn (the "Depositor"),
(ii) identify the Initial Debentures to be withdrawn (including the certificate
number or numbers and principal amount of such Initial Debentures), (iii)
specify the principal amount of Initial Debentures to be withdrawn, (iv) include
a statement that such holder is withdrawing his election to
26
<PAGE> 30
have such Initial Debentures exchanged, (v) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Initial Debentures were tendered or as otherwise described above (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Initial Debentures into the name of the person withdrawing the tender and (vi)
specify the name in which any such Initial Debentures are to be registered, if
different from that of the Depositor. The Exchange Agent will return the
properly withdrawn Initial Debentures promptly following receipt of notice of
withdrawal. If Initial Debentures have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Initial Debentures or otherwise comply with the Book-Entry
Transfer Facility's procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by Holdings in its
sole discretion and such determination will be final and binding on all parties.
Any Initial Debentures so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Debentures
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Initial Debentures tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Initial Debentures will be credited to
an account with such Book-Entry Transfer Facility specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Initial Debentures may be retendered by
following one of the procedures described under "Procedures for Tendering
Initial Debentures" above at any time on or prior to the Expiration Date.
ACCEPTANCE OF INITIAL DEBENTURES FOR EXCHANGE; DELIVERY OF EXCHANGE DEBENTURES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Holdings will accept, promptly on the Exchange Date, all Initial Debentures
properly tendered and will issue the Exchange Debentures promptly after such
acceptance. See "Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, Holdings shall be deemed to have accepted properly
tendered Initial Debentures for exchange when, as and if Holdings has given oral
or written notice thereof to the Exchange Agent.
For each Initial Debenture accepted for exchange, the holder of such
Initial Debenture will receive an Exchange Debenture having a principal amount
equal to that of the surrendered Initial Debenture.
In all cases, issuance of Exchange Debentures for Initial Debentures that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Initial Debentures
or a timely book-entry confirmation of such Initial Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Initial Debentures are not accepted for any reason set forth in the
terms or conditions of the Exchange Offer or if Initial Debentures are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Initial Debentures will be returned without expense
for the tendering holder thereof (or, in the case of Initial Debentures tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
above, such non-exchanged Initial Debentures will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the Exchange Date.
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<PAGE> 31
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, Holdings shall not be required to accept for exchange, or
to issue Exchange Debentures in exchange for, any Initial Debentures and may
terminate or amend the Exchange Offer (by oral or written notice to the Exchange
Agent or by a timely press release) if at any time before the acceptance of such
Initial Debentures for exchange or the exchange of the Exchange Debentures for
such Initial Debentures, any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or
any injunction, order or decree is issued with respect to the
Exchange Offer which, in the sole judgment of Holdings, might
materially impair the ability of Holdings to proceed with the
Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to Holdings; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects of Holdings that is or may be adverse to
Holdings, or Holdings shall have become aware of facts that have
or may have adverse significance with respect to the value of the
Initial Debentures or the Exchange Debentures or that may
materially impair the contemplated benefits of the Exchange Offer
to Holdings; or
(c) any law, rule or regulation or applicable interpretations of the
staff of the SEC is issued or promulgated which, in the good faith
determination of Holdings, do not permit Holdings to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
Holdings, in its sole discretion, deems necessary for the
consummation of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law,
statute, rule or regulation) which, in the sole judgment of
Holdings, might materially impair the ability of Holdings to
proceed with the Exchange Offer or have a material adverse effect
on the contemplated benefits of the Exchange Offer to Holdings; or
(f) there shall occur a change in the current interpretation by the
staff of the SEC which permits the Exchange Debentures issued
pursuant to the Exchange Offer in exchange for Initial Debentures
to be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is a
broker-dealer or an "affiliate" of Holdings within the meaning of
Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities
Act provided that such Exchange Debentures are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of
such Exchange Debentures; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in
securities on any national securities exchange or in the
over-the-counter market (whether or not mandatory), (ii) any
limitation by any governmental agency or authority which may
adversely affect the ability of Holdings to complete the
transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments
in respect of banks by Federal or state authorities in the United
States (whether or not mandatory), (iv) a commencement of a war,
armed hostilities or other international or national crisis
directly or indirectly involving the United States, (v) any
limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of
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<PAGE> 32
affecting, the extension of credit by banks or other leading
institutions in the United States, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof.
Holdings expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Initial Debentures upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by Holdings of properly tendered Initial Debentures). In addition,
Holdings may amend the Exchange Offer at any time prior to the Expiration Date
if any of the conditions set forth above occur. Moreover, regardless of whether
any of such conditions has occurred, Holdings may amend the Exchange Offer in
any manner which, in its good faith judgment, is advantageous to holders of the
Initial Debentures.
The foregoing conditions are for the sole benefit of Holdings and may be
asserted by Holdings regardless of the circumstances giving rise to any such
condition or may be waived by Holdings in whole or in part at any time and from
time to time in its sole discretion. The failure by Holdings at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If Holdings waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that Holdings first gives notice, by public
announcement or otherwise, of such waiver or amendment, if the Expiration Date
would otherwise occur within such five business-day period. Any determination by
Holdings concerning the events described above will be final and binding upon
all parties.
In addition, Holdings will not accept for exchange any Initial Debentures
tendered, and no Exchange Debentures will be issued in exchange for any such
Initial Debentures, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended. In any such event, Holdings is required to
use every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Debentures being tendered for exchange.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY OVERNIGHT COURIER: BY HAND:
United States Trust Company of New York United States Trust Company of New York
Attention: Corporate Trust Services Attention: Corporate Trust Services
770 Broadway, 13th Floor 111 Broadway -- Lower Level
New York, New York 10003 New York, New York 10006
BY MAIL: BY FACSIMILE:
(INSURED OR REGISTERED (212) 420-6152
RECOMMENDED) Attention: Corporate Trust Services
United States Trust Company of New York Telephone: 1-800-548-6565
Attention: Corporate Trust Services
P.O. Box 844
Cooper Station
New York, New York 10276-0844
</TABLE>
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
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<PAGE> 33
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH IN THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH IN THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
Holdings has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. Holdings
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this and other related documents to the beneficial owners of the Initial
Debentures and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Holdings and are estimated in the aggregate to be
approximately $150,000 which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by Holdings.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Holdings since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Initial Debentures in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, Holdings
may, at its discretion, take such action as it may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders
of Initial Debentures in such jurisdiction.
TRANSFER TAXES
Holdings will pay all transfer taxes, if any, applicable to the exchange of
Initial Debentures pursuant to the Exchange Offer. If, however, certificates
representing Exchange Debentures or Initial Debentures for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Initial
Debentures tendered, or if tendered Initial Debentures are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Initial
Debentures pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The Exchange Debentures will be recorded at the carrying value of the
Initial Debentures as reflected in Holdings's accounting records on the Exchange
Date. Accordingly, no gain or loss for accounting purposes will be recognized by
Holdings upon the exchange of Exchange Debentures for Initial Debentures.
Expenses incurred in connection with the issuance of the Exchange Debentures
will be amortized over the term of the Exchange Debentures.
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<PAGE> 34
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Debentures who do not tender their Initial Debentures
for Exchange Debentures pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Initial Debentures as set forth
in the legend thereon. Initial Debentures not exchanged pursuant to the Exchange
Offer will continue to remain outstanding in accordance with their terms. In
general, the Initial Debentures may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. Holdings does not currently anticipate that it will register the Initial
Debentures under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Debentures should carefully consider whether to participate. Holders of Initial
Debentures are urged to consult their financial and tax advisors in making their
own decision whether or not to tender their Initial Debentures. See "Certain
Federal Income Tax Consequences".
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Debentures pursuant to the terms of, this Exchange
Offer, Holdings will have fulfilled a covenant contained in the Registration
Rights Agreement. Holders of Initial Debentures who do not tender their Initial
Debentures in the Exchange Offer will continue to hold such Initial Debentures
and will be entitled to all the rights and limitations applicable thereto under
the Indenture, except for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of this Exchange Offer. All untendered Initial
Debentures will continue to be subject to the restrictions on transfer set forth
in the legend thereon. To the extent that Initial Debentures are tendered and
accepted in the Exchange Offer, the trading market for untendered Initial
Debentures could be adversely affected.
Holdings may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Debentures in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. Holdings has no
present plan to acquire any Initial Debentures which are not tendered in the
Exchange Offer.
RESALE OF EXCHANGE DEBENTURES
Holdings is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, Holdings has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, Holdings believes that the Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for resale,
resold and otherwise transferred by holder (other than any holder who is a
broker-dealer or an "affiliate" of Holdings within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Debentures are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such Exchange Debentures. However, any holder
who is an "affiliate" of Holdings or who has an arrangement or understanding
with respect to the distribution of the Exchange Debentures to be acquired
pursuant to the Exchange Offer, or any broker-dealer who purchased Initial
Debentures from Holdings to resell pursuant to Rule 144A or any other available
exemption under the Securities Act (i) cannot rely on the applicable
interpretations of the staff and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act. A broker-dealer who
holds Initial Debentures that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in
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<PAGE> 35
connection with any resale of Exchange Debentures. Each such broker-dealer that
receives Exchange Debentures for its own account in exchange for Initial
Debentures, where such Initial Debentures were acquired by such broker-dealer as
a result of market-making activities or other trading activities (other than
Initial Debentures acquired directly from Holdings) must acknowledge in the
Letter of Transmittal that it will deliver a prospectus in connection with any
resale of such Exchange Debentures. This Prospectus, as it may be amended or
supplemented from time to time, may be used by such broker-dealers in connection
with such resales. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Debentures may not be offered or sold unless they
have been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available and is complied with. Holdings
has agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Debentures
for offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the Exchange Debentures reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Debentures.
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<PAGE> 36
USE OF PROCEEDS
Holdings will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the Exchange Debentures pursuant to
the Exchange Offer.
The net proceeds from the Offering, approximately $41.6 million (after
deductions of discounts and commissions and expenses of the Offering), together
with the proceeds of the issuance of Holdings Common Stock to HWH and members of
the Company's management, were contributed by Holdings to Nebraska Book as
equity and were used by Nebraska Book to pay amounts due in connection with the
Recapitalization including to repay outstanding indebtedness of Nebraska Book.
See "Summary -- The Recapitalization."
Of the indebtedness repaid by Nebraska Book, $17.3 million of bank
borrowings were due on August 31, 2001 and bore interest at 8.29% as of December
31, 1997; $36.9 million of bank borrowings were due on August 31, 2003 and bore
interest at 8.79% as of December 31, 1997 and $25.6 million principal amount of
subordinated notes due August 31, 2005 (net of discount of $2.3 million) bore
interest at a fixed rate of 12% per annum.
All of the indebtedness being repaid was incurred in connection with the
1995 Transaction.
33
<PAGE> 37
CAPITALIZATION
The following table sets forth (i) the actual unaudited capitalization of
the Company as of December 31, 1997, and (ii) such unaudited capitalization as
adjusted to give effect to the Recapitalization and the Offering. The
information set forth below should be read in conjunction with the "Selected
Historical Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Data," "Management Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 5,256 $ 7,992
======== ========
Debt (including current maturities):
Former term loan.......................................... $ 54,274 $ --
Former revolving credit facility.......................... 24,800 --
Credit Facilities(1)
Revolving Credit Facility (2).......................... -- --
Tranche A Term Loan.................................... -- 27,500
Tranche B Term Loan.................................... -- 32,500
Senior Subordinated Notes due 2008........................ -- 110,000
Holdings Senior Discount Debentures due 2009.............. -- 45,000
Existing subordinated notes (3)........................... 24,700 --
Other debt................................................ 589 589
-------- --------
Total debt........................................ 104,363 215,589
Stockholders' equity (deficit) (4)(5)....................... 35,830 (53,750)
-------- --------
Total capitalization.............................. $140,193 $161,839
======== ========
</TABLE>
- ---------------
(1) See "Description of Other Indebtedness -- Credit Facilities."
(2) Total borrowings of up to $50.0 million under the Revolving Credit Facility
are available, subject to borrowing base limitations, for working capital
and general corporate purposes. At December 31, 1997, on a pro forma basis
after giving effect to the Recapitalization and the Offering, the Company
believes that it would have had the ability to borrow the full amount under
the Revolving Credit Facility. See "Description of Other Indebtedness."
(3) The principal amount of the former subordinated notes is $27.0 million.
These notes are presented net of unamortized discount of approximately $2.3
million attributable to certain warrants issued in connection therewith.
(4) Upon consummation of the Recapitalization, HWH invested $45.7 million and
senior management of the Company reinvested $4.3 million in Holdings Common
Stock. The proceeds of the Offering and the sale of Holdings Common Stock
were contributed by Holdings to Nebraska Book as equity.
(5) The actual payment to stockholders was $165.1 million, which reflected the
actual amount of debt as of the closing date. The amount of debt is impacted
by various factors including seasonality of the Company's operations.
Stockholders' equity will be adjusted accordingly.
34
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data with respect
to the Company (the "Unaudited Pro Forma Consolidated Financial Data") is based
on the historical consolidated financial statements of the Company included
elsewhere in this Prospectus adjusted to give effect to the Acquisitions, the
Offering and the Recapitalization. The Unaudited Pro Forma Consolidated Balance
Sheet gives effect to the Recapitalization as if it had occurred on December 31,
1997 and the Unaudited Pro Forma Consolidated Statements of Operations give
effect to the Acquisitions and the Recapitalization as if they had occurred on
April 1, 1996. The Acquisitions, the Recapitalization and the related
adjustments are described in the accompanying notes. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the consolidated pro forma data. Actual amounts could differ from those set
forth below.
The Unaudited Pro Forma Consolidated Financial Data should be read in
conjunction with the notes included herewith, the Company's Consolidated
Financial Statements and notes thereto as of March 31, 1996 and 1997 and for the
fiscal years in the three-year period ended March 31, 1997, the Company's
Unaudited Consolidated Financial Statements as of December 31, 1997 and for the
nine months ended December 31, 1996 and 1997 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The Unaudited Pro Forma Consolidated Financial Data do not
purport to represent what the Company's consolidated results of operations or
consolidated financial position would have been had the Acquisitions and
Recapitalization occurred on the dates specified, or to project the Company's
consolidated results of operations or consolidated financial position for any
future period or date. The Unaudited Pro Forma Consolidated Statements of
Operations do not give effect to non-recurring charges directly attributable to
the Recapitalization.
35
<PAGE> 39
NBC ACQUISITION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 5,256 $ 2,736(1) $ 7,992
Receivables...................................... 40,455 3,208(2) 43,663
Inventories...................................... 52,362 1,866(2) 54,228
Recoverable income tax........................... 219 4,833(3) 5,052
Deferred income tax benefit...................... 1,156 -- 1,156
Prepaid expenses and other assets................ 423 116(2) 539
-------- -------- --------
Total current assets..................... 99,871 12,759 112,630
Property and equipment............................. 27,842 163(2) 28,005
Less accumulated depreciation.................... (5,045) -- (5,045)
-------- -------- --------
22,797 163 22,960
Goodwill and other intangibles, net of
amortization..................................... 32,156 14,541(4) 46,697
Other assets....................................... 1,526 -- 1,526
-------- -------- --------
$156,350 $ 27,463 $183,813
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 11,315 $ 3,185(2) $ 14,500
Accrued employee compensation and benefits....... 2,089 -- 2,089
Accrued expenses................................. 1,911 3,410(2) 5,321
Current maturities of long-term debt............. 1,789 -- 1,789
Revolver payable................................. 24,800 (24,800)(5) --
-------- -------- --------
Total current liabilities................ 41,904 (18,205) 23,699
Long-term debt, net of current maturities.......... 77,774 136,026(6) 213,800
Other long-term liabilities........................ 842 (778)(7) 64
Stockholders' equity (deficit)..................... 35,830 (89,580)(8) (53,750)
-------- -------- --------
$156,350 $ 27,463 $183,813
======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated balance sheet.
36
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
- ---------------
(1) Represents: (a) cash on hand as of the acquisition of CSC in January 1998 of
$2,226, net of the purchase price of $4,000, which was paid in cash and (b)
excess cash as a result of the Recapitalization as follows:
<TABLE>
<S> <C>
Net cash following the acquisition of CSC................... $(1,774)
Excess cash from the Recapitalization....................... 4,510
-------
$ 2,736
=======
</TABLE>
(2) Represents the estimated fair value of assets acquired and liabilities
assumed in the CSC acquisition. The amounts are obtained from CSC's latest
available unaudited internal financial statements dated December 31, 1997 as
follows:
<TABLE>
<S> <C> <C>
Purchase price.............................................. $4,000
Fair value of assets acquired and liabilities assumed
Cash...................................................... 2,226
Receivables............................................... 3,208
Inventories............................................... 1,866
Prepaid expenses and other assets......................... 116
Property and equipment.................................... 163
Accounts payable.......................................... (3,185)
Accrued expenses.......................................... (3,410)
------
Net assets acquired......................................... 984
------
Goodwill.................................................... $3,016
======
</TABLE>
(3) Represents the income tax effect of: (a) writing off deferred finance fees
on debt retired in connection with the Recapitalization, (b) recording
additional non-cash compensation expense due to the accelerated vesting of
nonqualified stock options as a result of the Recapitalization, and (c) the
recognition of unamortized discount as additional interest expense
associated with debt to be retired as a result of the Recapitalization. The
amount is comprised of the following:
<TABLE>
<S> <C>
Write off of deferred finance fees on retired debt.......... $1,139
Additional non-cash compensation expense.................... 2,820
Unamortized discount of retired debt........................ 874
------
Total............................................... $4,833
======
</TABLE>
(4) Represents: (a) deferred finance fees associated with the Recapitalization,
(b) the write off of deferred finance fees (net of related income tax
effect) associated with debt being retired in connection with the
Recapitalization, and (c) goodwill associated with the acquisition of CSC in
January 1998. The amount is comprised of the following:
<TABLE>
<S> <C>
Recapitalization related deferred finance fees.............. $14,522
Write off of deferred finance fees on retired debt.......... (2,997)
Goodwill related to CSC acquisition......................... 3,016
-------
Total............................................... $14,541
=======
</TABLE>
(5) Represents the retirement of the existing revolving credit facility as a
result of the Recapitalization.
(6) Represents the retirement of the existing credit facility and subordinated
notes and the issuance of new debt as a result of the Recapitalization. The
amount is comprised of the following:
<TABLE>
<S> <C>
Retirement of existing debt:
Term loan................................................. $(54,274)
Subordinated notes........................................ (24,700)
Less: current maturities.................................. 1,789
--------
Total............................................... (77,185)
Issuance of new debt:
Tranche A Term Loan....................................... 27,500
Tranche B Term Loan....................................... 32,500
Senior Subordinated Notes due 2008........................ 110,000
Holdings Senior Discount Debentures due 2009.............. 45,000
Less: estimated current maturities of Term Loans.......... (1,789)
--------
Total............................................... $136,026
========
</TABLE>
(7) Represents the reversal of accrued compensation expense related to
nonqualified stock options that will be exercised as a result of the
Recapitalization.
(8) Represents the effects to stockholders equity as follows: (a) write off of
deferred financing costs on retired debt, (b) the reclassification of
accrued stock compensation related to exercised options, (c) additional
non-cash compensation expense recognized as a result of the exercise of
nonqualified stock options, (d) additional interest expense recorded on
retired debt originally issued at a discount, and (e) the Recapitalization
as follows:
<TABLE>
<S> <C>
Write off of deferred financing costs, net of income tax
effect.................................................... $ (1,858)
Reclassification of accrued stock compensation.............. 8,200
Additional non-cash compensation expense, net of income tax
effect.................................................... (4,602)
Additional interest expense, net of income tax effect....... (1,426)
Recapitalization related adjustments:
Transaction costs......................................... (968)
Payment to shareholders................................... (134,656)
Equity contribution by HWH net of reinvestment by
management of $4,270.................................... 45,730
---------
Total............................................... $ (89,580)
=========
</TABLE>
The actual payment to stockholders was $165.1 million, which reflected the
actual amount of debt as of the closing date. The amount of debt is impacted
by various factors including seasonality of the Company's operations.
Stockholders' equity will be adjusted accordingly.
37
<PAGE> 41
NBC ACQUISITION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
LAST TWELVE MONTHS ENDED DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Revenues............................................... $185,414 $23,761(2) $209,175
Cost of sales.......................................... 116,732 16,399(2) 133,131
-------- ------- --------
Gross profit................................. 68,682 7,362 76,044
Operating expenses
Selling, general, and administrative................. 44,295 4,791(2) 49,086
Depreciation......................................... 2,487 93(2) 2,580
Amortization......................................... 5,534 302(3) 5,836
-------- ------- --------
Income from operations....................... 16,366 2,176 18,542
Other expenses (income)
Interest expense..................................... 9,779 11,816(4) 21,595
Interest income...................................... (440) (100)(2) (540)
Other income......................................... (409) (417)(2) (826)
-------- ------- --------
Income (loss) before income taxes............ 7,436 (9,123) (1,687)
Income tax expense (benefit)........................... 2,996 (3,469)(5) (473)
-------- ------- --------
Income (loss) from continuing
operations(6).............................. $ 4,440 $(5,654) $ (1,214)
======== ======= ========
Pro forma earnings (loss) per share(7)
Basic................................................ $ (1.24)
========
Diluted.............................................. $ (1.24)
========
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Revenues............................................... $172,600 $26,129(2) $198,729
Cost of sales.......................................... 110,466 19,098(2) 129,564
-------- ------- --------
Gross profit................................. 62,134 7,031 69,165
Operating expenses
Selling, general, and administrative................. 39,788 5,395(2) 45,183
Depreciation......................................... 2,706 99(2) 2,805
Amortization......................................... 4,747 302(3) 5,049
-------- ------- --------
Income from operations....................... 14,893 1,235 16,128
Other expenses (income)
Interest expense..................................... 10,085 11,293(4) 21,378
Interest income...................................... (561) (9)(2) (570)
Other income......................................... (390) (375)(2) (765)
-------- ------- --------
Income (loss) before income taxes............ 5,759 (9,674) (3,915)
Income tax expense (benefit)........................... 2,325 (3,677)(5) (1,352)
-------- ------- --------
Income (loss) from continuing
operations(6).............................. $ 3,434 $(5,997) $ (2,563)
======== ======= ========
Pro forma earnings (loss) per share(7)
Basic................................................ $ (2.61)
========
Diluted.............................................. $ (2.61)
========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statements of
operations.
38
<PAGE> 42
NBC ACQUISITION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Revenues............................................ $144,922 $16,549(2) $161,471
Cost of sales....................................... 91,496 12,394(2) 103,890
-------- ------- --------
Gross profit.............................. 53,426 4,155 57,581
Operating expenses
Selling, general, and administrative.............. 33,788 3,306(2) 37,094
Depreciation...................................... 1,725 62(2) 1,787
Amortization...................................... 4,336 226(3) 4,562
-------- ------- --------
Income from operations.................... 13,577 561 14,138
Other expenses (income)
Interest expense.................................. 7,473 8,925(4) 16,398
Interest income................................... (227) (81)(2) (308)
Other Income...................................... (312) (358)(2) (670)
-------- ------- --------
Income (loss) before income taxes......... 6,643 (7,925) (1,282)
Income tax expense (benefit)........................ 2,657 (3,012)(5) (355)
-------- ------- --------
Income (loss) from continuing
operations(6)........................... $ 3,986 $(4,913) $ (927)
======== ======= ========
Pro forma earnings (loss) per share(7)
Basic............................................. $ (0.95)
========
Diluted........................................... $ (0.95)
========
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Revenues............................................ $132,108 $18,917(2) $151,025
Cost of sales....................................... 85,230 15,093(2) 100,323
-------- ------- --------
Gross profit.............................. 46,878 3,824 50,702
Operating expenses
Selling, general, and administrative.............. 29,281 3,910(2) 33,191
Depreciation...................................... 1,944 68(2) 2,012
Amortization...................................... 3,549 226(3) 3,775
-------- ------- --------
Income from operations.................... 12,104 (380) 11,724
Other expenses (income)
Interest expense.................................. 7,780 8,401(4) 16,181
Interest income................................... (349) 11(2) (338)
Other income...................................... (293) (316)(2) (609)
-------- ------- --------
Income (loss) before income taxes......... 4,966 (8,476) (3,510)
Income tax expense (benefit)........................ 1,986 (3,220)(5) (1,234)
-------- ------- --------
Income (loss) from continuing
operations(6)........................... $ 2,980 $(5,256) $ (2,276)
======== ======= ========
Pro forma earnings (loss) per share(7)
Basic............................................. $ (2.32)
========
Diluted........................................... $ (2.32)
========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statements of
operations.
39
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Information for the last twelve months ended December 31, 1997 represents
the summation of the nine months ended December 31, 1997 and the year ended
March 31, 1997 information, less the nine months ended December 31, 1996.
(2) Reflects the historical results of the Acquisitions during the nine months
ended December 31, 1997 to the extent they were not previously included in
the historical results of the Company, as well as the historical results of
CSC which was acquired as part of the Recapitalization. The historical
amounts of selling, general and administrative expenses have been adjusted
by $662, $695, $521 and $488 for the last twelve months ended December 31,
1997, the year ended March 31, 1997 and the nine months ended December 31,
1996 and 1997, respectively, to reflect cost savings as a result of reduced
compensation expense as if the Company owned all operations for all
respective periods.
(3) Reflects amortization of goodwill from the CSC acquisition over a 10 year
period.
(4) Adjusts interest expense to reflect the effect of the Acquisitions and the
Recapitalization:
<TABLE>
<CAPTION>
LAST
FISCAL TWELVE
NINE MONTHS ENDED YEAR MONTHS
--------------------------- ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1997 1997 1997
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Tranche A Term Loans(a)................. $ 1,650 $ 1,650 $ 2,200 $ 2,200
Tranche B Term Loans(b)................. 2,011 2,011 2,681 2,681
Senior Subordinated Notes(c)............ 7,219 7,219 9,625 9,625
Holdings Senior Discount Debentures(d).. 3,628 3,628 4,838 4,838
Amortization of deferred financing
costs................................. 1,380 1,380 1,840 1,840
Historical interest of acquired
bookstores............................ 105 73 125 93
------- ------- ------- -------
Total................................... 15,993 15,961 21,309 21,277
Less: interest on retired debt.......... 7,592 7,036 10,016 9,461
------- ------- ------- -------
Adjustment to interest expense.......... $ 8,401 $ 8,925 $11,293 $11,816
======= ======= ======= =======
</TABLE>
- ---------------
(a) Interest is calculated at an annual rate of 8.00% for the period
indicated.
(b) Interest is calculated at an annual rate of 8.25% for the period
indicated.
(c) Interest is calculated at an annual rate of 8.75% for the period
indicated.
(d) Interest is calculated at an annual rate of 10.75% for the period
indicated.
(5) Adjusts income tax expense to reflect the effect of pro forma adjustments
that affect taxable income at an assumed effective tax rate of 38%.
(6) The pro forma consolidated statements of operations do not reflect the
impact of certain non-recurring charges directly related to the
Recapitalization:
<TABLE>
<S> <C>
Write off of deferred financing fees on retired debt, net of
income tax effect......................................... $1,858
Non-cash stock based compensation expense from the exercise
of nonqualified stock options, net of income tax effect... 4,602
Write off of discount on retired debt, net of income tax
effect.................................................... 1,426
------
Total.............................................. $7,886
======
</TABLE>
(7) Pro forma earnings (loss) per share have been calculated assuming 980,400
shares of common stock were outstanding for all periods presented.
40
<PAGE> 44
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
and other data of the Company and its predecessors as of and for the three
fiscal years ended March 31, 1995, the five and seven month periods ended August
31, 1995 and March 31, 1996, respectively, the fiscal year ended March 31, 1997,
and the nine month periods ended December 31, 1996 and December 31, 1997. The
selected historical consolidated financial data for the three fiscal years ended
March 31, 1995, the five and seven month periods ended August 31, 1995 and March
31, 1996, respectively, and the fiscal year ended March 31, 1997, were derived
from the audited consolidated financial statements of the Company and its
predecessors. The selected financial data for the nine month periods ended
December 31, 1996 and December 31, 1997 have been derived from the Company's
unaudited consolidated financial statements. In the opinion of the Company's
management, the interim financial information has been prepared on the same
basis of accounting and contains those adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the data for such periods.
The results for the nine month period ended December 31, 1997 are not
necessarily indicative of the results to be expected for the fiscal year ending
March 31, 1998 or for any future periods. The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and the related notes thereto included herein.
<TABLE>
<CAPTION>
FIVE SEVEN FISCAL
MONTHS MONTHS YEAR NINE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, ENDED ENDED ENDED DECEMBER 31,
------------------------------ AUGUST 31, MARCH 31, MARCH 31, -------------------
1993 1994 1995 1995 1996(1) 1997 1996 1997
-------- -------- -------- ---------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $136,695 $139,437 $149,227 $ 83,328 $79,423 $172,600 $132,108 $144,922
Cost of sales......................... 87,630 90,657 96,317 52,753 51,866 110,466 85,230 91,496
-------- -------- -------- --------- --------- -------- -------- --------
Gross profit................... 49,065 48,780 52,910 30,575 27,557 62,134 46,878 53,426
Operating expenses:
Selling, general, and
administrative..................... 31,644 33,063 35,325 14,729 22,599 39,788 29,281 33,788
Depreciation......................... 1,944 1,754 1,889 872 904 2,706 1,944 1,725
Amortization......................... -- -- -- -- 2,653 4,747 3,549 4,336
-------- -------- -------- --------- --------- -------- -------- --------
Income from operations................ 15,477 13,963 15,696 14,974 1,401 14,893 12,104 13,577
Other expenses (income)...............
Interest expense..................... 704 616 766 952 5,641 10,085 7,780 7,473
Interest income...................... (155) (180) (224) (51) (433) (561) (349) (227)
Other income:(2)..................... (348) (563) (416) (469) (339) (390) (293) (312)
-------- -------- -------- --------- --------- -------- -------- --------
Income (loss) before income
taxes........................ 15,276 14,090 15,570 14,542 (3,468) 5,759 4,966 6,643
Income tax expense (benefit).......... 5,550 5,383 5,950 5,583 (967) 2,325 1,986 2,657
-------- -------- -------- --------- --------- -------- -------- --------
Net income (loss).............. $ 9,726 $ 8,707 $ 9,620 $ 8,959 $(2,501) $ 3,434 $ 2,980 $ 3,986
======== ======== ======== ========= ========= ======== ======== ========
Earnings (loss) per share(3)
Basic................................ $ (0.89) $ 1.23 $ 1.06 $ 1.42
Diluted.............................. $ (0.89) $ 1.16 $ 1.01 $ 1.28
OTHER DATA:
EBITDA(4)............................. $ 17,769 $ 16,280 $ 18,001 $ 16,315 $ 5,379 $ 23,033 $ 18,113 $ 20,273
Net cash flows from operating
activities........................... 9,087 10,338 10,009 1,643 3,423 10,774 (14,657) (22,042)
Net cash flows from financing
activities........................... (6,809) (9,809) (2,087) 437 116,063 (7,471) 11,482 24,762
Net cash flows from investing
activities........................... (2,278) (1,029) (8,255) 371 (109,385) (3,427) (1,330) (7,441)
Capital expenditures.................. 2,175 1,374 8,260 801 838 2,243 1,359 2,887
Business acquisition
expenditures(5)...................... -- -- 100 -- 551 1,252 22 4,593
Ratio of earnings to fixed
charges(6)(7)........................ 9.5x 8.9x 8.5x NM 2.3x 1.5x 1.5x 1.7x
Pro forma ratio of earnings to fixed
charges(6)(8)........................ (9) (9)
Number of bookstores open at end of
the period........................... 27 29 34 35 38 46 40 54
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............. $ 3,123 $ 2,623 $ 2,291 $ 4,741 $ 10,101 $ 9,977 $ 5,596 $ 5,256
Working capital....................... 38,795 39,118 32,781 43,879 52,469 55,936 58,085 57,968
Total assets.......................... 65,525 65,857 75,179 92,505 129,023 127,169 145,450 156,350
Total debt, including current
maturities........................... 2,836 1,027 8,940 9,376 86,712 79,524 98,402 104,363
Stockholders' equity.................. 52,941 53,648 53,269 62,228 28,263 31,697 31,242 35,830
</TABLE>
- ---------------
(1) Effective September 1, 1995, the Company purchased all the outstanding
capital stock of Nebraska Book in a transaction accounted for as a purchase
business combination. Following the 1995 Transaction, the consolidated
results of operations of the Company contained higher interest costs due to
the financing of the acquisition and higher amortization expense for
goodwill and other intangibles created by the acquisition.
(notes continue on following page)
41
<PAGE> 45
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Earnings (loss) per share has not been presented for the fiscal years ended
March 31, 1993, 1994 and 1995 and for the five months ended August 31, 1995,
as such presentation would not be meaningful.
(4) EBITDA is defined as income from operations plus other income, depreciation,
amortization and non-cash charges relating to stock based compensation
expense in the amounts of $82 for the seven months ended March 31, 1996,
$297 for the year ended March 31, 1997 and $223 and $323 for the nine months
ended December 31, 1996 and 1997, respectively. The Company believes that
EBITDA provides additional information for determining its ability to meet
debt service requirements. EBITDA does not represent and should not be
considered as an alternative to net income or cash flow from operations as
determined by generally accepted accounting principles, and EBITDA does not
necessarily indicate whether cash flow will be sufficient for cash
requirements. EBITDA should not be considered by investors as an indicator
of cash flows from operating activities, investing activities and financing
activities as determined in accordance with generally accepted accounting
principles. Items excluded from EBITDA, such as depreciation and
amortization, are significant components in understanding and assessing the
Company's financial performance. EBITDA measures presented may not be
comparable to similarly titled measures presented by other issuers.
(5) Business acquisition expenditures represent established businesses purchased
by the Company.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of the Company's rent
expense.
(7) For purposes of the ratio of earnings to fixed charges, the operating
results for the five months ended August 31, 1995 and the seven months ended
March 31, 1996 have been combined in order to calculate the applicable data
for the twelve months ended March 31, 1996.
(8) Pro forma interest expense gives effect to the Acquisitions and the
Recapitalization as if they had occurred on April 1, 1996.
(9) Earnings were insufficient to cover pro forma fixed charges for the year
ended March 31, 1997 and the nine months ended December 31, 1997 by
$3,915,000 and $1,282,000, respectively.
42
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company participates in the college bookstore industry by providing
used textbooks to college bookstores, by operating its own college bookstores,
by providing independent and institution-owned college bookstores with
purchasing, management consulting and information systems services, and by
distributing distance education materials. The Company began operations in 1915
as a single college bookstore in Lincoln, Nebraska. The Company entered the
wholesale used textbook market following World War II, when the supply of new
textbooks could not meet the demand created by the return of ex-GI students. In
1964, the Company became a national, rather than regional, wholesaler of used
textbooks as a result of its purchase of The College Book Company of California.
During the 1970s the Company continued its focus on the wholesale business.
However, realizing the synergies that exist between the wholesale and college
bookstore operations, in the 1980s it expanded its efforts in the college
bookstore market with a new strategy. Under this new strategy, the Company
operates bookstores on or near larger campuses, typically where the
institution-owned college bookstore is contract-managed by a competitor or where
the Company does not have a significant wholesale presence. Today, the Company
services the college bookstore industry through its wholesale, college bookstore
and services operations.
Nebraska Book was acquired by Holdings in a leveraged buyout in September
1995. Holdings was formed for the purpose of acquiring all of the outstanding
capital stock of the Company. Since the 1995 Transaction, and as part of the new
owner's operating strategy, management has focused on expanding its bookstore
and services operations to improve the overall growth of the Company and to
enhance its wholesale operations. Since the 1995 Transaction, the Company has
opened 20 college bookstores and expanded its wholesale and services operations.
In January 1998, the Company acquired CSC, a centralized buying service for
over 500 college bookstores across the United States. Through the enhanced
purchasing power of such a large group of bookstores, participating bookstores
are able to purchase certain books and general merchandise at lower prices than
those that would be paid by the stores individually. CSC also provides the
Company with increased contact with bookstores from which the Company will seek
to source additional used textbooks.
43
<PAGE> 47
RESULTS OF OPERATIONS
The following table sets forth the comparative statements of operations
that are the basis of discussion below. For purposes of these tables, fiscal
1996 results are the summation of the five months ended August 31, 1995 for
Nebraska Book prior to the 1995 Transaction and the seven months ended March 31,
1996 for the Company subsequent to the 1995 Transaction.
<TABLE>
<CAPTION>
FIVE SEVEN COMBINED
YEAR MONTHS MONTHS YEAR YEAR NINE MONTHS ENDED
ENDED ENDED ENDED ENDED ENDED DECEMBER 31,
MARCH 31, AUGUST 31, MARCH 31, MARCH 31, MARCH 31, -------------------
1995 1995 1996 1996 1997 1996 1997
--------- ---------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Wholesale.................... $ 75,747 $54,328 $27,350 $ 81,678 $ 84,487 $ 73,879 $ 79,178
College bookstores........... 77,667 33,024 52,396 85,420 92,508 61,687 69,561
Services..................... 2,769 1,905 1,599 3,504 4,922 3,881 7,316
Intercompany eliminations.... (6,956) (5,929) (1,922) (7,851) (9,317) (7,339) (11,133)
-------- ------- ------- -------- -------- -------- --------
Total revenues............. 149,227 83,328 79,423 162,751 172,600 132,108 144,922
Cost of sales.................. 96,317 52,753 51,866 104,619 110,466 85,230 91,496
-------- ------- ------- -------- -------- -------- --------
Gross profit............... 52,910 30,575 27,557 58,132 62,134 46,878 53,426
Operating expenses:
Selling, general and
administrative............. 35,325 14,729 22,599 37,328 39,788 29,281 33,788
Depreciation................. 1,889 872 904 1,776 2,706 1,944 1,725
Amortization................. -- -- 2,653 2,653 4,747 3,549 4,336
-------- ------- ------- -------- -------- -------- --------
Operating income........... 15,696 14,974 1,401 16,375 14,893 12,104 13,577
Other expenses (income):
Interest expense, net........ 542 901 5,208 6,109 9,524 7,431 7,246
Other income................. (416) (469) (339) (808) (390) (293) (312)
-------- ------- ------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 15,570 14,542 (3,468) 11,074 5,759 4,966 6,643
Income tax expense (benefit)... 5,950 5,583 (967) 4,616 2,325 1,986 2,657
-------- ------- ------- -------- -------- -------- --------
Net income (loss).......... $ 9,620 $ 8,959 $(2,501) $ 6,458 $ 3,434 $ 2,980 $ 3,986
======== ======= ======= ======== ======== ======== ========
</TABLE>
The following sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's statements of
operations for the fiscal periods shown below:
<TABLE>
<CAPTION>
FIVE SEVEN COMBINED NINE MONTHS
YEAR MONTHS MONTHS YEAR YEAR ENDED
ENDED ENDED ENDED ENDED ENDED DECEMBER 31,
MARCH 31, AUGUST 31, MARCH 31, MARCH 31, MARCH 31, -------------
1995 1995 1996 1996 1997 1996 1997
--------- ---------- --------- --------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Wholesale.......................... 50.8% 65.2% 34.4% 50.2% 48.9% 55.9% 54.6%
College bookstores................. 52.0 39.6 66.0 52.5 53.6 46.7 48.0
Services........................... 1.9 2.3 2.0 2.1 2.9 2.9 5.1
Intercompany eliminations.......... (4.7) (7.1) (2.4) (4.8) (5.4) (5.5) (7.7)
----- ----- ----- ----- ----- ----- -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales........................ 64.5 63.3 65.3 64.3 64.0 64.5 63.1
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 35.5 36.7 34.7 35.7 36.0 35.5 36.9
Operating expenses:
Selling, general and
administrative................... 23.7 17.7 28.5 22.9 23.1 22.1 23.3
Depreciation....................... 1.3 1.0 1.1 1.1 1.6 1.5 1.2
Amortization....................... -- -- 3.3 1.6 2.7 2.7 3.0
----- ----- ----- ----- ----- ----- -----
Operating income................. 10.5 18.0 1.8 10.1 8.6 9.2 9.4
Other expenses (income):
Interest expense, net.............. 0.4 1.1 6.6 3.8 5.5 5.6 5.0
Other income....................... (0.3) (0.6) (0.4) (0.5) (0.2) (0.2) (0.2)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes.......................... 10.4 17.5 (4.4) 6.8 3.3 3.8 4.6
Income tax expense (benefit)......... 4.0 6.7 (1.2) 2.8 1.3 1.5 1.8
----- ----- ----- ----- ----- ----- -----
Net income (loss)................ 6.4% 10.8% (3.2)% 4.0% 2.0% 2.3% 2.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>
44
<PAGE> 48
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH NINE MONTHS ENDED DECEMBER 31,
1996.
Revenues. Revenues for the nine months ended December 31, 1997 increased
$12.8 million, or 9.7%, to $144.9 million from $132.1 million for the nine
months ended December 31, 1996. This increase was due to a $5.3 million, or
7.2%, increase in wholesale sales, a $7.9 million, or 12.8%, increase in college
bookstore sales and a $3.4 million increase in revenue related to complementary
services. Wholesale sales for the nine months ended December 31, 1997 increased
to $79.2 million from $73.9 million for the nine months ended December 31, 1996,
due primarily to publisher price increases and unit volume sales growth. In
part, this unit growth resulted from an increase in the number of college
bookstores operated by the Company, which increased the Company's ability to
procure book inventory. College bookstore sales for the nine months ended
December 31, 1997 increased to $69.6 million from $61.7 million for the nine
months ended December 31, 1996. The increase in college bookstore sales was a
result of the eight stores opened or acquired in fiscal 1998 and the full period
effect of the stores which were opened or acquired in fiscal 1997. These
increases were partially offset by a decrease in same store sales of 0.7% due
primarily to (i) major renovation at the Company's second largest bookstore
which temporarily reduced the store's selling space and (ii) a reduction in
sales of college football championship merchandise at the University of Nebraska
bookstore. Sales related to complementary services for the nine months ended
December 31, 1997 increased to $7.3 million from $3.9 million for the nine
months ended December 31, 1996 primarily as a result of the acquisition of
Specialty Books. As the Company's wholesale and college bookstore operations
have grown, the Company's intercompany transactions have also increased.
Gross profit. Gross profit for the nine months ended December 31, 1997
increased $6.5 million, or 14%, to $53.4 million from $46.9 million for the nine
months ended December 31, 1996. This increase was primarily due to higher
revenues combined with an increase in gross margin. Gross profit as a percentage
of revenues for the nine months ended December 31, 1997 increased to 36.9% from
35.5% for the nine months ended December 31, 1996. This increase was primarily
due to an increase in used textbook sales through the Company's bookstores,
which generate a higher gross margin for the Company.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended December 31, 1997 increased
$4.5 million, or 15.4%, to $33.8 million from $29.3 million for the nine months
ended December 31, 1996. Selling, general and administrative expenses as a
percentage of revenues increased to 23.3% for the nine months ended December 31,
1997 from 22.1% for the nine months ended December 31, 1996. These increases
resulted primarily from the higher expense base associated with the Company's
expansion of its college bookstore operations in fiscal 1998 and the full year
effect of the fiscal 1997 bookstore expansion.
Amortization expense. Amortization expense for the nine months ended
December 31, 1997 increased $0.8 million, or 22.2%, to $4.3 million from $3.5
million for the nine months ended December 31, 1996. While amortization expense
primarily relates to the goodwill and other intangibles created in the 1995
Transaction, the increase resulted from the incremental goodwill associated with
business acquisitions that occurred during fiscal 1997 and fiscal 1998.
Operating income. Operating income for the nine months ended December 31,
1997 increased $1.5 million, or 12.2%, to $13.6 million from $12.1 million for
the nine months ended December 31, 1996. Operating income as a percentage of
revenues increased to 9.4% in the nine months ended December 31, 1997 from 9.2%
for the nine months ended December 31, 1996.
Interest expense, net. Interest expense, net for the nine months ended
December 31, 1997 decreased $0.2 million, or 2.5%, to $7.2 million from $7.4
million for the nine months ended December 31, 1996. The decrease is primarily
the result of lower long-term debt balances resulting from debt repayments.
45
<PAGE> 49
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH THE COMBINED FISCAL YEAR ENDED
MARCH 31, 1996.
Revenues. Revenues for fiscal 1997 increased $9.8 million, or 6.1%, to
$172.6 million from $162.8 million for fiscal 1996. This increase was due to a
$2.8 million, or 3.4%, increase in wholesale sales, a $7.1 million, or 8.3%,
increase in college bookstore sales and a $1.4 million increase in revenues
related to complementary services. Wholesale sales for fiscal 1997 increased to
$84.5 million from $81.7 million for fiscal 1996. This increase in wholesale
sales was due primarily to publisher price increases. College bookstore sales
for fiscal 1997 increased to $92.5 million from $85.4 million for fiscal 1996.
The increase in college bookstore sales was a result of same store sales
increases of 4.3% combined with the nine bookstores opened or acquired during
fiscal 1997 and the full year effect of stores opened or acquired in fiscal
1996. As the Company's wholesale and college bookstore operations have grown,
the Company's intercompany transactions have also increased.
Gross profit. Gross profit for fiscal 1997 increased $4.0 million, or 6.9%,
to $62.1 million from $58.1 million for fiscal 1996. This increase was primarily
due to higher revenues, combined with an increase in gross margin. Gross margin
for fiscal 1997 increased to 36.0% from 35.7% for fiscal 1996. The increase was
primarily due to an increase in used textbook sales through the Company's
bookstores, which generate a higher gross margin for the Company.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1997 increased $2.5 million, or 6.6%, to
$39.8 million from $37.3 million for fiscal 1996. Selling, general and
administrative expenses as a percentage of revenues increased to 23.1% for
fiscal 1997 from 22.9% for fiscal 1996. These increases resulted primarily from
the higher expense base associated with the Company's expansion of its college
bookstore operations in fiscal 1997 and the full year effect of the fiscal 1996
bookstore expansion.
Amortization expense. Amortization expense for the fiscal year ended March
31, 1997 increased $2.1 million to $4.7 million from $2.7 million for the fiscal
year ended March 31, 1996. This increase resulted primarily from the full year
of the amortization of goodwill and other intangibles created in the 1995
Transaction.
Operating income. Operating income for fiscal 1997 decreased $1.5 million,
or 9.1%, to $14.9 million from $16.4 million for fiscal 1996. Operating income
as a percentage of revenues decreased to 8.6% for fiscal 1997 from 10.1% for
fiscal 1996. These decreases are primarily the result of the increase in
depreciation and amortization as a result of purchase accounting adjustments in
the 1995 Transaction.
Interest expense, net. Interest expense, net for fiscal 1997 increased by
$3.4 million to $9.5 million from $6.1 million for fiscal 1996 as a result of a
full year of interest on the debt used to partially finance the 1995
Transaction.
COMBINED FISCAL YEAR ENDED MARCH 31, 1996 COMPARED WITH FISCAL YEAR ENDED MARCH
31, 1995
Revenues. Revenues for fiscal 1996 increased $13.6 million, or 9.1%, to
$162.8 million from $149.2 million for fiscal 1995. This increase was due to a
$5.9 million, or 7.8%, increase in wholesale sales, a $7.7 million, or 10.0%,
increase in college bookstore sales and a $0.7 million increase in revenues
related to complementary services. Wholesale sales for fiscal 1996 increased to
$81.7 million from $75.7 million for fiscal 1995. The increase in wholesale
sales was due primarily to publisher price increases and unit volume sales
growth. In part, this unit growth resulted from an increase in the number of
college bookstores operated by the Company, which increased the Company's
ability to procure book inventory. College bookstore sales for fiscal 1996
increased to $85.4 million from $77.7 million for fiscal 1995. This increase was
primarily a result of same store sales increases of 5.1% and the incremental
volume provided by four stores opened or acquired in fiscal 1996 and the full
year effect of the stores opened or acquired in fiscal 1995. As the Company's
wholesale and
46
<PAGE> 50
college bookstore operations have grown, the Company's intercompany transactions
have also increased.
Gross profit. Gross profit for fiscal 1996 increased $5.2 million, or 9.9%,
to $58.1 million from $52.9 million for fiscal 1995. This increase was primarily
due to higher revenues in the Company's wholesale and college bookstore
operations. Gross profit as a percentage of revenues increased slightly to 35.7%
for fiscal 1996 from 35.5% for fiscal 1995. The increase was primarily due to
improved margins in the Company's wholesale operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1996 increased $2.0 million, or 5.7%, to
$37.3 million from $35.3 million for fiscal 1995. This increase resulted
primarily from the higher expense base associated with the Company's expansion
of its college bookstore operations in fiscal 1996 and the full year effect of
the fiscal 1995 bookstore expansion. Selling, general and administrative
expenses as a percentage of revenues declined to 22.9% in fiscal 1996 from 23.7%
for fiscal 1995, primarily due to a reduction of administrative and support
costs which were effected subsequent to the 1995 Transaction.
Amortization expense. Amortization expense for fiscal 1996 was $2.7
million. This expense resulted from the amortization of goodwill and other
intangibles created in the 1995 Transaction.
Operating income. Operating income for fiscal 1996 increased $0.7 million,
or 4.3%, to $16.4 million from $15.7 million for fiscal 1995. Operating income
as a percentage of revenues decreased to 10.1% for fiscal 1996 from 10.5% for
fiscal 1995.
Interest expense, net. Interest expense, net for fiscal 1996 increased $5.6
million to $6.1 million from $0.5 million for fiscal 1995 due to the increased
level of debt incurred to partially finance the 1995 Transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for debt service under the
Debentures, the Credit Facilities, the Senior Subordinated Notes and other
outstanding indebtedness, for working capital, and for capital expenditures. The
Company has historically funded these requirements primarily through internally
generated cash flow and funds borrowed under the Company's credit facilities. At
December 31, 1997, on a pro forma basis after giving effect to the
Recapitalization and the Offering, the Company's total indebtedness would have
been approximately $215.6 million, consisting of approximately $45.0 million of
the Debentures, $60.0 million in Term Loans, $110.0 million of the Senior
Subordinated Notes, and $0.6 million of other indebtedness. To provide
additional financing to fund the Recapitalization, Holdings raised an additional
$50.0 million, consisting of $45.7 million through the sale to HWH of Holdings
Common Stock (representing 91.4% of the outstanding Holdings Common Stock), and
$4.3 million from the reinvestment in Holdings Common Stock by senior management
of the Company.
Principal and interest payments under the Debentures, the Credit Facilities
and the Senior Subordinated Notes represent significant liquidity requirements
for the Company. Under the terms of the Term Loans, Nebraska Book is required to
make principal payments totaling approximately $1.3 million in fiscal 1999, $3.1
million in fiscal 2000, $4.4 million in fiscal 2001, $6.3 million in fiscal
2002, and $6.8 million in fiscal 2003. Loans under the Credit Facilities bear
interest at floating rates based upon the interest rate option selected by the
Company. Under the terms of the Credit Facilities, Nebraska Book is required to
purchase and maintain interest rate protection with respect to 50% of the Term
Loans for three years. For a description of the Credit Facilities, see
"Description of Other Indebtedness."
The Senior Subordinated Notes will mature on February 15, 2008. Interest on
the Senior Subordinated Notes will be payable semi-annually in cash.
47
<PAGE> 51
The Company's capital expenditures were $8.3 million, $1.6 million, $2.2
million and $2.9 million in fiscal 1995, fiscal 1996, fiscal 1997 and the nine
months ended December 31, 1997, respectively. In fiscal 1995, the Company spent
approximately $3.4 million to open a new warehouse in Lincoln, Nebraska. For the
nine months ended December 31, 1997, the Company spent $1.0 million for the
purchase and upgrade of automation equipment and $0.7 million to renovate its
second largest bookstore. The Company estimates that for the remainder of fiscal
1998 and for fiscal 1999, approximately $0.3 million and $2.5 million,
respectively, of capital expenditures will be required, primarily for
maintenance. Capital expenditures consist primarily of bookstore opening costs,
bookstore renovations and miscellaneous maintenance requirements. The Company
believes that as a result of the availability of excess capacity in its
distribution facilities, it will be able to pursue its strategy over the next
several years without making significant additional capital expenditures to
expand capacity. The Company's ability to make capital expenditures is subject
to certain restrictions under the Credit Agreement. See "Description of Other
Indebtedness."
Business acquisition expenditures were $0.1 million, $0.6 million, $1.3
million and $4.6 million in fiscal 1995, fiscal 1996, fiscal 1997 and the nine
months ended December 31, 1997, respectively. Significant businesses acquired
since fiscal 1995 have included Specialty Books, South Carolina Bookstore, Inc.
and other bookstores located in Arizona, Texas and Oklahoma. In January 1998,
the Company acquired CSC for approximately $4.0 million. The Company estimates
that for fiscal 1999, it will make approximately $2.0 million of business
acquisition expenditures.
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
Facility. Net cash provided from operating activities for fiscal 1997 was $10.8
million, an increase of $5.7 million from $5.1 million in fiscal 1996, primarily
as a result of lower uses of cash in fiscal 1997 to fund increases in accounts
receivable and inventory. Net cash used in operating activities for the nine
months ended December 31, 1997 was $22.0 million, an increase of $7.4 million
from a $14.7 million use of cash in the nine months ended December 31, 1996.
This increase primarily resulted from higher inventories in college bookstores
and the Company's improved procurement of used book inventory. Due to the
seasonal nature of the Company's operations, net cash flows from operating
activities for the first nine months of the Company's fiscal year represent a
significant use of cash which is typically funded through revolving credit
borrowings.
As of December 31, 1997, on a pro forma basis after giving effect to the
Recapitalization and the Offering, the Revolving Credit Facility would have been
undrawn and $50.0 million would have been available to be drawn. Amounts
available under the Revolving Credit Facility may be used for working capital
and general corporate purposes (including up to $10.0 million for letters of
credit), subject to certain limitations under the Credit Agreement.
SEASONALITY
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experiences two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and May. In fiscal 1997, approximately 44% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 23% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. The Company funds its working capital requirements primarily through a
revolving credit facility, which historically has been paid down in full at the
end of the Company's fiscal year.
48
<PAGE> 52
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented
based upon historical costs. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor. However, there can be no
assurance that during a period of significant inflation, the Company's results
of operations would not be adversely affected.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those programs
recognize a date using "00" as the year 1900 rather than the year 2000 (the
"Year 2000 Issue"). This problem could cause a system failure or miscalculations
resulting in disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
The Company has completed an assessment of the impact of the Year 2000
Issue on its operations, and has been modifying and will continue to modify and
replace portions of its software so that its internal computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has been addressing the Year 2000 Issue consistently as part of its
regular program of updating and rewriting its internal corporate applications
during the last seven years. As a result, all of the Company's own retail
applications have been modified completely. The only remaining internal
corporate application that remains to be replaced is the general ledger
application, which the Company is currently in the process of addressing by
evaluating commercial software solutions. The Company expects the cost to
replace its current general ledger software with a commercial application that
is "Year 2000 compliant" will be less than $50,000. The Company plans to have
such a new application in place by the fall of 1998. Because the Company has
addressed the Year 2000 Issue over the years as a part of the general upgrading
and updating of corporate applications, there has been little cost in terms of
both time and expense specifically attributable to addressing this issue.
Although the Company's assessment did not address its exposure to third
parties' (e.g., vendors' and customers') failures to correct their systems for
the Year 2000 Issue, the Company believes that there is not a material risk to
the Company's business relating to such failures, because most of its customers
use Company software which has already been corrected and, based on
conversations with its vendors and information provided in trade publications,
the Company believes that its vendors are taking steps to address the Year 2000
Issue. Nonetheless, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely corrected.
49
<PAGE> 53
BUSINESS
GENERAL
The Company is one of the largest wholesale distributors of used college
textbooks in North America, offering approximately 90,000 textbook titles and
selling more than 7.1 million books annually at approximately 2,000 college
campuses. In addition, the Company owns or manages 54 bookstores on or adjacent
to college campuses through which it sells a variety of new and used textbooks
and general merchandise. The Company also distributes new textbooks to college
bookstores and is a leading provider of distance education materials to students
in nontraditional courses, which include correspondence and corporate education
courses. Furthermore, the Company provides the college bookstore industry with a
variety of services including in-store promotions, buying programs, marketing
services and proprietary information systems. With origins dating to 1915, the
Company has built a consistent reputation for excellence in order fulfillment,
shipping performance and customer service. On a pro forma basis, for the twelve
months ended December 31, 1997, the Company's revenues and EBITDA (as defined)
would have been $209.2 million and $28.2 million, respectively.
The Company entered the wholesale used textbook market following World War
II, when the supply of new textbooks could not meet the demand created by the
return of ex-GI students. In 1964, the Company became a national, rather than
regional, wholesaler of used textbooks as a result of its purchase of The
College Book Company of California. During the 1970's the Company continued its
focus on the wholesale business. However, realizing the synergies that exist
between the wholesale and college bookstore operations in the 1980's it expanded
its efforts in the college bookstore market with a new strategy. Under this new
strategy the Company operates bookstores on or near larger campuses, typically
where the institution-owned college bookstore is contract-managed by a
competitor or where the Company does not have a significant wholesale presence.
Today, the Company services the college bookstore industry through its
wholesale, college bookstore and services operations.
According to the National Association of College Stores, in the academic
year 1995-1996 approximately 4,600 college stores generated a total of $7.9
billion in annual sales to college students and other consumers in North
America. Sales of textbooks and other educational materials used for classroom
instruction comprised approximately 64% of this amount. The Company expects this
market will grow as a result of anticipated increases in enrollment at U.S.
colleges. The National Center for Education Statistics estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
Sales of textbooks to college stores have grown at a compound annual rate
of 5.4% from $2.3 billion in sales in 1990 to $3.0 billion in 1995, as estimated
by Cowles/Simba Information Inc. Over the same period, Cowles/Simba Information
Inc. estimated that sales of used textbooks have grown at a compound annual rate
of 12.7%, increasing their share of all textbook sales from 20% in 1990 to 28%
in 1995. The Company believes that sales of used textbooks will continue to grow
because used textbooks provide students with a lower-cost alternative to new
textbooks, and because bookstores typically achieve higher margins through the
sale of used rather than new textbooks.
The Company considers itself well positioned to capitalize on these
opportunities because of its leading market position, its strong customer
relationships, its broad product and service offerings and its superior order
fulfillment capabilities. These factors have also contributed to the strong,
stable growth of the Company. The following chart illustrates the Company's
consistent revenue
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growth over the last 20 fiscal years, even during economic downturns, resulting
in a compound annual growth rate of over 10%.
[PLOT POINTS TO COME] [FISCAL YEARS SALES GRAPH]
WHOLESALE. The Company is one of the largest wholesale distributors of used
college textbooks in North America. Its wholesale operations consist primarily
of selling used textbooks to college bookstores, buying them back from students
or college bookstores at the end of each school semester and then reselling them
to college bookstores. The Company purchases used textbooks from and resells
them to college bookstores at many of the nation's largest college campuses,
including: University of Texas, University of Southern California, Indiana
University, University of Florida, University of Arizona, Brigham Young
University, University of Washington and University of Minnesota. Historically,
because the demand for used textbooks has consistently outpaced supply, the
Company's wholesale sales have been determined primarily by the amount of used
textbooks that it could purchase. The Company's strong relationships with the
management of approximately 2,000 independently-owned college bookstores have
provided important access to valuable market information regarding the
campus-by-campus supply and demand of textbooks, as well as an ability to
procure large quantities of a wide variety of textbooks. The Company provides a
proprietary Buyer's Guide to its customers, which lists over 36,000 textbook
titles with such details as author, new copy retail price and the Company's
repurchase price. With the January 1998 acquisition of CSC, the Company intends
to significantly expand its wholesale distribution of new textbooks.
COLLEGE BOOKSTORES. College bookstores are the primary outlets for sales of
new and used textbooks to students. The Company operates 54 college bookstores
on or adjacent to college campuses of which eight are managed by the Company at
institution-owned stores (i.e., contract-managed). Its college bookstores are
located at some of the nation's largest college campuses including: University
of Nebraska, University of Michigan, University of Maryland, Arizona State
University, Pennsylvania State University, University of Kansas, Cornell
University, Baylor University, Oklahoma State University, University of
Tennessee and Ohio University. In addition to generating profits, the Company's
college bookstore operations provide an exclusive source of used textbooks for
sale across the Company's wholesale distribution network. The Company generally
focuses its college bookstore operations at colleges where the Company otherwise
would not have a significant representation.
SERVICES. In the last year, the Company has completed two acquisitions
representing new initiatives for it in the college bookstore industry. In
January 1998, the Company acquired CSC, a centralized buying service for over
500 college bookstores across the United States. Through the enhanced purchasing
power of such a large group of bookstores, participating bookstores are able to
purchase certain books and general merchandise at lower prices than those that
would be paid by the stores individually. CSC also provides the Company with
increased contact with bookstores
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from which the Company will seek to source additional used textbooks. With its
acquisition of Specialty Books in May 1997, the Company entered the distance
education market, which consists of providing education materials to students in
nontraditional college and other courses (such as correspondence courses,
continuing and corporate education courses and courses offered through
electronic media such as the Internet). Other services offered to college
bookstores include the sale of computer hardware and software, such as the
Company's turnkey bookstore management software, and related maintenance
contracts. These services generate revenue and assist the Company in enhancing
and developing customer relationships.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading provider
of products and services to the college bookstore market, thereby increasing
revenue and cash flow. In order to accomplish its goal, the Company intends to
pursue the following strategies:
ENHANCE GROWTH IN WHOLESALE OPERATIONS. The Company expects the stable
growth of its wholesale operations to continue, primarily as a result of an
expected increase in college enrollments and increased utilization of used
textbooks, as well as through the expansion of its own college bookstore
network. The Company's enhanced presence as a distributor of new textbooks
(resulting from its CSC acquisition) is also expected to positively impact the
Company's wholesale operations.
CAPITALIZE ON COLLEGE BOOKSTORE OPPORTUNITIES. The Company intends to
expand sales for its college bookstore operations by acquiring and opening
bookstores at selected college campuses, increasing its contract-managed store
base and offering additional specialty products and services at its existing
bookstores. The Company also believes there are significant opportunities to
improve cash flow at its college bookstores by reducing certain selling, general
and administrative expenses and by realizing economies of scale through
increased purchasing power for textbooks and general merchandise as a result of
its affiliation with CSC.
PURSUE ADDITIONAL GROWTH OPPORTUNITIES. The Company intends to aggressively
pursue selected growth opportunities in several related markets, including:
- Complementary Services. The Company believes that its acquisition of
CSC will greatly enhance the Company's sales and marketing capabilities,
bolstering growth and positioning the Company as a dominant full-service
provider within the college bookstore industry, by increasing its sources
of used textbooks and providing access to CSC's marketing programs and
capabilities.
- Distance Education. The distance education market is growing due to
the increased popularity of correspondence courses, continuing and
corporate education courses and courses offered through electronic media
such as the Internet. Through its acquisition of Specialty Books, the
Company believes that it is well positioned to take advantage of this
growth trend.
INDUSTRY OVERVIEW
According to The National Association of College Stores, in the academic
year 1995-1996 approximately 4,600 college stores generated a total of $7.9
billion in annual sales to college students and other consumers in North
America. Sales of textbooks and other education materials used for classroom
instruction comprised approximately 64% of this amount. The Company expects this
market will grow as a result of anticipated increases in enrollment at U.S.
colleges. The National Center for Education Statistics estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
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WHOLESALE TEXTBOOK MARKET. Sales of textbooks to college stores, have grown
at a compound annual rate of 5.4%, from $2.3 billion in sales in 1990 to $3.0
billion in 1995, as estimated by Cowles/Simba Information Inc. Over the same
period, Cowles/Simba Information Inc. estimated that sales of used textbooks
have grown at a compound annual rate of 12.7%, increasing their share of all
textbook sales from 20% in 1990 to 28% in 1995. The Company believes that sales
of used textbooks will continue to grow because used textbooks provide students
with a lower-cost alternative to new textbooks, and because bookstores typically
achieve higher margins through the sale of used rather than new textbooks.
The pricing pattern of textbook publishing accounts for a large part of the
growth of the used book market. Because of copyright restrictions, each new
textbook is produced by only one publisher, which is free to set the new copy
retail price and discount terms to bookstores. Publishers generally offer new
textbooks at prices which enable college bookstores to achieve a gross margin of
23% to 25% on new textbooks. Historically, the high retail costs of new
textbooks and the higher margins achieved by bookstores on the sale of used
textbooks (approximately 33%) have encouraged the growth of the market for used
textbooks.
The used textbook cycle begins with new textbook publishers, who purposely
plan obsolescence into the publication of new textbooks. Generally, new editions
of textbooks are produced every two to four years. In the first year of a new
edition, there are few used copies of a new edition available. In the second and
third years, used textbooks become increasingly available. Simultaneously,
publishers begin to plan an updated edition. In years four and beyond, at the
end of the average life cycle of a particular edition, as publishers cut back on
original production, used textbooks generally represent a majority (in unit
terms) of the particular edition in use. While the length of the cycle varies by
title (and sometimes is indefinite, as certain titles are never updated), the
basic supply/demand progression remains fairly consistent.
The following example illustrates the life cycle of a used textbook as it
is purchased from the college bookstore by the wholesaler, then sold back to the
college bookstore which resells it to the student who, at the end of the
semester, sells it back to the college bookstore (assuming a new copy retail
list price of $100.00): The wholesaler begins the cycle by buying the used
textbook from the college bookstore for $32.00. The wholesaler will sell the
used textbook to the college bookstore for $50.00 or 50% of the new copy retail
price. The bookstore in turn, sells it to the student for 75% of the new copy
retail price, or $75.00 (earning a gross margin of 33%). This margin compares
favorably to the gross margin provided by sales of new textbooks, which
historically has been in the range of 23 to 25%. After using the textbook for
the semester, the student sells the book back to the college bookstore for
$28.00, and the bookstore again sells the used book to the wholesaler for
$32.00, for a net commission of $4.00. The wholesaler's mark-up of $18.00
(selling price of $50.00 less acquisition cost of $32.00) represents a gross
margin of 36%, not taking into account the periodic increase in prices of new
textbooks.
College bookstores begin to place orders with used textbook wholesalers
once professors determine which books will be required for their upcoming
courses, usually by the end of May for the fall semester and the end of November
for the spring semester. Bookstore operators must first determine their
allocation between new and used copies for a particular title but, in most
cases, they will order an excessive quantity of used books because: (i) used
book demand from students is typically strong and consistent; (ii) many
operators only have access to a limited supply from wholesalers and believe that
not having used book alternatives could create considerable frustration among
students and with the college administration; (iii) bookstore operators earn
higher margins on used books than on new books; and (iv) both new and used books
are sold with return privileges, eliminating any overstock risk (excluding
freight charges) to the college bookstore.
New textbook ordering usually begins in June, at which time the store
operator augments its expected used book supply by ordering new books. By this
time, publishers typically will have just implemented their annual price
increases. These regular price increases, which historically have run
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4% to 5%, allow the Company and its competitors to buy used textbooks based on
old list prices (in May) and to almost simultaneously sell them based on new
higher prices, thereby creating an immediate margin increase.
While price is an important factor in the store operator's purchasing
decision, available supply, as well as service, usually determine with which
used textbook wholesaler a college bookstore will develop a strong relationship.
Pure exclusive supply arrangements in the Company's market are rare. However,
used textbook wholesalers that are able to significantly service a college
bookstore account typically receive preferential treatment from store operators,
both in selling and in buying used textbooks. Since the Company is usually able
to sell the vast majority of the used textbooks it is able to purchase, its
ability to obtain sufficient supply is the critical factor for the Company's
success.
COLLEGE BOOKSTORE MARKET. College stores generally fall into three
categories: (i) institutional -- stores that are primarily owned and operated by
institutions of higher learning (represent 60% of the market); (ii)
contract-managed -- stores owned by institutions of higher learning and managed
by outside, private companies, typically found on-campus (represent 25% of the
market); and (iii) independent stores -- privately owned and operated stores,
generally located off campus (represent 15% of the market). In general, the
"captive" portion of the college bookstore market includes those
contract-managed stores that sell their used textbooks to affiliated companies,
and institutional and independent stores to the extent that such used textbooks
are repurchased from students and are retained by the bookstore for resale
without involving a wholesaler.
The Company believes that sales at its college bookstores will continue to
grow as a result of increased enrollment at colleges and due to the increasing
number of products and services offered in these bookstores. In addition, it
believes that as a result of the development and implementation of management
information systems to improve productivity and customer service, as well as to
more easily and efficiently track and manage inventory, the profitability of its
college bookstores will increase.
PRODUCTS AND SERVICES
WHOLESALE. The Company's wholesale operations are engaged in the
procurement and redistribution of textbooks on college campuses across the
nation. Although it is primarily a provider of used textbooks, the Company also
offers its customers new textbooks.
The Company also publishes the Buyer's Guide, which lists over 36,000
textbooks according to author, title, new copy retail price and the Company's
repurchase price, and which is an important part of the Company's inventory
control and book procurement system. The Company updates and reprints the
Buyer's Guide ten times each year and makes it available in both print and
various electronic formats, including on all of the Company's proprietary
information systems. A staff of dedicated professionals gathers information from
all over the country in order to make the Buyer's Guide into what the Company
believes to be the most comprehensive and up-to-date pricing and buying aid for
college bookstores. The Company also maintains a database of over 170,000 titles
in order to better serve its customers.
COLLEGE BOOKSTORES. The Company operates 54 college bookstores on or
adjacent to college campuses of which eight are contract-managed by the Company.
These bookstores sell a wide variety of used and new textbooks, general books
and assorted general merchandise, including apparel, sundries and gift items.
The Company has been, and intends to continue, selectively expanding its product
offerings at its bookstores in order to increase sales and profitability. For
example, the Company recently began offering "Clinique" cosmetics which are
popular with the college student population and have increased store sales at
dedicated "Clinique counters" in certain of its bookstores. Such products can be
sold at a high margin, thereby increasing profitability.
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The college bookstore operations also provide consulting services to other
college bookstores. Using their industry experience, the Company's specialists
work with college bookstore managers to provide them with systems and support
services. The Company offers assistance in areas such as store planning, systems
and merchandise layouts. Following the acquisition of CSC, the Company intends
to combine these consulting operations with the larger consulting operation of
CSC.
SERVICES. As a result of the Company's acquisition of CSC in January 1998,
it is able to offer a variety of products and services to CSC's participating
college bookstores. CSC offers apparel and general merchandise through discount
programs, develops and executes marketing programs and hosts trade shows at
which vendor's showcase their products. As a centralized buying service for
college bookstores with over 500 participating college bookstores having
estimated sales volume of approximately $2.5 billion, CSC has evolved into a
buying group with enough purchasing power to compete with larger, multi-location
store operators.
CSC is the largest distributor of plastic bags to college bookstores in the
United States. CSC's plastic bag program offers bookstores the opportunity to
purchase customized bags at a substantial discount while the Company generates a
profit due to receipt of revenue from advertising inserts which are placed
inside the bags. A similar insert program is being planned for both new and used
textbooks. Other CSC marketing services programs include the sale of magazine
subscriptions and affinity cards, and savings on shipping costs.
CSC also provides an opportunity for interaction and exchange among buyers
and between buyers and vendors to the college bookstore market through
semi-annual trade shows, which are held in February/March for the fall semester
buying period and in October/November ahead of the spring semester. Vendors pay
CSC for the opportunity to attend these trade shows.
Additionally, a staff of experienced CSC professionals consult with the
management of bookstores both by telephone and in person. Services offered
include strategic planning, store review, merchandise planning and help with
most other operational aspects of the business. While consulting has
historically represented a relatively small component of CSC's business, it is
nonetheless strategically important to the ongoing success of this aspect of the
Company's business.
With its acquisition of Specialty Books in May 1997, the Company entered
the market for distance education products and services. Currently, the Company
provides students at over 50 colleges with textbooks and materials for use in
distance education courses, and is a leading provider of textbooks to
nontraditional programs and students such as correspondence or corporate
education students. The Company believes the fragmented distance education
market represents an opportunity for the Company to leverage its fulfillment and
distribution expertise in a rapidly growing sector. Beyond textbooks, the
Company offers services and specialty course materials to distance education
students including videotape duplication and shipping, shipping of specialty,
nontextbook course materials and a sales and ordering function. Students can
order distance education materials from the Company over the Internet. The
Company believes it can significantly increase the service operations revenues
from distance education products over the next several years.
Other services offered to college bookstores include services related to
the Company's turnkey bookstore management software and the sale of other
software and hardware, and related maintenance contracts. These services
generate revenue and assist the Company in gaining access to new sources of used
textbooks. The Company has an installed base of over 400 college bookstore
locations for its textbook management control systems, and it has installed its
proprietary total store management system at over 200 college bookstore
locations. In total, over 600 college bookstore locations utilize the Company's
software products.
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WHOLESALE PROCUREMENT AND DISTRIBUTION
Historically, because the demand for used textbooks has consistently
exceeded supply, the Company's sales have been primarily determined by the
amount of used textbooks that it can purchase. Consequently, the Company
believes that, on average, it receives approximately five orders for every one
order it fills. As a result, the Company's success has depended primarily on its
inventory procurement, and the Company continues to focus its efforts on
obtaining inventory. In order to ensure its ability to both obtain and
redistribute inventory, the Company's wholesale strategy has emphasized
establishing and maintaining strong customer and supplier relationships with
college bookstores (primarily, independent and institutional college bookstores)
through its employee account representatives. These 45 account representatives
(as of December 31, 1997) are responsible for procuring used textbooks from
students, marketing the Company's services on campus, purchasing overstock
textbooks from bookstores and securing leads for sale of the Company's
automation products. The Company has been able to maintain a competitive edge by
providing superior service, made possible primarily through the development and
maintenance of ready access to inventory, information and supply. Other
components of the wholesale strategy and its implementation include: (i)
selectively paying a marginal premium relative to competitors to entice students
to sell back more books to the Company; (ii) gaining access to competitive
campuses (one where the campus bookstore is contract-managed by a competitor) by
opening off-campus, Company-owned college bookstores; (iii) using technology to
gain efficiencies and to improve customer service; (iv) maintaining a
knowledgeable and experienced sales force that is customer-service oriented; and
(v) providing working capital flexibility for bookstores making substantial
purchases.
The two major used textbook purchasing seasons are at the end of each
academic semester, May/June and December/January. Although the Company makes
book purchases during other periods, the inventory purchased in May, before
publishers announce their price increases in June and July, allows the Company
to purchase inventory based on the lower retail prices of the previous year. The
combination of this purchasing cycle and the fact that the Company is able to
sell its inventory in relation to retail prices for the following year permits
the Company to realize additional gross margin. The Company advances cash to its
representatives during these two periods, and the representatives in turn buy
books directly from students, generally through the on-campus bookstore.
The prices wholesalers pay for books are a function of a number of factors,
including the date on which a new edition is scheduled to be released, the
demand pattern for each book, the Company's existing supply and the anticipated
overall supply. Suggested purchase prices typically range from 5% to 33% of the
publisher's new copy retail price. The average price paid for books is
approximately 22% of new copy retail; bookstores and agents earn an additional
commission for allowing the Company to purchase books at their facilities. The
result is a total cost to the Company of between 8% and 40% of the new copy
retail price.
After the Company purchases the books, the Company arranges for shipment to
one of its two warehouses via common carrier. At the warehouse, the Company
refurbishes damaged books and categorizes and shelves all other books in a
timely manner, and enters them into the Company's on-line inventory system. The
Company, which does business in California under the tradename "College Book
Company of California," is the only major national used textbook wholesaler with
facilities in California. However, the Company's primary warehouse is located in
Nebraska. These two locations function as one facility allowing customers to
access inventory at both locations.
In order to ensure prompt, efficient and accurate order fulfillment, the
Company has developed a system of classifying both books and customers in its
database. Based on an in-depth analysis of orders received, inventory and
publishing trends for the preceding 18 months, the Company rates books on a
scale of 1-9, with 9 being the highest rating. A high rating generally indicates
that a book is in high demand. Highly rated books move out of inventory quickly,
and they produce relatively low
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gross margins because the Company must pay a relatively higher price to purchase
these books from students. In contrast, lower-rated books produce higher margins
because the Company pays less to acquire the inventory. If the Company has not
received any orders for a book for six months, it gives that title no value for
inventory purposes, and if there is no demand for the title in 18 months, the
Company may physically remove it from the inventory.
In a similar fashion, the Company also rates customers on a scale of 1-9,
based on a combination of how many used books the customer supplies to the
Company, whether or not the customer uses the Company's management systems,
credit quality and the volume of used books ordered by the customer. The Company
does not permit a customer to order a book with a higher rating than the
customer's. (For instance, a customer with a rating of 7 is unable to purchase
books with a rating of 8 or 9, but is able to order any title with a 7 rating or
below.) This system enables the Company to manage its inventory and its
relationships effectively despite the constraints placed on it by the fact that
demand for used books is greater than supply. The Company rates approximately
80% of its inventory 3 or lower, which allows most of its customers to purchase
sufficient quantities of even the more popular titles.
Customers place orders by phone, mail, fax or other electronic method. Upon
receiving an order, the Company removes the books from available inventory and
holds them for future shipping. Customers may return books within 60 days after
the start of classes if a written request is enclosed. Returns currently average
approximately 20% of sales and generally are attributable to course
cancellations or overstocking. The majority of returns are textbooks that the
Company is able to resell during the next semester. Because customers may change
their orders prior to the shipping date, the Company does not recognize revenue
until an order has been shipped.
CUSTOMERS
The Company sells its products and services to approximately 2,000 college
bookstores in the United States, Canada and Puerto Rico for ultimate use by the
students of the respective colleges. The Company has had relationships with its
25 largest wholesale customers (which accounted for approximately 8% of the
fiscal 1997 revenues) for an average of 20 years. No one customer accounted for
more than 1% of the Company's fiscal 1997 revenues.
The Company's wholesale operations purchase from and resell used textbooks
to many of the nation's largest college campuses including: University of Texas,
University of Southern California, Indiana University, University of Florida,
University of Arizona, Brigham Young University, University of Washington and
University of Minnesota.
The Company's college bookstores are located on many of the nation's
largest college campuses including: University of Nebraska, University of
Michigan, University of Maryland, Arizona State University, Pennsylvania State
University, University of Kansas, Cornell University, Baylor University,
Oklahoma State University, University of Tennessee and Ohio University.
COLLEGE BOOKSTORE OPERATIONS
An important aspect of the Company's business strategy is a program
designed to reach new customers through the opening of bookstores on or adjacent
to college campuses. In addition to generating sales of new and used textbooks
and general merchandise, these outlets enhance the Company's wholesale
operations by increasing the inventory of used books purchased from the campus.
A desirable campus for a Company-operated college bookstore is one on which
the Company does not currently buy or sell used textbooks either because a
competitor of the Company contract-manages the college's bookstore or the
college bookstore does not have a strong relationship with the Company. The
Company generally will not open a location on a campus where it already has a
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strong relationship with the college bookstore because some college bookstores
may view having a competing location as a conflict of interest.
The Company tailors each bookstore to fit the needs and lifestyles of the
campus on which it is located. Individual bookstore managers are given
significant planning and managing responsibilities, including, hiring employees,
controlling cash and inventory, and purchasing and merchandising product. The
Company has staff specialists to assist individual bookstore managers in such
areas as store planning, merchandise layout and inventory control.
As of December 31, 1997 the Company operated 54 college bookstores
nationwide, having expanded from 27 bookstores in 1993. During fiscal 1998 the
Company purchased four new bookstores through the acquisition of South Carolina
Book Store, Inc. and purchased two additional bookstores located in Flagstaff,
Arizona and Houston, Texas, adding estimated combined annual revenues in excess
of $8 million.
The table below highlights certain information regarding the Company's
bookstores opened through December 31, 1997.
<TABLE>
<CAPTION>
BOOKSTORES APPROXIMATE
OPEN AT BOOKSTORES BOOKSTORES TOTAL
BEGINNING ADDED CLOSED BOOKSTORES SQUARE
OF FISCAL DURING DURING AT END OF FOOTAGE
FISCAL YEAR YEAR FISCAL YEAR FISCAL YEAR(1) FISCAL YEAR (IN THOUSANDS)
----------- ---------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1994............................... 27 2 0 29 330
1995............................... 29 5 0 34 364
1996............................... 34 4 0 38 388
1997............................... 38 9 1 46 438
1998(2)............................ 46 8 0 54 474
</TABLE>
- ---------------
(1) Represents a contract-managed bookstore where the management contract was
not renewed.
(2) Includes bookstores opened through December 31, 1997.
The Company plans to increase the number of bookstores in operation by
three bookstores annually. The bookstore expansion plan will focus on campuses
where the Company does not already have a strong relationship with the on-campus
bookstore. In determining to open a bookstore, the Company looks at several
criteria: (i) a large enough market to justify the Company's efforts (typically
this means a campus of at least 10,000 students); (ii) a site in close proximity
to campus with adequate parking and accessability; (iii) the potential of the
bookstore to have a broad product mix (larger bookstores are more attractive
than smaller bookstores because a full line of general merchandise can be
offered in addition to textbooks); (iv) the availability of top-quality
management; and (v) certain other factors, including leasehold improvement
opportunities and personnel costs.
The 46 Company bookstores that were opened prior to April 1, 1997 averaged
approximately $2.0 million per store in annualized sales and produced sales per
gross square foot of approximately $230 for the 12 month period ended December
31, 1997. The Company's bookstores have an average size of 8,800 gross square
feet but range in size from 1,000 to 50,000 square feet. The Company estimates
that leasehold improvements, furniture and fixtures, and automation with the
Company's PRISM system, the Company's proprietary total-store management system,
for new bookstores is approximately $100,000 per bookstore, after giving effect
to construction allowances.
MANAGEMENT INFORMATION SYSTEMS
The Company has committed substantial resources to its MIS operations. This
commitment reflects the Company's belief that it can significantly enhance
efficiency, profitability and competitiveness through investments in technology.
The Company's MIS operations process order entry, control inventory, generate
purchase orders and customer invoices, generate various sales reports
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and process and retrieve textbook information. All the Company's divisions
operate with state-of-the-art IBM RS/6000s. At the center of its MIS operations
are the Company's self-developed, proprietary software programs such as PRISM,
its whole store management system, PC-Text, its management and inventory control
system, and PC-Trade, which tracks sales data. This software is maintained and
continuously enhanced by the Company, which is staffed by an experienced team of
development and design professionals. The Company believes that its MIS
capabilities will serve the Company's needs for the foreseeable future.
MIS operations consist of three operating units: (i) the mainframe unit,
which develops and supports all systems utilized in the Company's warehouses;
(ii) a system sales unit, which markets the Company's college store management
systems to colleges; and (iii) the College Bookstore Management Systems
("CBMS"), which develops and supports the systems that are sold to bookstores.
The Company conducts training courses for all systems users at the
Company's headquarters in Lincoln, Nebraska. Classes are small and provide hands
on demonstrations of the various systems. Printed reference manuals and training
materials also accompany each system. The customer support unit of CBMS is
staffed with approximately 25 experienced personnel who are available 24 hours a
day to answer questions on a toll-free number.
COMPETITION
The Company's two major competitors in the college store industry and used
textbook business are Follett Campus Resources ("Follett") and MBS Textbook
Exchange ("MBS"). The remaining competitors are smaller regional companies,
including Wallace College Book Company, ABS Corp., Texas Book Company and
Southeastern Book Company. Most of the leading companies in the industry also
have an established retail presence, either through direct store
ownership/operation or through contract-management.
Follett's college bookstore operations have enabled it to preclude
potential competitors such as the Company from entering certain campuses, which
in turn affects both the Company's ability to buy books and its ability to add
new accounts. However, because it is required to supply used texts to all of its
own stores, Follett must balance the demands of its own bookstores with those of
its other independent customers.
MBS is controlled by the same shareholder that controls Barnes & Noble.
Consequently, MBS supplies approximately 350 Barnes & Noble college stores. MBS
faces the same challenges that Follett faces in supplying existing institutional
accounts. MBS has a strong systems division that competes actively with the
Company for new customers, and that also fulfills all of the needs of the Barnes
& Noble stores.
The Company's college bookstore operations compete with other college
campus bookstores, including the on-campus bookstore in those locations where
the Company's bookstore is off-campus. Its two primary competitors in college
bookstores are Follett, which contract-manages approximately 515 stores, and
Barnes & Noble, which contract-manages approximately 350 stores.
The Company also increasingly competes against the expansion of electronic
media as a source of textbook information, such as on-line resources and CD-ROM,
which may replace the need for students to purchase textbooks.
PROPERTIES
The Company owns its two warehouses (totaling 244,000 square feet) in
Lincoln, Nebraska (one of which is also the location of its headquarters), and
leases its 60,000 square foot warehouse in Cypress, California. The Cypress
lease expires on August 31, 2002 and has one five-year option to renew.
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Listed below, set forth as of December 31, 1997, are the Company's college
bookstores, their location, college served and the school's enrollment. The
bookstores are leased by the Company unless otherwise noted:
<TABLE>
<CAPTION>
INSTITUTION LOCATION ENROLLMENT(1) STORE NAME
----------- -------- ------------- ----------
<S> <C> <C> <C>
University of Alabama Tuscaloosa, AL 19,800 The College Store
Northern Arizona University Flagstaff, AZ 16,800 The College Store
Northern Arizona University Flagstaff, AZ 16,800 University Text and Tools
Coconino Community College Flagstaff, AZ 6,000 Coconino Community College
Bookstore(2)
Arizona State University Tempe, AZ 45,000 The College Store
University of Arizona Tucson, AZ 34,300 Arizona Book Store
University of Arizona Tucson, AZ 34,300 Arizona Book Store II
University of Arkansas--Little Rock Little Rock, AR 12,000 Campus Bookstore
Georgia State University Atlanta, GA 28,000 Georgia Book Store
Ball Sate University Muncie, IN 20,300 Collegiate Book Exchange
Valparaiso University Valparaiso, IN 3,200 University Book Center(2)
Drake University Des Moines, IA 5,700 University Book Store
University of Kansas Lawrence, KS 29,100 University Book Shop
Johnson County Community College Overland Park, KS 15,159 The College Store
University of Maryland College Park, MD 42,200 Maryland Book Exchange
Prince Georges Community College Largo, MD 13,000 Prince Georges Community
College Bookstore(2)
University of Michigan Ann Arbor, MI 36,500 Michigan Book & Supply
University of Michigan Ann Arbor, MI 36,500 Ulrich's Bookstore
Ferris State University Big Rapids, MI 10,200 The College Store
Michigan State University East Lansing, MI 42,000 The College Store
Kettering Engineering & Management Institute Flint, MI 2,600 Kettering Campus Store(2)
Eastern Michigan University and Ypsilanti, MI 25,400 & Campus Book & Supply
Washtenaw Community College 11,500
Mankato State University Mankato, MN 14,300 Maverick Bookstore
Chadron State College Chadron, NE 3,700 Eagle Bookstore(2)
University of Nebraska -- Kearney Kearney, NE 7,500 The Antelope Bookstore(2)
University of Nebraska -- Lincoln Lincoln, NE 23,900 Nebraska Bookstore
Nebraska Wesleyan University Lincoln, NE 1,550 Plainsman Bookstore(2)
Wayne State College Wayne, NE 3,900 Student Bookstore
University of Nevada Las Vegas Las Vegas, NV 20,700 Rebelbooks
State University of New York -- Buffalo Amherst, NY 23,500 The College Store
Cornell University Ithaca, NY 17,800 Triangle Book Shop
University of Akron Akron, OH 23,000 The College Store
Ohio University Athens, OH 27,386 Specialty Books
Wright State University Fairborn, OH 17,000 The College Store
Oklahoma State University Stillwater, OK 19,900 Cowboy Book
Indiana University of Pennsylvania Indiana, PA 16,500 The College Store
University of Pittsburgh Pittsburgh, PA 24,000 The College Store
Pennsylvania State University State College, PA 35,000 University Book Centre
College of Charleston Charleston, SC 11,000 University Books of Charleston
Columbia College Columbia, SC 1,500 C-Squared Bookstore(2)
University of South Carolina Columbia, SC 25,000 South Carolina Bookstore
(2 locations)
University of Tennessee Knoxville, TN 25,000 Campus Bookstore
University of North Texas Denton, TX 26,000 Voertman's
University of Texas -- Pan American Edinburg, TX 14,000 South Texas Book & Supply
North Harris County Community College Houston, TX 10,000 College Bookstore
Texas Tech University Lubbock, TX 24,000 Spirit Shop
Texas Tech University Lubbock, TX 24,000 Double T Bookstores
San Antonio College San Antonio, TX 25,000 L&M
University of Texas -- San Antonio San Antonio, TX 18,000 L&M -- UTSA
Southwest Texas State San Marcos, TX 21,000 Colloquium Books (2 locations)
Baylor University Waco, TX 12,200 University Bookstore and
Spirit Shop
Virginia Polytechnic and State University Blacksburg, VA 24,000 Tech Bookstore
Old Dominion University Norfolk, VA 16,000 Dominion Bookstore
Tidewater Community College Virginia Beach, VA 19,000 The College Store
</TABLE>
- ---------------
(1) Source: National Association of College Stores. Includes part-time students.
(2) Denotes contract-managed stores.
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<PAGE> 64
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clear Air Act, the Hazardous Materials
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with, or of any
foreseeable liabilities under, environmental and employee health and safety laws
and regulations will have a material adverse affect on its business or financial
condition.
EMPLOYEES
As of December 31, 1997 the Company had a total of 1,750 employees, of
which 800 are full-time, 235 are part-time and 715 are temporary. The Company
has no unionized employees and believes that its relationship with its employees
is satisfactory.
In view of the seasonal nature of its wholesale business, the Company
utilizes seasonal labor to improve operating efficiency. The Company employs a
small number of "flex-pool" workers who are cross-trained in a variety of
warehouse functions. Over the past seven years, the Company has employed about
50 and 30 flex-pool workers in the Nebraska and Cypress facilities,
respectively, thereby enabling the Company to lower its wholesale operating
expenses. Temporary employees augment the flex-pool to meet periodic labor
demands.
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
currently it is not a party to any litigation the outcome of which would have a
material adverse affect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
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<PAGE> 65
MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF BOARD OF DIRECTORS
The executive officers and members of the Board of Directors of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Haas................. 51 Chairman and Director
Mark W. Oppegard............... 48 President and Director
Bruce E. Nevius................ 46 Chief Financial Officer and Treasurer
Kenneth F. Jirovsky............ 55 Vice President of Wholesale Sales and Marketing
William H. Allen............... 55 Vice President of Wholesale Operations
Thomas A. Hoff................. 50 Vice President of College Bookstore Operations
Larry R. Rempe................. 49 Vice President of Information Systems
Ardean A. Arndt................ 56 Vice President of Administration and Secretary
Douglas D. Wheat............... 47 Director
</TABLE>
The business experience, principal occupation and employment as well as the
periods of service of each of the directors and executive officers of the
Company during the last five years are set forth below.
Robert B. Haas became Chairman and a Director of the Company upon the
consummation of the Recapitalization. Mr. Haas has been actively involved in
private investments since 1978. He has served as Chairman of the Board and Chief
Executive Officer of Haas Wheat since 1995; he has also been Chairman of the
Board and Chief Executive Officer of Haas Wheat Advisory Partners Incorporated
since 1992 and Chairman of the Board of Haas & Partners Incorporated since 1989
(each of which is a private investment firm specializing in leveraged
acquisitions). Mr. Haas serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation (a producer of specialty food
products), Sybron International Corporation, Smarte Carte Corporation and Walls
Holding Company, Inc. and is the Chairman of the Board of Playtex Products, Inc.
(a consumer products company).
Mark W. Oppegard has served in the college bookstore industry for 28 years
(all of which have been with the Company), has been the President and a Director
of the Company since 1992 and has been Vice President, Secretary, Assistant
Treasurer and a Director of Holdings since 1995. Upon consummation of the
Recapitalization, Mr. Oppegard became Chief Executive Officer of Nebraska Book
and Chief Executive Officer, President and a Director of Holdings. Prior to
1992, Mr. Oppegard served in a series of positions, including Vice President of
the college bookstore operations. He is currently a director of NACSCORP, INC.,
a distribution company serving the college bookstore industry.
Bruce E. Nevius has served in the college bookstore industry for 22 years
(all of which have been with the Company) and has been the Chief Financial
Officer of the Company since 1995 and Treasurer since 1984. Upon the
consummation of the Recapitalization, Mr. Nevius became Vice President and
Secretary of Holdings. From 1976 to 1984 Mr. Nevius served as Controller of the
Company. Prior thereto, he served in various positions for Lincoln Industries,
Inc. ("Lincoln"), a holding company that owned the Company until 1995.
Kenneth F. Jirovsky has served in the college bookstore industry for 37
years (all of which have been with the Company) and has been Vice President of
Wholesale Sales and Marketing of the Company since 1986. Prior to 1986 Mr.
Jirovsky served in a series of positions, including assistant manager of the
wholesale operations.
William H. Allen has served in the college bookstore industry for 33 years
(of which 24 have been with the Company) and has been the Vice President of
Wholesale Operations since 1994. Prior
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<PAGE> 66
to that time Mr. Allen served in a series of positions, including assistant
manager of the wholesale operations. Prior to joining the Company in 1974, Mr.
Allen was employed by the Missouri Store Company, a predecessor of MBS.
Thomas A. Hoff has served in the college bookstore industry for 11 years
(all of which have been with the Company) and has been the Vice President of
College Bookstore Operations of the Company since 1992. Mr. Hoff served as an
assistant to the Vice President of the College Bookstore Operations from 1987 to
1992.
Larry R. Rempe has served in the college bookstore industry for 12 years
(all of which have been with the Company) and has been the Vice President of
Information Systems of the Company since 1986. Prior to that time Mr. Rempe
served in various positions for Lincoln.
Ardean A. Arndt has served in the college bookstore industry for 13 years
(all of which have been with the Company) and has been the Vice President of
Administration and Secretary of the Company since 1985. Prior to that time, Mr.
Arndt was Vice President of Administration of Lincoln from 1981.
Douglas D. Wheat became a Director of the Company upon the consummation of
the Recapitalization. Mr. Wheat has been President of Haas Wheat since 1995 and
President of Haas Wheat Advisory Partners Incorporated since 1992; he was
Co-Chairman of Grauer & Wheat, Inc. (a private investment firm) from 1989 to
1992 and Senior Vice President of Donaldson, Lufkin & Jenrette Securities
Corporation from 1985 to 1989. Mr. Wheat serves as a director of Specialty Foods
Acquisition Corporation, Specialty Foods Corporation, Smarte Carte Corporation,
Walls Holding Company, Inc. and Playtex Products, Inc.
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid by
the Company to its President and each of its two other most highly compensated
officers (the "Named Executive Officers") for the fiscal year ended March 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)
--------------------------- ------- --------- ---------------
<S> <C> <C> <C>
Mark W. Oppegard
Chief Executive Officer and President.............. 1997 $164,615 $2,955
Kenneth F. Jirovsky
Vice President of Wholesale Sales and Marketing.... 1997 $ 96,923 $2,966
Larry R. Rempe
Vice President of Information Systems.............. 1997 $ 98,846 $2,734
</TABLE>
- ---------------
(1) Consists of the sum of (i) Company matching contributions to the NBC
Retirement Plan in the following amounts: Mr. Oppegard, $2,607; Mr.
Jirovsky, $2,390; and Mr. Rempe, $2,386; and (ii) life insurance premiums in
the following amounts: Mr. Oppegard, $348; Mr. Jirovsky, $576; and Mr.
Rempe, $348.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation for services but are
reimbursed for out-of-pocket expenses.
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<PAGE> 67
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning options to
purchase shares of Holdings Class A Common Stock granted pursuant to the NBC
1995 Stock Incentive Plan of Holdings, and the values at the end of fiscal 1997
of such options. No Named Executive Officer exercised any options to purchase
Holdings Class A Common Stock in fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(1) AT FY-END(#)(1)
------------------------------ ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark W. Oppegard................... 5,000 45,000 $145,000 $1,305,000
Kenneth F. Jirovsky................ 2,000 18,000 $ 58,000 $ 522,000
Larry R. Rempe..................... 3,000 27,000 $ 87,000 $ 783,000
</TABLE>
- ---------------
(1) Based on an estimated value of $39.00 per share reduced by the exercise
price of $10 per share. The fair market value of the stock underlying the
options was determined by multiplying the Company's EBITDA for the twelve
months ended March 31, 1997 by a factor of 8.0 to 8.5, subtracting the
Company's net debt and dividing the result by the aggregate number of shares
outstanding on a fully-diluted basis.
EMPLOYMENT AGREEMENTS
Upon consummation of the Recapitalization, the Company entered into
employment agreements expiring March 31, 2001 ("Employment Agreements") with
Mark W. Oppegard and six other senior executive officers (each, an "Executive")
of the Company. Such agreements provide for a base salary for the balance of the
current fiscal year and thereafter as determined by the Board of Directors, for
incentive compensation based upon the attainment of financial objectives to be
established by the Board of Directors (or a committee thereof) following the
recommendation of the chief executive officer, and for customary fringe
benefits. The amounts of salaries are as follows: Mr. Oppegard, $187,000 per
annum; Mr. Rempe, $105,000 per annum; Mr. Jirovsky, $100,000 per annum. The
Employment Agreements provide that their term will be automatically extended
from year to year after March 31, 2001, unless terminated upon specified notice
by either party.
The Employment Agreements also provide that each Executive will be granted
a number of options to acquire shares of Holdings Common Stock determined by the
Board of Directors. Each such option has an exercise price equal to the fair
market value per share as of the date of grant and is exercisable as to 25% of
the shares covered thereby on the date of grant and as to an additional 25% of
the shares covered thereby on each of the first three anniversaries of the date
of grant, subject to the Executive's continued employment by the Company on such
dates.
The Employment Agreements also provide for specified payments to the
Executive in the event of termination of employment by the Company without
"cause" (as defined in the respective agreements) and in the event of death or
disability of the Executive during the term. The Employment Agreements also
contain customary confidentiality obligations and three year non-competition
agreements for each Executive.
Finally, the Employment Agreements provide that, prior to the consummation
by Holdings of an initial public offering of Holdings Common Stock, the
Executives will not sell, transfer, pledge or otherwise dispose of any shares of
Holdings Common Stock, except for certain transfers to immediate family members,
in the event of disability and for estate planning purposes. The Employment
Agreements also provide that, in the event of the sale of a majority of the
outstanding Holdings Common Stock the Executives will have the option, and (at
the option of HWH) will be required, to sell their shares ratably with, and on
the same terms and conditions as, the other selling shareholders.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The information in the following table gives effect to the Recapitalization
and sets forth the ownership of Holdings Common Stock by (i) each person who
beneficially owns more than 5% of the outstanding shares of Holdings Common
Stock, (ii) each named director, (iii) each named executive officer and (iv) all
directors and executive officers of the Company treated as a group. To the
knowledge of Holdings, each of such holders of shares has sole voting and
investment power as to the shares owned unless otherwise noted. The address for
each executive officer and director is 4700 South 19th Street, Lincoln, Nebraska
68501 unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS SHARES OWNED(1) OWNERSHIP(1)
---------------- --------------- ------------
<S> <C> <C>
HWH(2).................................................. 896,700 91.4%
Robert B. Haas(2)....................................... 896,700 91.4
Mark W. Oppegard........................................ 21,600 2.2
Bruce E. Nevius......................................... 11,800 1.2
Kenneth F. Jirovsky..................................... 7,800 0.8
William H. Allen........................................ 7,800 0.8
Thomas A. Hoff.......................................... 11,200 1.2
Larry R. Rempe.......................................... 15,700 1.6
Ardean A. Arndt......................................... 7,800 0.8
Douglas D. Wheat(2)..................................... -- --
All directors and executive officers as a group (9
persons).............................................. 980,400 100.0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power with respect to the shares of
Holdings Common Stock.
(2) The address of HWH and of Messrs. Haas and Wheat is 300 Crescent Court,
Suite 1700, Dallas, TX 75201.
CERTAIN TRANSACTIONS
In connection with the Recapitalization, Haas Wheat received a $4.0 million
transaction fee from the Company and was reimbursed for out-of-pocket expenses.
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Recapitalization, the authorized common stock
of Holdings consisted of 5,000,000 shares of Class A common stock, par value
$.01 per share (the "Common Stock"). At such time, there were 980,400 shares of
Common Stock issued and outstanding, 896,700 shares held by HWH and 83,700
shares held by the senior managers of the Company. Each share of Common Stock
entitles the holder thereof to one vote on all matters to be voted on by
shareholders of the Company. Increases or decreases in the number of authorized
shares of Common Stock requires the affirmative vote or consent of the holders
of a majority of the issued and outstanding Common Stock.
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<PAGE> 69
DESCRIPTION OF OTHER INDEBTEDNESS
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Credit Facilities.
At the Closing, the Company entered into a Credit Agreement with the Chase
Manhattan Bank ("Chase") and other lenders for which Chase acts as agent
(collectively, the "Lenders") under which the Lenders provided Nebraska Book
with the Credit Facilities in an aggregate principal amount of $110 million. The
Credit Facilities consist of (i) the Tranche A Term Loan in the amount of $27.5
million, (ii) the Tranche B Term Loan in the amount of $32.5 million and (iii)
the Revolving Credit Facility. The Revolving Credit Facility includes a $10
million letter of credit facility and a $5 million swing line facility.
CREDIT FACILITIES
Availability. The availability of the Credit Facilities is subject to
various conditions precedent typical for bank loans of this type including,
among other things, the absence of any material adverse change with respect to
the Company. The full amount of the Term Loans was made in single drawings on
the date of the initial borrowing under the Credit Facilities (the "Closing
Date") and amounts repaid or prepaid under the Term Loans may not be reborrowed.
The availability of the commitments under the Revolving Credit Facility is
subject to a borrowing base which generally equals the sum of specified
percentages of the Eligible Accounts Receivable and Eligible Inventory (each as
defined in the Credit Agreement), plus an over-advance amount of up to $10
million, depending upon the time of year. An additional $10 million is available
to finance certain permitted acquisitions, provided that in no case may the
amount of loans outstanding under the Revolving Credit Facility exceed $50
million. In addition, all extensions of credit will be subject to the condition
that, at the time such credit is extended, the representations and warranties in
the Loan Documents (as defined in the Credit Agreement) shall be true and
correct and that no Default or Event of Default (each as defined in the Credit
Agreement) shall have occurred and be continuing. [As of the date hereof, the
full $50.0 million of commitments under the Revolving Credit Facility would be
available to the Company.]
Loans under the Revolving Credit Facility are available at any time prior
to the final maturity of the Revolving Credit Facility. Letters of credit are
available at any time prior to the final maturity of the Revolving Credit
Facility provided that no letter of credit may have an expiration date after the
earlier of (a) one year after the date of issuance and (b) five business days
prior to March 31, 2004. Any letter of credit with a one-year term may provide
for the renewal thereof for additional one-year periods (which shall in no event
extend beyond the date referred to in clause (b) in the previous sentence).
Amounts repaid under the Revolving Credit Facility may be reborrowed. Letters of
credit will be issued by Chase (the "Issuing Bank").
Guarantees; Security. The obligations of Nebraska Book under the Credit
Facilities and any interest rate protection agreements entered into with a
Lender (or any affiliate thereof) are guaranteed by Holdings and will be
guaranteed by each subsequently acquired or organized subsidiary of Nebraska
Book (the "Guarantors"), other than any foreign subsidiary if such guarantee
would result in adverse tax consequences to Nebraska Book (the "Guarantees").
The Credit Facilities is, and any interest rate protection agreements in respect
thereof provided by any Lender (or any affiliate of a Lender) and the Guarantees
will be, secured by a perfected first priority security interest in
substantially all of the tangible and intangible assets of the Company and the
Guarantors (including, without limitation, intellectual property, real property
and all of the capital stock of Nebraska Book and each of its direct and
indirect subsidiaries (limited to 65% of such capital stock in the case of
foreign subsidiaries)).
Final Maturity and Amortization. The Tranche A Term Loan will mature on
March 31, 2004. The Tranche B Term Loan will mature on March 31, 2006. The
Tranche A Term Loan will amortize in
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<PAGE> 70
quarterly installments totalling $0.9 million in fiscal 1999, $2.6 million in
fiscal 2000, $3.9 million in fiscal 2001, $5.8 million in fiscal 2002, $6.3
million in fiscal 2003 and $8.0 million in fiscal 2004. The Tranche B Term Loan
will amortize in quarterly installments totalling $0.4 million in fiscal 1999,
$0.5 million in fiscal 2000 through fiscal 2004, $11.2 million in fiscal 2005
and $18.4 million in fiscal 2006. The Revolving Credit Facility will mature on
the earlier of March 31, 2006 and the date on which the Tranche A Term Loan is
paid in full.
Interest. The interest rate under the Credit Facilities is, at the option
of Nebraska Book, either (i) the Alternate Base Rate ("ABR") (which is the
highest of (a) Chase's prime rate, (b) the federal funds effective rate plus
0.50% and (c) the secondary market rate for three-month certificates of deposit
(adjusted for statutory reserve requirements) plus a customary charge for FDIC
deposit insurance and 1.00%) plus the Applicable Margin (as defined below) or
(ii) the rate for specified Eurodollar bank deposits (adjusted for statutory
reserve requirements) (the "Eurodollar Rate") plus the Applicable Margin.
Nebraska Book may elect interest periods of one, two, three, or six months for
Eurodollar borrowings. The "Applicable Margin" means (a) with respect to the
Revolving Credit Facility and the Tranche A Term Loan, (i) 1.25% in the case of
ABR loans and (ii) 2.25% in the case of Eurodollar Rate loans; and (b) with
respect to the Tranche B Term Loan, (i) 1.50% in the case of ABR loans and (ii)
2.50% in the case of Eurodollar Rate loans. The Applicable Margin with respect
to Revolving Credit Loans and the Tranche A Term Loan is subject to reduction
after four full fiscal quarters have been completed after the Closing Date based
on Nebraska Book's Consolidated Leverage Ratio (as defined in the Credit
Agreement), and is subject to increase based on Nebraska Book's failure to
maintain a specified Consolidated Senior Debt to EBITDA Ratio (as defined in the
Credit Agreement).
Mandatory Prepayments; Voluntary Prepayments. Nebraska Book is required to
make mandatory prepayments of the Credit Facilities (i) following each fiscal
year with 75% (which percentage may be reduced commencing with the fiscal year
ending March 31, 2000 to 50% based upon the achievement by Nebraska Book of
certain financial performance standards to be agreed upon) of Excess Cash Flow
(as defined in the Credit Agreement) for the immediately preceding fiscal year
and (ii) 100% of the net cash proceeds of (a) all asset sales or other
dispositions of property by Nebraska Book and its subsidiaries (including
insurance proceeds), subject to certain customary exceptions, (b) all issuances
of debt obligations of Holdings, Nebraska Book and any of their respective
subsidiaries, subject to certain exceptions, and (c) any sale or issuance of
equity, except for up to $15 million in equity provided by Haas Wheat under
certain circumstances and certain other exceptions. Mandatory prepayments will
be applied pro rata to the Term Loans and then to permanently reduce commitments
under the Revolving Credit Facility. As among the Term Loans of any tranche,
prepayments will be applied 75% ratably to the respective remaining installments
thereof and 25% in the direct order to the respective next four installments
thereof. The holders of the Tranche B Term Loan may decline to accept any
mandatory prepayment so long as the Tranche A Term Loan is outstanding and,
under such circumstances, in which event all amounts must be used to prepay the
Tranche A Term Loan.
Voluntary prepayments of loans under the Credit Facilities are permitted in
whole or in part, at the option of Nebraska Book, in a minimum principal amount
of $500,000, without premium or penalty. Any voluntary prepayment of loans under
the Credit Facilities will be subject to reimbursement of the Lender's
redeployment costs in the case of a prepayment of Eurodollar Rate borrowings
other than on the last day of the relevant interest period. As among the Term
Loans of any tranche, prepayments will be applied 75% ratably to the respective
remaining installments thereof and 25% in the direct order to the respective
next four installments thereof. The holders of the Tranche B Term Loan may
decline to accept any voluntary prepayment so long as the Tranche A Term Loan is
outstanding, in which event all amounts must be used to prepay loans under the
Tranche A Term Loan.
Fees. Nebraska Book has agreed to pay certain fees with respect to the
Credit Facilities, including (i) fees on the unused commitments of the Lenders
equal to 0.50% per annum of the
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<PAGE> 71
undrawn portion of the commitments in respect of the Credit Facilities, subject
to reduction after four full fiscal quarters following the Closing Date to an
amount not less than 0.30% per annum based on achievement of certain performance
targets; (ii) a per annum letter of credit fee equal to the Applicable Margin
then in effect with respect to Eurodollar Rate loans under the Revolving Credit
Facility on the aggregate face amount of outstanding letters of credit plus a
0.25% per annum fronting bank fee for the Issuing Bank; (iii) annual
administration fees; and (iv) agent, arrangement and other similar fees that
will be paid on or prior to the Closing Date.
Covenants. The Credit Agreement contains a number of covenants that, among
other things, restrict the ability of Nebraska Book and its subsidiaries to
incur additional indebtedness, prepay, redeem or repurchase other indebtedness
or amend certain other debt instruments, pay dividends, grant liens on assets,
enter into sale and leaseback transactions, make investments, loans or advances,
dispose of assets, make acquisitions, engage in mergers or consolidations,
change the business conducted by Nebraska Book or its subsidiaries, make capital
expenditures or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, the Credit Agreement
requires, among other things, that Nebraska Book maintain specified financial
ratios and meet certain tests, including minimum interest coverage ratios,
maximum leverage ratios and a minimum working capital requirement.
Events of Default. The Credit Agreement contains customary events of
default, including, but not limited to, nonpayment of principal or interest;
violation of covenants; incorrectness of representations and warranties in any
material respect; cross default and cross acceleration; bankruptcy; material
judgments; certain events related to ERISA; actual or asserted invalidity of
security documents; failure to maintain senior status; and a change of control.
SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes were issued in an aggregate principal amount
of $110,000,000 and will mature on February 15, 2008. The Senior Subordinated
Notes were issued under an indenture dated as of February 13, 1998 (the "Senior
Subordinated Note Indenture") between Nebraska Book, as issuer, and United
States Trust Company of New York, as trustee, and are senior subordinated
unsecured obligations of Nebraska Book. Cash interest on the Senior Subordinated
Notes accrues at a rate of 8 3/4% per annum and is payable semi-annually in
arrears on each February 15 and August 15 of each year, commencing August 15,
1998 to the holders of record on the immediately preceding February 1 and August
1, respectively.
On or after February 15, 2003, the Senior Subordinated Notes may be
redeemed at the option of Nebraska Book, in whole at any time or in part from
time to time, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest, if
any, to the redemption date, if redeemed during the twelve-month period
commencing on February 15 in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.375%
2004........................................................ 102.917%
2005........................................................ 101.458%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to February 15,
2001, Nebraska Book may use the net proceeds of one or more Equity Offerings (as
defined therein) to redeem up to 35% of the Senior Subordinated Notes at a
redemption price equal to 108.75% of the principal amount thereof plus accrued
and unpaid interest, if any, to the redemption date; provided, however, that
after any such redemption the aggregate principal amount of the Senior
Subordinated Notes
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outstanding must equal at least 65% of the original principal amount of the
Senior Subordinated Notes.
In the event of a Change of Control (as defined therein), each holder of
Senior Subordinated Notes has the right to require the repurchase of such
holder's Senior Subordinated Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date.
The Senior Subordinated Note Indenture contains covenants that, among other
things, limit the ability of Nebraska Book to incur additional indebtedness, pay
dividends and make certain other Restricted Payments (as defined therein), enter
into certain mergers or consolidations, incur certain liens, and engage in
certain transactions with affiliates. Under certain circumstances Nebraska Book
is required to make an offer to purchase Senior Subordinated Notes at a price
equal to 100% of the principal amount thereof, plus accrued interest to the date
of purchase with the proceeds of certain Asset Dispositions (as defined
therein). The Senior Subordinated Note Indenture contains certain customary
events of default which includes the failure to pay interest and principal, the
failure to comply with certain covenants in the Senior Subordinated Notes or
such Indenture, a default under certain indebtedness, the imposition of certain
final judgments or warrants of attachment and certain events occurring under
bankruptcy laws. See "Risk Factors -- Limitation on Access to Cash Flow of
Subsidiaries; Holding Company Structure."
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DESCRIPTION OF DEBENTURES
GENERAL
The Initial Debentures were, and the Exchange Debentures will be, issued
under an Indenture, dated as of February 13, 1998 (the "Indenture"), between
Holdings and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary of
certain provisions of the Indenture and the Debentures does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture (including the definitions of certain
terms therein and those terms made a part thereof by the Trust Indenture Act of
1939, as amended) and the Debentures. For purposes of this summary the term
"Holdings" refers only to NBC Acquisition Corp. and not to any of its
Subsidiaries.
Interest is computed on the basis of a 360-day year comprised of twelve 30
day months. Principal of, premium, if any, and interest on the Debentures are
payable, and the Debentures may be exchanged or transferred, at the office or
agency of Holdings in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Holdings, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Register. No service charge will be made for any registration of
transfer or exchange of Debentures, but Holdings may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
The Debentures are issued in fully registered form without interest
coupons, in denominations of $1,000 and any integral multiple of $1,000. The
Debentures are represented by one or more registered notes in global form and in
certain circumstances may be represented by Debentures in definitive form. See
"Book Entry, Delivery and Form."
TERMS OF DEBENTURES
The Debentures were issued at a discount to their aggregate principal
amount at maturity to generate gross proceeds to Holdings on the Issue Date of
approximately $45.0 million and will mature on February 15, 2009. The Debentures
will accrete in value until February 15, 2003 at a rate per annum shown on the
cover of this Prospectus, compounded semi-annually, to an aggregate principal
amount of $76.0 million. Cash interest does not accrue on the Debentures prior
to February 15, 2003. Thereafter, interest accrues at the rate per annum shown
on the cover of this Prospectus and is payable semi-annually in cash and in
arrears to the holders of record on February 1 or August 1 immediately preceding
the interest payment date on February 15 and August 15 of each year, commencing
August 15, 2003. Cash interest on the Debentures accrues from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from February 15, 2003. All references to the principal amount of the
Debentures herein are references to the principal amount at final maturity.
The Debentures are unsecured, senior obligations of Holdings and rank pari
passu in right of payment to all existing and future senior indebtedness of
Holdings (including the guarantee by Holdings of the Credit Agreement, which is
secured by a pledge of the capital stock of Nebraska Book). All the operations
of Holdings are conducted through Nebraska Book and therefore Holdings is
dependent upon the cash flow of Nebraska Book and its Subsidiaries to meet its
obligations, including its obligations on the Debentures. See "Risk
Factors -- Holding Company Structure". The Credit Facilities and the Senior
Subordinated Notes restrict Nebraska Book's ability to pay dividends or make
other distributions to Holdings. The Debentures are effectively subordinated to
all existing and future indebtedness and liabilities of Holdings' Subsidiaries
(including trade credit, the Senior Subordinated Notes and Indebtedness of
Nebraska Book Subsidiaries in respect of the Credit Agreement). Any right of
Holdings to receive assets of any of its Subsidiaries upon
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such Subsidiary's liquidation or reorganization (and the consequent right of
Holders of the Debentures to participate in those assets) are effectively
subordinated to the claims of that Subsidiary's creditors except to the extent
that Holdings itself is recognized as a creditor of such Subsidiary, in which
case the claims of Holdings would still be subordinate to the claims of such
creditors who hold security in the assets of such Subsidiary. At December 31,
1997, on a pro forma basis, after giving effect to the Recapitalization and the
Offering, Holdings would have had no Indebtedness outstanding on a stand alone
basis (other than the Debentures and Holdings' guarantee of the Credit
Agreement) and the outstanding Indebtedness of Nebraska Book, Holdings' only
Subsidiary, would have been approximately $170.6 million (exclusive of unused
commitments), $110.0 million in aggregate principal amount of the Senior
Subordinated Notes, $60.0 million of Indebtedness in respect of the Credit
Facilities and $0.6 million of other Indebtedness.
OPTIONAL REDEMPTION
Except as set forth below, the Debentures are not redeemable at the option
of Holdings prior to February 15, 2003. On and after such date, the Debentures
are redeemable, at Holdings' option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
each holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
If redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2003........................................................ 105.375%
2004........................................................ 103.583%
2005........................................................ 101.792%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001,
Holdings may redeem in the aggregate up to 35% of the original principal amount
of the Debentures with the net proceeds of one or more Equity Offerings received
by, or invested in, Holdings so long as there is a Public Market at the time of
such redemption, at a redemption price (expressed as a percentage of Accreted
Value thereof of 110.75%; provided, however, that at least 65% of the original
principal amount of the Debentures must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the Debentures for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Debenture of $1,000 in original principal amount or
less will be redeemed in part. If any Debenture is to be redeemed in part only,
the notice of redemption relating to such Debenture shall state the portion of
the principal amount thereof to be redeemed. A new Debenture in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Debenture.
The Debentures do not have the benefit of any sinking fund.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require Holdings to repurchase all
or any part of such holder's Debentures at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date) or, in the case of
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purchases of Debentures prior to February 15, 2003, at a purchase price equal to
101% of the Accreted Value thereof as of the date of purchase:
(i) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power
of the Voting Stock of Holdings or Nebraska Book (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets) (for the purposes of this clause, such person shall be deemed to
beneficially own any Voting Stock of Holdings or Nebraska Book held by a
parent corporation, if such person "beneficially owns" (as defined above),
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation); and (B) the Permitted Holders
"beneficially own" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Holdings (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets) than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of Holdings or such successor (for the
purposes of this clause, such other person shall be deemed to beneficially
own any Voting Stock of a specified corporation held by a parent
corporation, if such other person "beneficially owns" (as defined in clause
(A) above), directly or indirectly, more than 35% of the voting power of
the Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in this clause (B)), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation); or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Holdings
or Nebraska Book (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Holdings or Nebraska Book, as the case may be, was approved by a vote of at
least a majority of the directors of Holdings or Nebraska Book then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved or is
a designee of the Permitted Holders or was nominated or elected by such
Permitted Holders or any of their designees) cease for any reason to
constitute a majority of the Board of Directors of Holdings or Nebraska
Book then in office; or
(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of Holdings
and its Restricted Subsidiaries taken as a whole to any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a
Permitted Holder; or
(iv) the adoption by the stockholders of a plan for the liquidation or
dissolution of Holdings.
Within 30 days following any Change of Control, unless Holdings has mailed
a redemption notice with respect to all the outstanding Debentures in connection
with such Change of Control as described under "-- Optional Redemption",
Holdings shall mail a notice to each holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such holder has the right to
require Holdings to purchase such holder's Debentures at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on a record date to receive interest on the relevant interest payment
date) or, in the case of purchases of Debentures prior to February 15, 2003, at
a purchase
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price equal to 101% of the Accreted Value thereof as of the date of purchase;
(ii) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (iii) the procedures
determined by Holdings, consistent with the Indenture, that a holder must follow
in order to have its Debentures purchased.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Debentures pursuant to this covenant. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of the Indenture, Holdings will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The occurrence of a Change of Control also gives the holders of the Senior
Subordinated Notes the right to require Nebraska Book to repurchase the Senior
Subordinated Notes. In addition, the occurrence of certain of the events that
would constitute a Change of Control would constitute a default under the Credit
Agreement. Future Indebtedness of Nebraska Book and its Subsidiaries may also
contain prohibitions of certain events that would constitute a Change of Control
or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require Holdings to
repurchase the Debentures could cause a default under such Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on Holdings. The Credit Agreement and the Senior Subordinated Notes
restrict Nebraska Book from paying any dividends or making any other
distributions to Holdings. If Holdings is unable to obtain dividends from
Nebraska Book sufficient to permit the repurchase of the Debentures, Holdings
will likely not have the financial resources to purchase the Debentures. In any
event, there can be no assurance that the Subsidiaries or Holdings will have the
resources available to pay any such dividend or make any such distribution.
Finally, Holdings' ability to pay cash to the holders upon a repurchase may be
limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. Consequently, if Nebraska Book is not able to (i) prepay
the Credit Agreement and any other indebtedness containing similar restrictions
or obtain requisite consents, as described above, or (ii) to make a dividend
payment to Holdings in an amount sufficient to permit Holdings to repurchase the
Debentures, Holdings will be unable to fulfill its repurchase obligations if
holders of Debentures exercise their repurchase rights following a Change of
Control, thereby resulting in a default under the Indenture. The provisions of
the Indenture may not afford holders of the Debentures the right to require
Holdings to repurchase the Debentures in the event of a highly leveraged
transaction that may adversely affect the holders of the Debentures if such
transaction is not a transaction defined as a Change of Control.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving Holdings by increasing the
capital required to effectuate such transactions. The definition of "Change of
Control" includes a disposition of all or substantially all of the property and
assets of Holdings and its Restricted Subsidiaries. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is the
choice of law under the Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and therefore
it may be unclear as to whether a Change of Control has occurred and whether
Holdings is required to make an offer to repurchase the Debentures as described
above.
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CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) Holdings will not, and will not permit any
of its Restricted Subsidiaries to, Incur any Indebtedness; provided,
however,that prior to the second anniversary of the Issue Date, Nebraska Book
and its Restricted Subsidiaries may Incur Indebtedness permitted to be Incurred
pursuant to the Senior Subordinated Note Indenture and provided further, that
Holdings and its Restricted Subsidiaries may Incur Indebtedness after the second
anniversary of the Issue Date if on the date thereof the Consolidated Coverage
Ratio for Holdings and its Restricted Subsidiaries is at least 1.75 to 1.00, if
such Indebtedness is Incurred on or prior to the fifth anniversary of the Issue
Date and 2.00 to 1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a) Holdings and its Restricted
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred
pursuant to the Credit Agreement; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $110 million at any time outstanding, less the aggregate principal
amount of all scheduled repayments of principal thereof and all mandatory
prepayments of principal thereof applied to permanently reduce the outstanding
Indebtedness and commitments thereunder; (ii) the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness
of Holdings owing to and held by any Wholly-Owned Subsidiary or Indebtedness of
a Restricted Subsidiary owing to and held by Holdings or any Wholly-Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to Holdings or a Wholly-Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by the
issuer thereof; (iv) Indebtedness represented by (x) the Debentures and the
Senior Subordinated Notes, (y) any Indebtedness (other than the Indebtedness
described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and (z)
any Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) above;
(v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date
on which such Restricted Subsidiary was acquired by Holdings (other than
Indebtedness Incurred to provide all or any portion of the funds utilized to
consummate the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by
Holdings); provided, however, that at the time such Restricted Subsidiary is
acquired by Holdings, Holdings would have been able to Incur $1.00 of additional
Indebtedness pursuant to paragraph (a) above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (v); (vi) Indebtedness
under (a) Interest Rate Agreements entered into in connection with the Credit
Agreement and (b) other Interest Rate Agreements; provided, however, that such
other Interest Rate Agreements are entered into for bona fide hedging purposes
of Holdings or its Restricted Subsidiaries (as determined in good faith by the
Board of Directors or senior management of Holdings) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of Holdings or its Restricted Subsidiaries Incurred without
violation of the Indenture; (vii) Purchase Money Indebtedness of Holdings or any
Subsidiary Guarantor Incurred on or after the Issue Date, provided, that (i) the
aggregate principal amount of such Indebtedness Incurred on or after the Issue
Date and outstanding at any time pursuant to this clause (vii) (including any
Indebtedness issued to refinance, replace, renew, repay, extend or refund such
Indebtedness) shall not exceed $5 million, and (ii)in each case, such
Indebtedness as originally Incurred shall not constitute more than 100% of the
cost (determined in accordance with GAAP) to Holdings or such Subsidiary
Guarantor, as applicable, of the property so purchased or leased and (viii)
Indebtedness (in addition to Indebtedness described in clauses (i) - (vii)) in a
principal amount which, when taken together with the principal amount of all
other Indebtedness Incurred pursuant to this clause (viii) and then outstanding,
will not exceed $10 million (which Indebtedness may be Incurred under the Credit
Agreement).
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(c) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in paragraph (b) above, Holdings, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) Holdings will not, and will not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving Holdings or any of its Restricted Subsidiaries) except
(A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock and (B) dividends or distributions payable to Holdings or a
Restricted Subsidiary of Holdings (and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata
basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Holdings held by Persons other than a Restricted Subsidiary of Holdings
or any Capital Stock of a Restricted Subsidiary of Holdings held by any
Affiliate of Holdings, other than another Restricted Subsidiary (in either case,
other than in exchange for its Capital Stock (other than Disqualified Stock)),
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
in clauses (i) through (iv) as a "Restricted Payment"), if at the time Holdings
or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom); or (2) Holdings
shall not be able to incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) under "Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payments and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the first day of the quarter in which the Issue Date occurs to the
end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by Holdings from the issue or sale of its
Capital Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of Holdings or an employee stock
ownership plan or similar trust to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from or guaranteed by
Holdings or any Restricted Subsidiary unless such loans have been repaid with
cash on or prior to the date of determination); (C) the amount by which
Indebtedness of Holdings is reduced on Holdings' balance sheet upon the
conversion or exchange (other than by a Subsidiary of Holdings) subsequent to
the Issue Date of any Indebtedness of Holdings convertible or exchangeable for
Capital Stock of Holdings (less the amount of any cash, or other property,
distributed by Holdings upon such conversion or exchange); (D) the amount equal
to the net reduction in Investments made by Holdings or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser, repayments of loans or advances or other transfers
of assets (including by way of dividend or distribution) by such Person to
Holdings or any Restricted Subsidiary of Holdings or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by Holdings
or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments; provided,
however,
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that no amount shall be included under this clause (D) to the extent it is
already included in Consolidated Net Income and (E) until December 31, 1999, $1
million (reduced on a dollar for dollar basis, by the sum of the amounts
described in (A), (B), (C) and (D)). For purposes of this covenant, the amount
of any Restricted Payments, if other than in cash, shall be determined in good
faith by the Board of Directors as evidenced by a certificate filed with the
Trustee, except that in the event the value of any non-cash consideration shall
be $5 million or more, the value shall be as determined in writing by an
Independent Appraiser.
(b) The provisions of paragraph (a) will not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of Holdings made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of Holdings (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary or an employee stock ownership plan or
similar trust to the extent such sale to an employee stock ownership plan or
similar trust is financed by loans from or guaranteed by Holdings or any
Restricted Subsidiary unless such loans have been repaid with cash on or prior
to the date of determination); provided, however, that (A) such purchase or
redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption
of Subordinated Obligations of Holdings made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
Holdings; provided, however, that such purchase or redemption shall be excluded
in subsequent calculations of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock"
below; provided, however, that such purchase or redemption shall be excluded in
subsequent calculations of the amount of Restricted Payments; (iv) dividends
paid within 60 days after the date of declaration if at such date of declaration
such dividend would have complied with this provision; provided, however, that
such dividends shall be included in subsequent calculations of the amount of
Restricted Payments; (v) payments for the purpose of, and in amounts equal to,
amounts required to permit Holdings (A) to redeem or repurchase Capital Stock of
Holdings from existing or former employees or management of Holdings or any
Subsidiary or their assigns, estates or heirs, in each case in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees; provided that
such redemption or repurchases pursuant to this clause shall not exceed $2
million in the aggregate; provided, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments, and (B) to
make loans or advances to employees or directors of Holdings or any Subsidiary
the proceeds of which are used to purchase Capital Stock of Holdings, in an
aggregate amount not in excess of $1 million at any one time outstanding;
provided, however, that such dividends shall be included in the calculation of
the amount of Restricted Payments; and (vi) repurchases of Capital Stock deemed
to occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof; provided, however, that such repurchases
shall be excluded from the calculation of the amount of Restricted Payments.
Limitation on Liens. Holdings will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur or suffer to
exist any Lien (other than Permitted Liens) upon any of its property or assets
(including Capital Stock), whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness of Holdings or, in the case of a
Restricted Subsidiary, any Guarantee of Indebtedness of Holdings, unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under the Indenture and the Debentures or, in respect of Liens
on any Restricted Subsidiary's property or assets securing Indebtedness of
Holdings, the Guarantee by such Restricted Subsidiary of the Debentures required
by "-- Future Subsidiary Guarantors", equally and ratably with (or prior to in
the case of Liens with respect to Subordinated Obligations) the Indebtedness
secured by such Lien for so long as such Indebtedness is so secured.
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Limitation on Sale/Leaseback Transactions. Holdings will not, and will not
permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction unless (i) Holdings or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Sale/ Leaseback Transaction at
least equal to the fair market value (as evidenced by a resolution of the Board
of Directors delivered to the Trustee) of the property subject to such
transaction; (ii) Holdings or such Restricted Subsidiary with respect thereto
could have Incurred Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale -- Leaseback Transaction pursuant to the
covenant described under "-- Limitation on Indebtedness"; (iii) Holdings or such
Restricted Subsidiary would be permitted to create a Lien on the property
subject to such Sale-Leaseback Transaction without securing the Debentures by
the covenant described under "-- Limitation on Liens"; and (iv) the
Sale/Leaseback Transaction is treated as an Asset Disposition and all of the
conditions of the Indenture described under "-- Limitation on Sale of Assets and
Subsidiary Stock" (including the provisions concerning the application of Net
Available Cash) are satisfied with respect to such Sale/Leaseback Transaction,
treating all of the consideration received in such Sale/Leaseback Transaction as
Net Available Cash for purposes of such covenant.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Holdings will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to Holdings,
(ii) make any loans or advances to Holdings or (iii) transfer any of its
property or assets to Holdings, except (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the date of the
Indenture (including, without limitation, the Credit Agreement and the Senior
Subordinated Notes); (b) any encumbrance or restriction imposed by Indebtedness
incurred under the Credit Agreement in accordance with the Indenture, provided,
however that such encumbrance or restriction is not materially more restrictive
than that imposed by the Credit Agreement as of the Issue Date; (c) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by
Holdings (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Holdings) and outstanding on
such date; (d) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (a), (b) or (c) of this
covenant or this clause (d) or contained in any amendment to an agreement
referred to in clause (a), (b) or (c) of this covenant or this clause (d);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such agreement or amendment are not
materially more restrictive than encumbrances and restrictions contained in such
agreements; (e) in the case of clause (iii) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any such lease, license or
other contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of Holdings or any
Restricted Subsidiary not otherwise prohibited by the Indenture (including any
Permitted Lien), (C) contained in mortgages, pledges or other security
agreements securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such mortgages, pledges or other security agreements or (D) pursuant to
customary provisions restricting dispositions of real property interests set
forth in any reciprocal easement agreements of Holdings or any Restricted
Subsidiary; (f) any restriction with respect to a Restricted Subsidiary (or any
of its property or assets) imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary (or the property or assets that
are subject to such restriction) pending the closing of such sale or
disposition; (g) encum-
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brances or restrictions arising or existing by reason of applicable law; (h)
restrictions on transfer contained in Purchase Money Indebtedness incurred
pursuant to paragraph (b)(vii) of the covenant "Limitation on Indebtedness,"
provided such restrictions relate only to the transfer of the property acquired
with the proceeds of such Purchase Money Indebtedness and (i) any restriction
pursuant to the Senior Subordinated Note Indenture and the Senior Subordinated
Notes of the Company.
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings will not,
and will not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) Holdings or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration), of the shares and assets subject
to such Asset Disposition, (ii) at least 75% of the consideration thereof
received by Holdings or such Restricted Subsidiary is in the form of cash or
Cash Equivalents and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by Holdings (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent Holdings or any
Restricted Subsidiary, as the case may be, elects (or is required by the terms
of any Senior Indebtedness), to prepay, repay or purchase Indebtedness (other
than Indebtedness owed to Holdings or an Affiliate of Holdings) within 180 days
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), at Holdings' election to
the investment in Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase the Senior
Subordinated Notes at par plus accrued and unpaid interest, if any, thereon; and
(D) fourth, to make an offer to purchase (an "Offer") the Debentures at a price
in cash equal to, prior to February 15, 2003, 100% of the Accreted Value thereof
on the purchase date and, thereafter, 100% of the Accreted Value thereof plus
accrued and unpaid interest to the purchase date, and other pari passu debt
obligations subject to a similar covenant (collectively, the "pari passu debt
obligations") at par plus accrued and unpaid interest to the purchase date; and
(E) fifth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B), (C) and (D), for other general
corporate purposes not prohibited by the Indenture; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) above, Holdings or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, Holdings and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant exceed $500,000. Holdings shall not be required to make an Offer for
the Debentures and for the pari passu debt obligations pursuant to this covenant
if the Net Available Cash available therefor (after application of the proceeds
as provided in clauses (A) and (B)) are less than $5 million for any particular
Asset Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
The Credit Agreement and the Senior Subordinated Notes restrict Nebraska
Book from paying any dividends or making any other distributions to Holdings. If
Holdings is unable to obtain dividends from Nebraska Book sufficient to permit
the repurchase of the Debentures, Holdings will likely not have the financial
resources to purchase Debentures. In any event, there can be no assurance that
the Subsidiaries of Holdings will have the resources available to pay any such
dividend or make any such distribution.
(b) If the aggregate principal amount (or accreted value, as applicable) of
Debentures and pari passu debt obligations validly tendered and not withdrawn in
connection with an Offer pursuant to clause (C) above exceeds the funds
available therefor ("Offer Proceeds"), the Offer Proceeds will
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be apportioned between the Debentures and such pari passu debt obligations, with
the portion of the Offer Proceeds payable in respect of the Debentures equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Debentures and the
denominator of which is the sum of the outstanding principal amount of the
Debentures and the outstanding principal amount (or accreted value, as
applicable) of the relevant pari passu debt obligations, and (ii) the aggregate
principal amount of Debentures validly tendered and not withdrawn.
(c) For the purposes of this covenant, the following are deemed to be cash:
(x) the assumption by the transferee of Indebtedness of Holdings or Indebtedness
of any Restricted Subsidiary of Holdings and the release of Holdings or such
Restricted Subsidiary from all liability on such Indebtedness or Indebtedness in
connection with such Asset Disposition (in which case Holdings shall, without
further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph) and (y) securities
received by Holdings or any Restricted Subsidiary of Holdings from the
transferee that are promptly converted by Holdings or such Restricted Subsidiary
into cash.
(d) In the event of an Asset Disposition that requires the purchase of
Debentures pursuant to clause (a)(iii)(C), Holdings will be required to purchase
Debentures tendered pursuant to an Offer made by Holdings for the Debentures at
a price in cash equal to, prior to February 15, 2003, 100% of the Accreted Value
thereof on the purchase date and, thereafter, 100% of the Accreted Value thereof
plus accrued and unpaid interest, if any, to the purchase date in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture. If the aggregate purchase price of the Debentures
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Debentures, Holdings will apply the remaining Net Available
Cash in accordance with clause (a)(iii)(E) above.
(e) Holdings will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Debentures pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of Holdings (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to Holdings or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of Holdings and by a majority of the members
of such Board having no personal stake in such transaction, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $5 million,
Holdings has received a written opinion from an independent investment banking
firm of nationally recognized standing that such Affiliate Transaction is not
materially less favorable than those that might reasonably have been obtained in
a comparable transaction at such time on an arms-length basis from a Person that
is not an Affiliate.
(b) The foregoing paragraph (a) will not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of Holdings, (iii) loans or advances to
employees in the ordinary
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course of business of Holdings or any of its Restricted Subsidiaries, (iv) the
fees payable by Holdings and Nebraska Book in connection with the
Recapitalization, or (v) any transaction between Holdings and a Wholly-Owned
Subsidiary or between Wholly-Owned Subsidiaries.
Limitation on Capital Stock of Restricted Subsidiaries. Holdings will not
sell any shares of Capital Stock of a Restricted Subsidiary, and will not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell any shares
of its Capital Stock except: (i) to Holdings or a Wholly-Owned Subsidiary; or
(ii) in compliance with the covenant described under "-- Limitation on Sales of
Assets and Subsidiary Stock" if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would continue to constitute a
Restricted Subsidiary. Notwithstanding the foregoing, Holdings is permitted to
sell all the Capital Stock of a Subsidiary as long as Holdings is in compliance
with the terms of the covenant described under "-- Limitation on Sales of Assets
and Subsidiary Stock".
SEC Reports. Notwithstanding that Holdings may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent
permitted by the Exchange Act, Holdings will file with the SEC, and provide,
within 15 days after Holdings is required to file the same with the SEC, the
Trustee and the holders of the Debentures with the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) that are
specified in Sections 13 and 15(d) of the Exchange Act. In the event that
Holdings is not permitted to file such reports, documents and information with
the SEC pursuant to the Exchange Act, Holdings will nevertheless deliver such
Exchange Act information to the Trustee and the holders of the Debentures as if
Holdings were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act.
Merger and Consolidation. Holdings will not consolidate with or merge with
or into, or convey, transfer or lease all or substantially all its assets to,
any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not Holdings) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of Holdings under the Debentures and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness"; and (iv)
Holdings shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Indenture, but, in the
case of a lease of all or substantially all its assets, Holdings will not be
released from the obligation to pay the principal of and interest on the
Debentures.
Notwithstanding the foregoing clauses (ii) and (iii), (i) any Restricted
Subsidiary of Holdings may consolidate with, merge into or transfer all or part
of its properties and assets to Holdings and (ii) Holdings may merge with an
Affiliate incorporated solely for the purpose of reincorporating Holdings in
another jurisdiction to realize tax or other benefits.
Future Subsidiary Guarantors. After the Issue Date, Holdings will cause
each Restricted Subsidiary which Guarantees Indebtedness of Holdings to execute
and deliver to the Trustee a Subsidiary Guarantee pursuant to which such
Subsidiary Guarantor will unconditionally Guarantee, on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on
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the Debentures on the same terms as the Guarantee of such Indebtedness except
that if such Indebtedness is a Subordinated Obligation, any such Guarantee of
such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated to such Subsidiary Guarantor's Subsidiary Guarantee of the
Debentures to the same extent as such Indebtedness is subordinated to the
Debentures.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or merge
into or sell its assets to Holdings or another Subsidiary Guarantor without
limitation. Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than Holdings or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of Holdings, which sale or
disposition is otherwise in compliance with the Indenture (including the
covenant described under "Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock"), such Subsidiary Guarantor shall be deemed released from all
its obligations under the Indenture and its Subsidiary Guarantee and such
Subsidiary Guarantee shall terminate; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, any other Indebtedness of
Holdings shall also terminate upon such release, sale or transfer.
Limitation on Lines of Business. Holdings will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Related Business.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Debenture when due, continued
for 30 days, (ii) a default in the payment of principal of any Debenture when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, (iii) the failure by Holdings to comply with its
obligations under "Certain Covenants -- Merger and Consolidation above, (iv)
failure by Holdings to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" above or
under covenants described under "Certain Covenants" above (in each case, other
than a failure to purchase Debentures which shall constitute an Event of Default
under clause (ii) above), (v) the failure by Holdings to comply for 60 days
after notice with its other agreements contained in the Indenture, (vi)
Indebtedness of Holdings or any Restricted Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of Holdings or a
Significant Subsidiary (the "bankruptcy provisions"), or (viii) any judgment or
decree for the payment of money in excess of $10 million is rendered against
Holdings or a Significant Subsidiary and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days after such judgment becomes
final and non-appealable (the "judgment default provision") or (ix) any
Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms of the Indenture) or any Subsidiary Guarantor denies
or disaffirms its obligations under the Indenture or its Subsidiary Guarantee.
However, a default under
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clauses (iv) and (v) will not constitute an Event of Default until the Trustee
or the holders of more than 25% in principal amount of the outstanding
Debentures notify Holdings of the default and Holdings does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Debentures by notice to
Holdings and the Trustee may declare the principal of (or if prior to February
15, 2003, the Accreted Value of) and accrued and unpaid interest, if any, on all
the Debentures to be due and payable. Upon such a declaration, such principal or
Accreted Value and accrued and unpaid interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of Holdings occurs and is continuing, the principal
of and accrued and unpaid interest on all the Debentures will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Debentures may rescind any such
acceleration with respect to the Debentures and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal or Accreted Value, premium, if any, or interest when due, no holder
may pursue any remedy with respect to the Indenture or the Debentures unless (i)
such holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Debentures have requested the Trustee to pursue the remedy, (iii) such holders
have offered the Trustee reasonable security or indemnity against any loss,
liability or expense, (iv) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding
Debentures have not given the Trustee a direction that, in the opinion of the
Trustee, is inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Debentures are given the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of (or if prior to February 15, 2003, the Accreted Value of)
premium, if any, or interest on any Debentures, the Trustee may withhold notice
if and so long as a committee of its Trust officers in good faith determines
that withholding notice is in the interests of the Note holders. In addition,
Holdings is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. Holdings also is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute certain Defaults, their status and
what action Holdings is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Debentures then
outstanding and any past default or
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compliance with any provisions may be waived with the consent of the holders of
a majority in principal amount of the Debentures then outstanding. However,
without the consent of each holder of an outstanding Debenture affected, no
amendment may, among other things, (i) reduce the amount of Debentures whose
holders must consent to an amendment, (ii) reduce the stated rate of or extend
the stated time for payment of interest on any Debenture, (iii) reduce the
principal of or extend the Stated Maturity of any Debenture, (iv) reduce the
premium payable upon the redemption or repurchase of any Debenture or change the
time at which any Debenture may be redeemed as described under "Optional
Redemption" above, (v) make any Debenture payable in money other than that
stated in the Debenture, (vi) impair the right of any holder to receive payment
of principal of and interest on such holder's Debentures on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's Debentures or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder, Holdings and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of Holdings under the Indenture, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures (provided that the uncertificated Debentures are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Debentures are described in Section 163(f)(2)(B) of the Code), to
add Guarantees with respect to the Debentures, to secure the Debentures, to add
to the covenants of Holdings for the benefit of the holders or to surrender any
right or power conferred upon Holdings, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, Holdings is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
Holdings at any time may terminate all its obligations under the Debentures
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Debentures, to replace mutilated, destroyed, lost or
stolen Debentures and to maintain a registrar and paying agent in respect of the
Debentures. In such event, the Subsidiary Guarantees in effect at such time
shall terminate. Holdings at any time may terminate its obligations under
covenants described under "Certain Covenants" (other than "Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries, the judgment
default provision and the Subsidiary Guarantee provision described under "Events
of Default" above and the limitations contained in clause (iii) under "Certain
Covenants -- Merger and Consolidation" above ("covenant defeasance"). If
Holdings exercises its covenant defeasance option, Holdings may, by written
notice to the Trustee prior to the delivery of the Opinion of Counsel referred
to below, elect to have any Subsidiary Guarantees in effect at such time
terminate.
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries), (viii) or (ix) under "Events of Default" above or
because of the failure of Holdings to comply with clause (iii) under "Certain
Covenants -- Merger and Consolidation" above.
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In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Debentures to redemption or maturity, as the case may be, and
must comply with certain other conditions, including delivery to the Trustee of
an Opinion of Counsel to the effect that holders of the Debentures will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by Holdings as Registrar and Paying Agent with regard to
the Debentures.
GOVERNING LAW
The Indenture provides that it and the Debentures are governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accreted Value" means as of the date of determination prior to February
15, 2003, with respect to any Debenture, the sum of (a) the initial offering
price of such Debenture and (b) the portion of the excess of the principal
amount of such Debenture over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at the rate of 10 3/4% per annum of the initial offering price of such
Debenture, compounded semi-annually on each February 15 and August 15 from the
Issue Date through the date of determination, computed on the basis of a 360-day
year of twelve 30-day months. The Accreted Value of any Debenture on or after
February 15, 2003 shall be 100% of the principal amount thereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by Holdings or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by Holdings or a Restricted Subsidiary of Holdings; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary of Holdings; provided, however, that, in the case of clauses (ii) and
(iii), such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Holdings or any of its Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to Holdings or by Holdings or
a Restricted Subsidiary to a Subsidiary Guarantor, (ii) the disposition of Cash
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Equivalents in the ordinary course of business, (iii) a disposition of inventory
or other property in the ordinary course of business, (iv) a disposition of
obsolete, damaged or worn out equipment or equipment that is no longer useful in
the conduct of the business of Holdings and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (v) transactions
permitted under "Certain Covenants -- Merger and Consolidation" above, (vi) for
purposes of "Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to "Limitation on Restricted Payments", (vii) transactions
permitted by paragraph (b) under the covenant "Limitation on Affiliate
Transactions" above, (viii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any kind,
and (ix) pursuant to foreclosure or other exercise of remedies.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest (or accretion) rate borne by the Senior Subordinated Notes, compounded
semi-annually) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable by Nebraska Book under or in respect
of the Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees and any interest protection agreements entered into with a
Lender (as defined in the Credit Agreement) in connection with the Credit
Agreement, including principal, premium, if any, interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Nebraska Book at the rate specified therein whether
or not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Rating Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
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rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof 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 investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means, with
respect to any Person, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent four consecutive fiscal
quarters ending prior to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that (1) if
Holdings or any Restricted Subsidiary (x) has Incurred any Indebtedness since
the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (except that in
making such computation, the amount of Indebtedness under any revolving credit
facility outstanding on the date of such calculation shall be computed based on
(A) the average daily balance of such Indebtedness during such four fiscal
quarters or such shorter period for which such facility was outstanding or (B)
if such facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the date of
creation of such facility to the date of such calculation) and the discharge of
any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period that is
no longer outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (in each case other than Indebtedness incurred under
any revolving credit facility unless such Indebtedness has been permanently
repaid), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period, (2) if since the
beginning of such period Holdings or any Restricted Subsidiary shall have made
any Asset Disposition or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Asset Disposition, the Consolidated EBITDA
for such period shall be reduced by an amount equal to the Consolidated EBITDA
(if positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of Holdings or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to Holdings and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent Holdings and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period Holdings or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary
or is merged with or into Holdings) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such Investment or
acquisition
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occurred on the first day of such period and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into Holdings or any Restricted Subsidiary since the beginning of
such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(2) or (3) above if made by Holdings or a Restricted Subsidiary during such
period, Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition or Investment occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of Holdings. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of twelve months). Notwithstanding anything herein to the contrary, if at the
time the calculation of the Consolidated Coverage Ratio is to be made, Holdings
does not have available consolidated financial statements reflecting the
ownership by Holdings of CSC and Specialty Books for a period of at least four
full fiscal quarters, all calculations required by the Consolidated Coverage
Ratio shall be prepared on a pro forma basis, as though each such transaction
(to the extent not otherwise reflected in the consolidated financial statements
of Holdings) had occurred on the first day of the four fiscal quarter period for
which such calculation is being made.
"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA of such
Person only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and the interest portion of rent expense
associated with Attributable Indebtedness in respect of the relevant lease
giving rise thereto, determined as if such lease were a capitalized lease in
accordance with GAAP, (ii) amortization of debt discount and debt issuance cost
(other than such discounts and costs incurred in connection with the
Recapitalization), (iii) capitalized interest and accrued interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by Holdings or any such Subsidiary under any Guarantee of
Indebtedness or other obligation of any other Person, (vii) net costs associated
with Hedging Obligations (including amortization of fees), (viii) dividends in
respect of all Disqualified Stock of Holdings and all Preferred Stock of
Subsidiaries, in each case, held by Persons other than Holdings or a
Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than Holdings)
in connection with Indebtedness Incurred by such plan or trust; provided,
however, that there shall be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed
or paid by Holdings or any Restricted Subsidiary;
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less interest income. For purposes of the foregoing, total interest expense
shall be determined after giving effect to any net payments made or received by
Holdings and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of Holdings that was not a Wholly-Owned Subsidiary
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
Holdings and its Consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in (iv) below, Holdings' equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to Holdings or a Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (iii) below)
and (B) Holdings' equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income to the extent such loss has been funded with cash from
Holdings or a Restricted Subsidiary; (ii) any net income (loss) of any Person
acquired by Holdings or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to Holdings, except that (A)
subject to the limitations contained in (iv) below Holdings' equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to Holdings or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this clause)
and (B) Holdings' equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (loss) realized upon the sale or other disposition of any property,
plant or equipment of Holdings or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (loss) realized upon
the sale or other disposition of any Capital Stock of any Person; (v) any
extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill, deferred financing costs and other intangibles less
accumulated amortization, shown on the balance sheet of Holdings and its
Restricted Subsidiaries as of the most recent date for which such balance sheet
is available, determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means (i) the Senior Secured Credit Agreement to be
entered into among Holdings, Nebraska Book, The Chase Manhattan Bank, as
Administrative Agent, and the lenders parties thereto from time to time, as the
same may be amended, supplemented or otherwise modified from time to time and
any guarantees issued thereunder and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Credit Agreement or any
other credit or other agreement or indenture).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in the
case of Nebraska Book and (ii) any other Senior Indebtedness which, at the date
of determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $25.0 million and is specifically designated in the instrument
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evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of Holdings or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Notes, provided, that only the
portion of Capital Stock which so matures or is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering or issuance for cash by Holdings of its
respective common stock, or options, warrants or rights with respect to its
common stock.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holdings" means NBC Acquisition Corp., a Delaware corporation, or any
successor thereto which assumes the obligations under the Debentures pursuant to
the Indenture.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any
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Subsidiary, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons; (viii) all
Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix)
to the extent not otherwise included in this definition, net obligations of such
Person under Interest Rate Agreements (the amount of any such obligations to be
equal at any time to the termination value of such agreement or arrangement
giving rise to such obligation that would be payable by such Person at such
time). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Independent Appraiser" means, with respect to any transaction or series of
related transactions, an independent, nationally recognized appraisal or
investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to Holdings' equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of Holdings at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) Holdings' "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Holdings' equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of Holdings.
"Issue Date" means the date on which the Initial Debentures were originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness
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which is secured by any assets subject to such Asset Disposition, in accordance
with the terms of any Lien upon such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by applicable
law be repaid out of the proceeds from such Asset Disposition, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by Holdings or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Holdings.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Holdings or the Trustee.
"Permitted Holders" means each of (i) HWH Capital Partners, L.P. (the
"Partnership") or Haas Wheat & Partners Incorporated and any of their respective
Affiliates; (ii) any officer or other member of management employed by Holdings
or any Subsidiary as of the date of the Indenture; (iii) Robert B. Haas and
Douglas D. Wheat; (iv) family members or relatives of the persons described in
clauses (ii) and (iii); (v) any trusts created for the benefit of the persons
described in clause (ii), (iii) or (iv); (vi) in the event of the incompetence
or death of any of the persons described in clauses (ii), (iii) and (iv), such
person's estate, executor, administrator, committee or other personal
representatives or beneficiaries; and (vii) upon a distribution by the
Partnership of all or any of the stock of Holdings, the affiliated partners of
the Partnership and any Affiliate thereof.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business; (iii) cash
and Cash Equivalents; (iv) receivables owing to Holdings or any Restricted
Subsidiary created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as Holdings or any
such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary; and (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal
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bonds to which such Person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent, in each case Incurred in the
ordinary course of business; (b) Liens imposed by law, including carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings; or other Liens arising out
of judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review; (c)
Liens for taxes, assessments or other governmental charges not yet subject to
penalties for non-payment or which are being contested in good faith by
appropriate proceedings provided appropriate reserves have been taken on the
books of Holdings; (d) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of such Person in
the ordinary course of its business; provided, however, that such letters of
credit do not constitute Indebtedness; (e) encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing an Interest Rate Agreement so long
as the related Indebtedness is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing the Interest Rate Agreement; and
(g) leases and subleases of real property which do not materially interfere with
the ordinary conduct of the business of Holdings or any of its Restricted
Subsidiaries; (h) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be initiated
shall not have expired; (i) Liens for the purpose of securing the payment (or
the refinancing of the payment) of all or a part of Purchase Money Indebtedness
relating to assets or property acquired or constructed in the ordinary course of
business provided that (x) the aggregate principal amount of Indebtedness
secured by such Liens shall not exceed the cost of the assets or property so
acquired or constructed and (y) such Liens shall not encumber any other assets
or property of Holdings or any Restricted Subsidiary other than such Assets or
property and assets affixed or appurtenant thereto; (j) Liens arising solely by
virtue of any statutory or common law provision relating to banker's Liens,
rights of set-off or similar rights and remedies as to deposit accounts or other
funds maintained with a creditor expository institution; provided that (x) such
deposit account is not a dedicated cash collateral account and is not subject to
restrictions against access by Holdings in excess of those set forth by
regulations promulgated by the Federal Reserve Board, and (y) such deposit
account is not intended by Holdings or any Restricted Subsidiary to provide
collateral to the depository institution; (k) Liens arising from Uniform
Commercial Code financing statement filings regarding operating leases entered
into by Holdings and its Restricted Subsidiaries in the ordinary course of
business (l) Liens existing on the Issue Date; (m) Liens on property or shares
of stock of a Person at the time such Person becomes a Subsidiary; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming a Subsidiary; provided
further, however, that any such Lien may not extend to any other property owned
by Holdings or any Restricted Subsidiary; (n) Liens on property at the time
Holdings or a Subsidiary acquired the property, including any acquisition by
means of a merger or consolidation with or into Holdings or any Restricted
Subsidiary; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition; provided
further, however, that such Liens may not extend to any other property owned by
Holdings or any Restricted Subsidiary; (o) Liens securing Indebtedness or other
obligations of a Subsidiary owing to Holdings or a Wholly-Owned Subsidiary; and
(p) Liens securing Refinancing Indebtedness incurred to Refinance Indebtedness
that was previously so secured, provided that any such Lien is limited to all or
part of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
obligations to which such Liens relate.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
Holdings if (i) the common stock of Holdings, as the case may be, is then
registered with the Securities Exchange Commission pursuant to Section 12(b) or
12(g) of Exchange Act and traded either on a national securities exchange or in
the National Association of Securities Dealers Automated Quotation System and
(ii) at least 15% of the total issued and outstanding common stock of Holdings
has been distributed prior to such time by means of an effective registration
statement under the Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of Holdings is related
to a Related Business of Holdings and which is incurred concurrently with, or
within 180 days of, such acquisition or the completion of such construction and,
if secured, is secured only by the assets so financed.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of Holdings that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced, and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding (plus
fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Holdings and its
Restricted Subsidiaries on the date of the Indenture.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Subsidiary leases it from
such Person.
"Senior Subordinated Notes" means the $110.0 million aggregate principal
amount of 8 3/4% Senior Subordinated Notes due 2008 of Nebraska Book.
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"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of Holdings within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Debentures pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of Holdings.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Debentures by a Subsidiary Guarantor pursuant to the terms of the Indenture,
and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be
in the form prescribed in the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary created or acquired
by Holdings after the Issue Date which Guarantees Indebtedness of Holdings.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary of Holdings)
to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Holdings or any Restricted Subsidiary of Holdings that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $10,000 or less or (B) if such Subsidiary has consolidated assets greater
than $10,000, then such designation would be permitted under "Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) Holdings could Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) under "Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Holdings, all of
the Capital Stock of which (other than directors' qualifying shares) is owned by
Holdings or another Wholly-Owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Company, the following discussion is an accurate general description of the
material anticipated federal income tax consequences of the purchase, ownership
and disposition of the Debentures. It is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary
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and proposed regulations promulgated thereunder and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, persons that
hold Debentures as part of a straddle, shortsale or conversion transaction, or
holders subject to the alternative minimum tax, may be subject to special rules.
In addition, the summary is limited to persons that will hold the Debentures as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. As used herein, a "U.S. Holder" of a Debenture means a
holder that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of its source or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of a U.S. person as described in section 7701(a)(30) of
the Code. A "Non-U.S. Holder" is a holder that is not a U.S. Holder. ALL
INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
NOTES.
TAXATION OF HOLDERS ON EXCHANGE
The exchange of an Initial Debenture for an Exchange Debenture will not be
a taxable event to the holder of an Initial Debenture, and a holder will not
recognize any taxable gain or loss as a result of such an exchange. Accordingly,
a holder will have the same adjusted basis and holding period in an Exchange
Debenture as it had in an Initial Debenture immediately before the exchange.
Further, the tax consequences of ownership and disposition of any Exchange
Debenture will be the same as the tax consequences of ownership and disposition
of an Initial Debenture.
ORIGINAL ISSUE DISCOUNT
The Debentures will have original issue discount for federal income tax
purposes. The amount of original issue discount ("OID") on a Debenture is the
excess of its "stated redemption price at maturity" (the sum of all payments to
be made on the Debenture, whether denominated as interest or principal) over its
"issue price." The "issue price" of each Debenture will be the initial offering
price at which a substantial amount of Debentures are sold. Each U.S. Holder
(whether a cash or accrual method taxpayer) will be required to include in
income such OID as it accrues, in advance of the receipt of some or all of the
related cash payments.
The amount of OID includable in income by the initial U.S. Holder of a
Debenture is the sum of the "daily portions" of OID with respect to the
Debenture for each day during the taxable year or portion of the taxable year on
which such holder held such Debenture ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The accrual periods for a Debenture
will be periods that are each selected by the holder that are no longer than one
year, provided that each scheduled payment occurs either on the final day of an
accrual period or on the first day of an accrual period. The amount of OID
allocable to any accrual period other than the initial short accrual period (if
any) and the final accrual period is an amount equal to the product of the
Debenture's "adjusted issue price" at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period).
The amount of OID allocable to the final accrual period is the difference
between the amount payable at maturity and the adjusted issue price of the
Debenture at the beginning of the final accrual period. The amount of OID
allocable to any initial short accrual period may be computed under any
reasonable method. The adjusted issue price of the Debenture at the start of any
accrual period is equal to its issue price increased by the accrued OID for each
prior accrual period and
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reduced by any prior payments with respect to such Debenture. Holdings is
required to report the amount of OID accrued on Debentures held of record by
persons other than corporations and other exempt holders, which may be based on
accrual periods other than those chosen by the holder. A holder will not be
required to recognize any income upon the receipt of interest payments on the
Debentures.
The tax basis of a Debenture in the hands of the U.S. Holder will be
increased by the amount of OID, if any, on the Debenture that is included in the
holder's income pursuant to these rules, and will be decreased by the amount of
any payments made with respect to the Debenture.
ACQUISITION PREMIUM
A subsequent U.S. Holder of a Debenture is generally subject to rules for
accruing OID described above. However, if the U.S. Holder's purchase price for
the Debenture exceeds the "revised issue price" (the sum of the issue price of
the Debenture and the aggregate amount of the OID includible in the gross income
of all holders for periods before the acquisition of the Debenture by such
holder), the excess (referred to as "acquisition premium") is offset ratably
against the amount of OID otherwise includible in such holder's taxable income
(i.e., such holder may reduce the daily portions of OID by a fraction, the
numerator of which is the excess of such holder's purchase price for the
Debenture over the revised issue price, and the denominator of which is the
excess of the sum of all amounts payable on the Debenture after the purchase
date over the Debenture's revised issue price).
MARKET DISCOUNT
If a subsequent U.S. Holder purchases a Debenture for an amount that is
less than its revised issue price, the amount of the difference will be treated
as "market discount" for federal income tax purposes, unless such difference is
less than a specified de minimis amount. Under the market discount rules, a U.S.
Holder will be required to treat any principal payment on, or any gain on the
sale, exchange, retirement or other disposition of, a Debenture as ordinary
income to the extent of the market discount which has not previously been
included in income and is treated as having accrued on such a Debenture at the
time of such payment or disposition. In addition, the U.S. Holder may be
required to defer, until the maturity of the Debenture or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debenture, unless the
U.S. Holder elects to accrue on a constant interest method. A U.S. Holder of a
Debenture may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service (the "IRS").
SALE, EXCHANGE AND RETIREMENT
A U.S. Holder's tax basis in a Debenture will, in general, be the U.S.
Holder's cost therefor, increased by any accrued OID or market discount
previously included in income by the holder and reduced by any previous payments
with respect to a Debenture. Upon the sale, exchange or retirement of a
Debenture, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange or retirement and the
adjusted tax basis of the Debenture. Except as described above with respect to
market discount, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Debenture has been held for more than one year. Under current law, long-term
capital
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gains of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Debentures and to the
proceeds of sale of a Debenture made to U.S. Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such U.S. Holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
REPORTING REQUIREMENTS
Holdings will provide annual information statements to holders of the
Debentures and to the IRS, setting forth the amount of original issue discount
determined to be attributable to the Debentures for that year.
SPECIAL CONSIDERATIONS FOR NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with
respect to the payment by Holdings or any Paying Agent of principal or
interest (which for purposes of this discussion includes OID) on a
Debenture owned by a Non-U.S. Holder, provided (i) that the beneficial
owner does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Holdings entitled to vote
within the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) the beneficial owner is not a controlled foreign
corporation that is related to Holdings through stock ownership, (iii) the
beneficial owner is not a bank whose receipt of interest on a Debenture is
described in section 881(c)(3)(A) of the Code and (iv) the beneficial owner
satisfies the statement requirement (described generally below) set forth
in section 871(c)(3)(A) of the Code;
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange or retirement of a Debenture; and
(c) a Debenture beneficially owned by an individual who at the time of
death is a Non-U.S. Holder will not be subject to U.S. federal estate tax
as a result of such individual's death, provided that such individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the company entitled to vote within the
meaning of section 871(h)(3) of the Code and provided that the interest
payments with respect to such Debenture would not have been, if received at
the time of such individual's death, effectively connected with the conduct
of a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Debenture, or a financial institution holding the Debenture on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of Holdings with a statement to the effect that the beneficial
owner is not a U.S. person. Pursuant to current temporary Treasury regulations,
these requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S. person
(which certification may be made on an IRS Form W-8 (or successor form)) or (2)
a financial institution holding the Debenture on behalf of
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the beneficial owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof. Under
recently finalized Treasury regulations (the "Final Regulations"), the statement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interests paid after December 31, 1998 with respect to an offshore
account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest (including OID) made to such Non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Debenture provides Holdings
or its paying agent, as the case may be, with a properly executed (1) IRS Form
1001 (or successor form) claiming an exemption from withholding under the
benefit of a tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Debenture is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States. Under the Final Regulation, Non-U.S. Holders will
generally be required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS
Form 4224, although alternative documentation may be applicable in certain
situations.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, or interest on the Debenture is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed above, will be subject to U.S. federal income tax
on such interest and OID on a net income basis in the same manner as if it were
a U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such premium, if any, and interest on a Debenture will be included in
such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange or retirement of a
Debenture generally will not be subject to U.S. federal income tax unless (i)
such gain or income is effectively connected with a trade or business in the
United States of the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange or retirement, and
certain other conditions are met.
No information reporting or backup withholding will be required with
respect to payments made by Holdings or any paying agent to Non-U.S. Holders if
a statement described in (a)(iv) under "Non-U.S. Holders" has been received and
the payor does not have actual knowledge that the beneficial owner is a U.S.
person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Debenture are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Debenture, or if a foreign office of a
broker (as defined in applicable Treasury regulations) pays the proceeds of the
sale of a Debenture to the owner thereof. If, however, such nominee, custodian,
agent or broker is, for U.S. federal income tax purposes, a U.S. Person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, or, after December 31, 1998, if such nominee, custodian,
agent or broker is a foreign partnership, in which one or more U.S. persons, in
the aggregate, own more than 50% of the income or capital interests in the
partnership or if the partnership is engaged in a trade or business in the
United States, such payments will not be subject to backup withholding but will
be subject to information reporting, unless (1) such custodian, nominee, agent
or broker has documentary evidence in its records that the beneficial owner is
not a U.S. person and certain other conditions are met or (2) the beneficial
owner otherwise establishes an exemption.
Payments of principal, interest, OID and premium on a Debenture paid to the
beneficial owner of a Debenture by a United States office of a custodian,
nominee or agent, or the payment by the United States office of a broker of the
proceeds of sale of a Debenture, will be subject to both backup withholding and
information reporting unless the beneficial owner provides the statement
98
<PAGE> 102
referred to in (a)(iv) above and the payor does not have actual knowledge that
the beneficial owner is a U.S. person or otherwise establishes an exemption.
As mentioned above, any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's U.S. federal
income tax liability provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF A DEBENTURE IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF A DEBENTURE SHOULD
CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH
HOLDER OF THE OWNERSHIP AND DISPOSITION OF A DEBENTURE, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR
SUBSEQUENT VERSIONS THEREOF.
99
<PAGE> 103
BOOK-ENTRY; DELIVERY AND FORM
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL DEBENTURES
Except as set forth below, the Exchange Debentures will initially be issued
in the form of one or more registered Exchange Debentures in global form without
coupons (each a "Global Debenture"). Each Global Debenture will be deposited on
the date of the closing of the exchange of the Exchange Debentures for Initial
Debentures (the "Exchange Offer Closing Date") with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between DTC and the Trustee.
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to change by it from time
to time. The Company takes no responsibility for these operations or procedures,
and holders are urged to contact DTC or its participants directly to discuss
these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of each Global Debenture, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Debenture and
(ii) ownership of the Debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of Participants) and the records of Participants and the
Indirect Participants (with respect to the interests of persons other than
Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Debenture to such persons may be limited. In addition, because DTC can
act only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Debentures represented by a Global Debenture to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global
Debenture, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Debentures represented by the Global Debenture for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Debenture will not be entitled to have Debentures
represented by such Global Debenture registered in their names, will not receive
or be entitled to receive physical delivery of Certificated Debentures, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any
100
<PAGE> 104
direction, instruction or approval to the Trustee thereunder. Accordingly, each
holder owning a beneficial interest in a Global Debenture must rely on the
procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the Indenture or
such Global Debenture. The Company understands that under existing industry
practice, in the event that the Company requests any action of holders of
Debentures, or a holder that is an owner of a beneficial interest in a Global
Debenture desires to take any action that DTC, as the holder of such Global
Debenture, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Debentures by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such Debentures.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Debentures represented by a Global
Debenture registered in the name of DTC or its nominee on the applicable record
date will be payable by the Trustee to or at the direction of DTC or its nominee
in its capacity as the registered holder of the Global Debenture representing
such Debentures under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names the Debentures,
including the Global Debentures, are registered as the owners thereof for the
purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Debenture (including principal, premium, if
any, Liquidated Damages, if any, and interest). Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Debenture will be governed by standing instructions and customary industry
practice and will be the responsibility of the Participants or the Indirect
Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
CERTIFICATED DEBENTURES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Debentures will be issued to each person that
DTC identifies as the beneficial owner of the Debentures represented by the
Global Debentures. Upon any such issuance, the Trustee is required to register
such Certificated Debentures in the name of such person or persons (or the
nominee of any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Debentures to be issued).
101
<PAGE> 105
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Debentures. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Debentures received in
exchange for Debentures where such Debentures were acquired as a result of
market-making activities or other trading activities. Holdings has agreed that,
for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Debentures may be required to
deliver a prospectus.
Holdings will not receive any proceeds from any sale of Exchange Debentures
by broker-dealers. Exchange Debentures received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Debentures or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such Exchange Debentures.
Any broker-dealer that resells Exchange Debentures that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Debentures may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Debentures and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date Holdings will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. Holdings has agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the Holders of the Debentures)
other than commissions or concessions of any broker-dealers and will indemnify
the Holders of the Debentures (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Debentures offered hereby will be passed upon
for Holdings by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The financial statements of the Company as of March 31, 1997, March 31,
1996 and August 31, 1995 and for the year ended March 31, 1997, seven months
ended March 31, 1996 and five months ended August 31, 1995 included in this
Prospectus and the financial statement schedule as of March 31, 1997 and 1996
and for the year ended March 31, 1997 and the seven months ended March 31, 1996
included elsewhere in the registration statement, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein,
and have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Nebraska Book as of and for the year ended
March 31, 1995 included in this Prospectus, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report.
102
<PAGE> 106
AVAILABLE INFORMATION
Holdings filed with the SEC the Registration Statement under the Securities
Act with respect to the Exchange Debentures being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information with respect to Holdings and the Exchange Debentures, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions is
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the SEC's
Regional Offices located at the Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon payment of certain
fees prescribed by the SEC. The SEC maintains a World Wide Web site
(http://www.sec.gov that contains such material regarding issuers that file
electrically with the SEC. The Registration Statement has to be filed.
Holdings is not currently subject to the information requirements of the
Exchange Act, and in accordance therewith, will file periodic reports and other
information with the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of any material so filed can be obtained from the Public Reference
Section of the SEC at the address set forth above, upon payment of certain fees
prescribed by the SEC.
Pursuant to the Indenture, Holdings has agreed to provide the Trustee and
holders of the Debentures with annual, quarterly and other reports at the times
and containing in all material respects the information specified in Section 13
and 15(d) of the Exchange Act and to file such reports with the SEC.
103
<PAGE> 107
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NBC ACQUISITION CORP.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF NBC ACQUISITION CORP.
(AS SUCCESSOR)
YEAR ENDED MARCH 31, 1997 AND SEVEN MONTHS ENDED MARCH
31, 1996
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets............................ F-3
Consolidated Statements of Operations.................. F-4
Consolidated Statements of Stockholders' Equity........ F-5
Consolidated Statements of Cash Flows.................. F-6
Notes to Consolidated Financial Statements............. F-7
FINANCIAL STATEMENTS OF NEBRASKA BOOK COMPANY, INC. (AS
PREDECESSOR)
FIVE MONTHS ENDED AUGUST 31, 1995 AND YEAR ENDED MARCH
31, 1995
Independent Auditors' Report........................... F-17
Report of Independent Public Accountants............... F-18
Balance Sheets......................................... F-19
Statements of Operations............................... F-20
Statements of Stockholder's Equity..................... F-21
Statements of Cash Flows............................... F-22
Notes to Financial Statements.......................... F-23
</TABLE>
F-1
<PAGE> 108
NBC ACQUISITION CORP.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NBC Acquisition Corp.
Lincoln, Nebraska
We have audited the accompanying consolidated balance sheets of NBC
Acquisition Corp. and subsidiary as of March 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended March 31, 1997 and the seven months ended March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of NBC Acquisition Corp. and
subsidiary as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for the year ended March 31, 1997 and the seven months
ended March 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 16, 1997
F-2
<PAGE> 109
NBC ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------- DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 10,100,943 $ 9,976,964 $ 5,256,414
Receivables (Note C).......................... 14,523,630 15,322,275 40,454,776
Inventories (Note D).......................... 43,499,006 44,288,392 52,362,287
Recoverable income tax........................ -- 574,375 218,460
Deferred income tax benefit (Note H).......... 568,127 1,156,540 1,156,540
Prepaid expenses and other assets............. 207,021 330,523 423,070
------------ ------------ ------------
Total current assets.................. 68,898,727 71,649,069 99,871,547
PROPERTY AND EQUIPMENT (Note E)................. 23,452,106 25,436,653 27,842,384
Less accumulated depreciation................. (904,169) (3,534,097) (5,044,920)
------------ ------------ ------------
22,547,937 21,902,556 22,797,464
GOODWILL AND OTHER INTANGIBLES, net of
amortization (Note F)......................... 36,563,445 31,898,517 32,155,540
OTHER ASSETS.................................... 1,013,256 1,719,118 1,525,693
------------ ------------ ------------
$129,023,365 $127,169,260 $156,350,244
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 9,817,887 $ 10,870,820 $ 11,314,542
Accrued employee compensation and benefits.... 2,634,012 2,960,075 2,088,976
Accrued interest.............................. 1,027,048 1,265,880 1,352,803
Accrued expenses.............................. 372,562 352,942 557,662
Current maturities of long-term debt.......... 2,470,857 263,654 1,789,795
Revolver payable.............................. -- -- 24,800,000
Income taxes payable.......................... 107,001 -- --
------------ ------------ ------------
Total current liabilities............. 16,429,367 15,713,371 41,903,778
LONG-TERM DEBT, net of current maturities
(Note G)...................................... 84,241,478 79,260,024 77,773,780
OTHER LONG-TERM LIABILITIES (Notes K and L)..... 89,833 498,686 842,667
COMMITMENTS (Note I)
STOCKHOLDERS' EQUITY:
Class A common stock, voting, authorized
4,500,000 shares of $.01 par value; issued
and outstanding 2,751,852, shares as of
March 31, 1996 and 1997, and 2,755,776
shares as of December 31, 1997............. 27,519 27,519 27,558
Class B common stock, non-voting, authorized
500,000 shares of $.01 par value; issued
and outstanding 48,148 shares.............. 481 481 481
Additional paid-in capital.................... 30,972,000 30,972,000 31,119,111
Notes receivable from stockholders............ (236,110) (236,110) (236,110)
Retained earnings (deficit)................... (2,501,203) 933,289 4,918,979
------------ ------------ ------------
Total stockholders' equity............ 28,262,687 31,697,179 35,830,019
------------ ------------ ------------
$129,023,365 $127,169,260 $156,350,244
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 110
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, MARCH 31, ---------------------------
1996 1997 1996 1997
--------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES....................... $79,422,740 $172,600,193 $132,108,322 $144,922,261
COST OF SALES.................. 51,865,640 110,465,930 85,230,337 91,496,544
----------- ------------ ------------ ------------
Gross profit......... 27,557,100 62,134,263 46,877,985 53,425,717
OPERATING EXPENSES
Selling, general and
administrative............ 22,599,147 39,787,816 29,280,468 33,787,566
Depreciation................. 904,169 2,705,687 1,944,063 1,725,168
Amortization................. 2,652,954 4,747,486 3,548,971 4,335,767
----------- ------------ ------------ ------------
26,156,270 47,240,989 34,773,502 39,848,501
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS......... 1,400,830 14,893,274 12,104,483 13,577,216
OTHER EXPENSES (INCOME)
Interest expense............. 5,641,326 10,085,103 7,779,762 7,473,202
Interest income.............. (432,744) (561,494) (348,641) (227,008)
Other income................. (339,314) (389,446) (292,950) (311,795)
----------- ------------ ------------ ------------
4,869,268 9,134,163 7,138,171 6,934,399
----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES........................ (3,468,438) 5,759,111 4,966,312 6,642,817
INCOME TAX EXPENSE (BENEFIT)
(Note H)..................... (967,235) 2,324,619 1,986,525 2,657,127
----------- ------------ ------------ ------------
NET INCOME (LOSS).............. $(2,501,203) $ 3,434,492 $ 2,979,787 $ 3,985,690
=========== ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic........................ $ (0.89) $ 1.23 $ 1.06 $ 1.42
=========== ============ ============ ============
Diluted...................... $ (0.89) $ 1.16 $ 1.01 $ 1.28
=========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 111
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON COMMON ADDITIONAL RECEIVABLE RETAINED
STOCK STOCK PAID-IN FROM EARNINGS
A B CAPITAL STOCKHOLDERS (DEFICIT) TOTAL
------- ------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 1, 1995... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Proceeds from stock issued
Class A common........... 27,519 -- 27,491,001 (250,000) -- 27,268,520
Class B common........... -- 481 480,999 -- -- 481,480
Fair value of warrants
issued (Note G).......... -- -- 3,000,000 -- -- 3,000,000
Payment on stockholder
note..................... -- -- -- 13,890 -- 13,890
Net loss................... -- -- -- -- (2,501,203) (2,501,203)
------- ---- ----------- --------- ----------- -----------
BALANCE, March 31, 1996...... 27,519 481 30,972,000 (236,110) (2,501,203) 28,262,687
Net income................. 3,434,492 3,434,492
------- ---- ----------- --------- ----------- -----------
BALANCE, March 31, 1997...... 27,519 481 30,972,000 (236,110) 933,289 31,697,179
Proceeds from stock issued
(unaudited).............. 39 -- 147,111 -- -- 147,150
Net income (unaudited)..... -- -- -- -- 3,985,690 3,985,690
------- ---- ----------- --------- ----------- -----------
Balance, December 31, 1997
(unaudited).............. $27,558 $481 $31,119,111 $(236,110) $ 4,918,979 $35,830,019
======= ==== =========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 112
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, MARCH 31, ---------------------------
1996 1997 1996 1997
--------------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss).................................... $ (2,501,203) $ 3,434,492 $ 2,979,787 $ 3,985,690
Adjustment to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation....................................... 904,169 2,705,687 1,944,063 1,725,168
Amortization....................................... 2,652,954 4,747,486 3,548,971 4,335,767
Original issue discount amortization............... 192,500 282,500 207,500 225,000
Loss on disposal of assets......................... -- 113,925 87,031 227,946
Deferred income taxes.............................. (1,049,196) (278,326) -- --
(Increase) decrease in other assets................ (705,034) 153,838 242,545 193,425
Increase in other liabilities...................... 19,585 408,853 245,663 343,981
(Increase) decrease in current assets:
Receivables...................................... 18,096,622 (798,645) (24,681,868) (25,132,501)
Inventories...................................... (7,356,808) (789,386) (608,812) (8,073,895)
Income tax recoverable........................... -- (574,375) -- 355,915
Prepaid expenses and other assets................ (52,611) (123,502) (133,887) (92,547)
Increase (decrease) in current liabilities:
Accounts payable................................. (5,022,274) 1,052,933 389,075 443,722
Accrued employee compensation and benefits....... 1,100,599 326,063 273,084 (871,099)
Accrued interest................................. 1,003,000 238,832 511,551 86,923
Accrued expenses................................. (247,529) (19,620) (5,234) 204,720
Income taxes payable............................. (3,611,970) (107,001) 343,534 --
------------- ----------- ------------ ------------
Net cash flows from operating activities....... 3,422,804 10,773,754 (14,656,997) (22,041,785)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Nebraska Book Company, Inc.
Working capital, net of cash....................... (46,959,761) -- -- --
Property and equipment............................. (22,645,662) -- -- --
Other assets....................................... (257,043) -- -- --
Assumed liabilities................................ 134,341 -- -- --
Excess of costs over fair value of assets
acquired......................................... (32,665,499) -- -- --
Covenant not to compete............................ (6,000,000) -- -- --
Purchases of property and equipment.................. (837,633) (2,242,816) (1,359,413) (2,887,479)
Proceeds from sale of property and equipment......... 31,189 68,585 51,616 39,457
Bookstore acquisitions, net of cash.................. (550,901) (1,252,345) (22,345) (4,592,790)
Issuance of notes receivable......................... (35,000) -- -- --
Proceeds from notes receivable....................... 400,798 -- -- --
------------- ----------- ------------ ------------
Net cash flows from investing activities....... (109,385,171) (3,426,576) (1,330,142) (7,440,812)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 85,905,993 -- -- --
Fair value of warrants issued........................ 3,000,000 -- -- --
Proceeds from sale of stock.......................... 27,750,000 -- -- 147,150
Payments on stockholder note......................... 13,890 -- -- --
Proceeds from revolver facility...................... -- -- 12,900,000 24,800,000
Principal payments on long-term debt................. (606,573) (7,471,157) (1,417,966) (185,103)
------------- ----------- ------------ ------------
Net cash flows from financing activities....... 116,063,310 (7,471,157) 11,482,034 24,762,047
------------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:......................................... 10,100,943 (123,979) (4,505,105) (4,720,550)
CASH AND CASH EQUIVALENTS, Beginning of period......... -- 10,100,943 10,100,943 9,976,964
------------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, End of period............... $ 10,100,943 $ 9,976,964 $ 5,595,838 $ 5,256,414
============= =========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................... $ 4,576,845 $ 9,555,267 $ 6,848,668 $ 6,957,160
============= =========== ============ ============
Income taxes....................................... $ 3,663,531 $ 3,284,321 $ 1,642,991 $ 2,301,212
============= =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 113
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
NBC Acquisition Corp. (the Company) was formed for the purpose of acquiring
all of the outstanding capital stock of Nebraska Book Company, Inc. (NBC),
effective September 1, 1995. The Company did not have substantive operations
prior to the acquisition of NBC.
NBC participates in the college bookstore industry by providing used
textbooks to college bookstore operators, by operating its own college
bookstores and by providing proprietary college bookstore information systems
and consulting services. NBC was founded in 1915 as a college bookstore at the
University of Nebraska. NBC entered the wholesale business following World War
II, when the production of new textbooks slowed and the need for buying and
reselling used textbooks became apparent. NBC currently services the college
bookstore industry through its wholesale, college bookstore and services
operations.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of NBC Acquisition Corp. and its
subsidiary are as follows:
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and NBC. All operating activities, assets and
liabilities are those of the Company's subsidiary. All significant intercompany
accounts and transactions are eliminated in consolidation.
Revenue Recognition: The Company recognizes revenue from product sales at
the time of shipment. The Company has established a program, which under certain
conditions, enables its customers to return product. The effect of this program
is estimated and the current period accounts are adjusted accordingly. The
Company recognizes revenues from the licensing of its software products upon
delivery or installation if the Company is contractually obligated to install
the software.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on
hand and in the bank as well as short-term investments with maturities of three
months or less when purchased.
Fair Value of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of March 31, 1997 and 1996, because
of the relatively short maturity of these instruments. The carrying value of
long-term debt, including the current portion, approximated fair value as of
March 31, 1997 and 1996, based upon prevailing interest rates for the same or
similar debt issues.
The fair value of the interest rate swap agreement (see Note G) is
estimated at $183,000 using quotes from brokers and represents the cash proceeds
if the existing agreement had been settled at year end.
Inventories: Inventories are stated at the lower of cost or market.
Inventories for wholesale operations are determined on the average weighted cost
method. College bookstore and other inventories are determined on the first-in,
first-out cost method.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is determined using a combination of the straight-line and
accelerated methods. The majority of property and
F-7
<PAGE> 114
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment have useful lives of five to six years, with the exception of
buildings which are depreciated over 30 years.
Goodwill and Intangible Assets: Intangible assets were acquired through the
acquisition of 100% of the stock of Nebraska Book Company, Inc. effective
September 1, 1995, and the acquisition of various bookstores operations.
Recoverability of goodwill is evaluated based upon estimates of future
undiscounted operating income.
The acquisition of the stock was accounted for by the purchase method of
accounting and includes the excess of cost over fair value of net assets
acquired (goodwill), covenant not to compete and other acquisition costs. The
goodwill is amortized on a straight-line basis over a period of 15 years. The
covenant not to compete is being amortized on a straight-line basis over a
period of 3 years.
During 1996 and 1997, the Company acquired bookstore facilities which were
accounted for by the purchase method of accounting and includes the excess cost
over fair value of net assets acquired. This goodwill is being amortized on a
straight-line basis over a period of 3 years. A covenant not to compete is being
amortized on a straight-line basis over a period of three years.
Debt Issue Costs: The costs related to the issuance of debt are capitalized
and amortized to interest expense over the lives of the related debt.
Income Taxes: The Company provides for deferred income taxes based upon
temporary differences between financial statement and income tax bases of assets
and liabilities, and tax rates in effect for periods in which such temporary
differences are estimated to reverse.
Stock Based Compensation: The Company accounts for its stock-based
compensation under provisions of Accounting Principles Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
Earnings Per Share: Earnings per share are calculated in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
Basic earnings per share data are based on the weighted-average number of Common
Shares outstanding during the period. Diluted earnings per share data are based
on the weighted-average number of Common Shares outstanding and the effect of
the dilutive potential common shares including stock options and warrants. All
prior periods have been restated in accordance with SFAS 128.
Reclassifications: Certain items on the prior period's statements have been
reclassified to conform to the current presentation.
Interim Financial Information (Unaudited): In the opinion of management,
the unaudited financial statements as of December 31, 1997 contain all
adjustments necessary to summarize fairly the financial position of the Company
and the results of the Company's operations for the nine months ended December
31, 1997 and 1996. All such adjustments are of a normal recurring nature.
Because of the cyclical nature of the Company's operations, earnings of any
single reporting period should not be considered indicative of results for a
full year.
F-8
<PAGE> 115
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Trade receivables, less allowance for doubtful accounts
of $239,296 and $255,027 at March 31, 1997 and 1996,
respectively........................................... $ 7,699,763 $ 8,516,407
Suppliers and vendors.................................... 3,633,206 4,050,981
Buying funds............................................. 1,582,884 1,950,510
Notes receivable, current portion........................ 805,798 78,118
Computer finance agreements, current portion............. 52,724 89,880
Other.................................................... 749,255 636,379
----------- -----------
Receivables.............................................. $14,523,630 $15,322,275
=========== ===========
</TABLE>
Trade receivables include the effect of estimated product returns. The
amount of product returns estimated at March 31, 1996 and 1997 is $2,512,515 and
$2,535,732, respectively.
D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Wholesale.............................................. $19,921,995 $21,198,983
College bookstore...................................... 22,841,369 22,023,298
Other.................................................. 735,642 1,066,111
----------- -----------
Inventories............................................ $43,499,006 $44,288,392
=========== ===========
</TABLE>
Wholesale inventories include the effect of estimated product returns. The
amount of product returns estimated at March 31, 1996 and 1997 is $1,604,001 and
$1,588,069, respectively.
E. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land................................................... $ 2,333,733 $ 2,333,733
Buildings and improvements............................. 12,428,032 12,435,235
Leasehold improvements................................. 2,512,523 2,981,532
Furniture and fixtures................................. 2,029,738 2,440,286
Information systems.................................... 3,167,407 3,987,573
Automobiles and trucks................................. 703,516 670,339
Machinery.............................................. 245,200 253,764
Projects in process.................................... 31,957 334,191
----------- -----------
Property and equipment................................. $23,452,106 $25,436,653
=========== ===========
</TABLE>
F-9
<PAGE> 116
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets and related amortization are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Goodwill............................................... $28,644,026 $28,426,584
Covenants not to compete............................... 6,000,000 6,300,000
Debt issue costs....................................... 4,572,373 4,572,373
----------- -----------
39,216,399 39,298,957
Less: accumulated amortization......................... 2,652,954 7,400,440
----------- -----------
$36,563,445 $31,898,517
=========== ===========
</TABLE>
G. LONG-TERM DEBT
The acquisition of NBC was partially funded with debt placed through a
Senior Credit Facility with a bank which includes a syndicate of investors. The
Facility was comprised of term loans in the amount of $25,000,000 (Tranche A
Loan), $37,500,000 (Tranche B Loan) and a Revolving Credit Facility in the
amount of $50,000,000.
The Revolving Credit Facility (Revolver) is for a total of six years.
Availability under the Revolver is determined by the calculation of a borrowing
base which at any time is equal to a percentage of eligible accounts receivable
and inventory. The calculated borrowing base at March 31, 1997 and 1996 was
$25,956,610 and $25,120,580, respectively. The interest rate is based on prime
plus 1.75% or if a Eurodollar borrowing, the LIBOR rate plus 2.75%.
Additionally, there is a .5% commitment fee for the average daily unused amount.
The average borrowings under the Revolver for the year ended March 31, 1997, and
the seven months ended March 31, 1996 were $6,708,800 and $2,645,000,
respectively, at an average rate of 10%. There were no amounts borrowed under
the Revolver at March 31, 1996 and 1997.
The Senior Credit Facility is collateralized by substantially all of the
Company's assets.
Additional funding of the acquisition included the proceeds of the issuance
of $27,000,000 face amount of Subordinated Notes with detachable warrants.
Proceeds of the notes have been discounted in the amount of $3,000,000 which is
the estimated fair value of the warrants issued. The value of the warrants has
been recorded as additional paid-in capital. The discount will be expensed
ratably over ten years and is included in interest expense on the statements of
operations.
F-10
<PAGE> 117
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. LONG-TERM DEBT (CONTINUED)
Borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Tranche A Loan, due August 31, 2001, quarterly
principal payments, plus interest at a floating rate
based on LIBOR plus 2.75% (8.4375% at March 31, 1997
and 1996)............................................ $24,475,000 $17,275,000
Tranche B Loan, due August 31, 2003, quarterly
principal payments, with balloon payments in 2001
through 2003, plus interest at a floating rate, based
on LIBOR plus 3.25% (8.9375% at March 31, 1997 and
1996)................................................ 37,425,000 37,175,000
Subordinated notes, due August 31, 2005, quarterly
interest payments at a fixed rate of 12%, net of
discount of $2,525,000 and $2,807,500 at March 31,
1997 and 1996, respectively.......................... 24,192,500 24,475,000
Mortgage note payable with an insurance company assumed
with the acquisition of a bookstore facility, due
December 1, 2013, monthly payments of $6,446
including interest at 10.75%......................... 610,946 598,678
Other note payable, paid August 1996, non-interest
bearing.............................................. 8,889 --
----------- -----------
86,712,335 79,523,678
Less current portion................................... (2,470,857) (263,654)
----------- -----------
Long-term debt......................................... $84,241,478 $79,260,024
=========== ===========
</TABLE>
The credit arrangements require the Company to maintain certain financial
ratios, and meet certain net worth and capital expenditure requirements for
which the Company is in compliance, at March 31, 1996 and 1997.
The Company entered into an interest rate swap agreement at no cost which
effectively exchanges variable interest rates for a fixed interest rate (before
add-on) of 5.93% on $35 million of long-term debt without the exchange of
underlying principal. The difference to be paid or received varies as short-term
interest rates change and is accrued and recognized as an adjustment to interest
expense. The agreement is settled quarterly. The initial term of the agreement
is through September 1, 1998.
At March 31, 1997, the aggregate maturities of long-term debt for the next
five years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------------------------------------------------------
<S> <C>
1998........................................................ $ 263,654
1999........................................................ 3,365,196
2000........................................................ 5,816,913
2001........................................................ 7,418,824
2002........................................................ 11,170,950
</TABLE>
F-11
<PAGE> 118
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Currently payable
Federal............................................... $ 73,248 $2,192,687
State................................................. 8,713 410,258
Deferred................................................ (1,049,196) (278,326)
----------- ----------
Total......................................... $ (967,235) $2,324,619
=========== ==========
</TABLE>
The following represents a reconciliation between the actual income tax
expense and income taxes computed by applying the Federal income tax rate to
income before income taxes:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Statutory rate.......................................... (34.0)% 34.0%
State income tax effect................................. (4.0) 4.0
Amortization in excess of purchase price over net assets
acquired.............................................. 0.6 0.4
Change in estimate of income tax liabilities............ 7.6 --
Other................................................... 1.9 2.0
----- ----
(27.9)% 40.4%
===== ====
</TABLE>
Deferred taxes arise primarily from the temporary differences between
financial and income tax reporting of deferred compensation agreements, vacation
accruals, inventory, product returns and amortization of intangibles.
The components of the deferred income tax assets and liabilities consist of
the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1997
-------- ----------
<S> <C> <C>
Deferred income tax assets (liabilities), current:
Vacation accruals........................................ $273,522 $ 310,455
Inventory................................................ 309,723 452,160
Allowance for doubtful accounts.......................... 96,237 95,718
Product returns.......................................... (35,182) 379,065
Other.................................................... (76,173) (80,858)
-------- ----------
568,127 1,156,540
-------- ----------
Deferred income tax assets, noncurrent:
Deferred compensation agreements......................... 33,899 48,089
Stock compensation costs................................. 30,876 151,385
Book over tax goodwill amortization...................... -- 63,865
Covenant not to compete.................................. 352,202 1,013,338
-------- ----------
416,977 1,276,677
-------- ----------
$985,104 $2,433,217
======== ==========
</TABLE>
F-12
<PAGE> 119
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES (CONTINUED)
The non-current portion of deferred tax assets are classified in other assets.
I. COMMITMENTS
The Company leases bookstore facilities and data processing equipment under
noncancelable operating leases expiring at various dates through April, 2010.
Certain of the leases are based on a percentage of sales, ranging from 3.0% to
9.0%. Aggregate minimum lease payments under these agreements for the years
ending March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998........................................................ $ 3,173,295
1999........................................................ 2,893,023
2000........................................................ 2,490,530
2001........................................................ 2,105,537
2002........................................................ 1,674,317
Thereafter.................................................. 4,176,666
-----------
Total....................................................... $16,513,368
===========
</TABLE>
Total rent expense for the seven months ended March 31, 1996, and the year
ended March 31,1997 was $2,213,294 and $4,117,978, respectively. Percentage rent
expense for, the seven months ended March 31, 1996 and the year ended March
31,1997 was $331,553 and $605,774, respectively.
J. RETIREMENT PLAN
The Company's subsidiary participates in and sponsors a 401(k) compensation
deferral plan. The plan covers substantially all employees. The plan provisions
include employee contributions based on a percentage of compensation along with
a sponsor base contribution in addition to a limited matching feature. The
sponsor contributions for the seven months ended March 31, 1996, and the year
ended March 31, 1997 were $365,876 and $668,686 respectively.
K. STOCK BASED COMPENSATION
The Company has a stock incentive plan that provides for granting of
options to purchase 200,000 shares of common stock to designated employees,
officers and directors. The options may be in the form of incentive stock
options or nonqualified stock options, and are granted at fair market value on
the date of grant. The options granted vest with respect to a certain percentage
of the options through March 31, 2000, provided that the Company's cumulative
earnings before interest, income taxes, depreciation and amortization meet
certain targeted amounts as defined in the plan. The options generally expire in
ten years from the date of grant. At March 31, 1997, 30,000 shares of common
stock were available for grant under the option plan.
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion No. 25), which utilizes the intrinsic value method.
Compensation cost related to stock-based compensation was $81,821, and $296,642
for the seven months ended March 31, 1996 and the year ended March 31, 1997,
respectively.
F-13
<PAGE> 120
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK BASED COMPENSATION (CONTINUED)
The weighted average fair value of options granted during the year was
$14.09 and $16.85 per option for the seven months ended March 31, 1996 and the
year ended March 31, 1997, respectively.
A summary of the Company's stock-based compensation activity related to
stock options for the for the seven months ended March 31, 1996 and the year
ended March 31, 1997 is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1997
-------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding -- beginning of year.......... 0 0 170,000 $ 10.00
Granted................................... 170,000 $10.00 0 0
Expired/terminated........................ 0 0 0 0
Exercised................................. 0 0 0 0
------- ------ ------- -------
Outstanding -- end of year................ 170,000 $10.00 170,000 $ 10.00
------- ------ ------- -------
</TABLE>
There were 17,000 and 0 options exercisable at March 31, 1997 and 1996,
respectively.
The following table summarizes information about stock options outstanding
as of March 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00 170,000 9.69 $10.00 17,000 $10.00
</TABLE>
The fair value of options granted on September 1, 1995 were $4.77 per
option. The fair value of options granted was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
MARCH 31,
1996
-------------
<S> <C>
Risk-free interest rate..................................... 6.59%
Dividend yield.............................................. --
Expected volatility......................................... --
Expected life (years)....................................... 10 years
</TABLE>
No stock options were granted during the year ended March 31, 1997.
F-14
<PAGE> 121
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK BASED COMPENSATION (CONTINUED)
The pro forma impact on net income (loss) and diluted earnings per share of
accounting for stock-based compensation using the fair value method required by
SFAS 123, Accounting for Stock-Based Compensation is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Net income (loss):
As reported............................................... $(2,501,203) $3,434,492
Pro forma................................................. $(2,500,775) $3,502,981
Diluted income (loss) per share:
As reported............................................... $ (0.89) $ 1.16
Pro forma................................................. $ (0.89) $ 1.19
</TABLE>
The pro forma impact only takes into account stock-based compensation
grants since September 1, 1995.
L. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation plan for selected
employees. This plan allows participants to voluntarily elect to defer portions
of their current compensation. The amounts can be distributed upon death,
resignation or termination, voluntary or involuntary. Interest is accrued at the
prime rate adjusted semi-annually on January 1 and July 1 and is compounded as
of March 31. The liability for the deferred compensation is included in other
long-term liabilities.
M. WARRANTS
In connection with the issuance of the 12.0% Subordinated Notes, due August
31, 2005, the Company issued warrants to purchase its Class A and Class B common
stock (the "Warrants") (See Note G). Each Warrant, when exercised, entitles the
holder thereof to receive the number of shares of common stock as set forth on
the Warrant at an exercise price of $10.00 per share. The Warrants are
exercisable at any time and automatically expire on August 31, 2005. The
Warrants issued entitle the holders to purchase in the aggregate 289,899 shares
of Class A common stock, and 91,919 shares of Class B common stock. During 1997
and 1996, no Warrants were exercised.
F-15
<PAGE> 122
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. EARNINGS PER SHARE
SFAS 128 requires dual presentation of Basic and Diluted EPS, as well as
restatement of EPS for all periods for which an income statement or summary of
earnings is presented. The following table provides a reconciliation between
Basic and Diluted EPS.
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED MARCH 31, YEAR ENDED MARCH 31,
1996 1997
----------------------------------- ----------------------------------
PER-SHARE PER-SHARE
NET LOSS SHARES AMOUNT NET INCOME SHARES AMOUNT
----------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss)...... $(2,501,203) 2,800,000 $(0.89) $3,434,492 2,800,000 $1.23
Effect of Dilutive
Securities:
Stock options.......... -- 14,877
Warrants............... -- 135,006
----------- --------- ------ ---------- --------- -----
Diluted EPS.............. $(2,501,203) 2,800,000 $(0.89) $3,434,492 2,949,883 $1.16
=========== ========= ====== ========== ========= =====
</TABLE>
The stock options and warrants for the seven months ended March 31, 1996
were antidilutive, and therefore were not included in the above reconciliation.
F-16
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the accompanying balance sheet of Nebraska Book Company,
Inc. as of August 31, 1995, and the related statements of operations,
stockholder's equity and cash flows for the five months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 August 31, 1995 financial statements present fairly, in
all material respects, the financial position of the Company as of August 31,
1995, and the results of its operations and its cash flows for the five months
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 24, 1996
F-17
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Nebraska Book Company, Inc.:
We have audited the accompanying balance sheet of Nebraska Book Company,
Inc. (a Kansas corporation) as of March 31, 1995 and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nebraska Book Company, Inc.
as of March 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
May 23, 1995
F-18
<PAGE> 125
NEBRASKA BOOK COMPANY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,740,649 $ 2,290,700
Receivables (Note C)...................................... 32,434,984 10,816,203
Inventories (Note D)...................................... 36,142,198 40,471,035
Prepaid expenses and other assets......................... 162,560 434,069
------------ ------------
Total current assets.............................. 73,480,391 54,012,007
PROPERTY AND EQUIPMENT (Note E)............................. 32,114,954 32,126,626
Less accumulated depreciation............................. (13,507,638) (12,808,533)
------------ ------------
18,607,316 19,318,093
NOTES RECEIVABLE, interest at 7.5% to 9.0%.................. -- 1,662,279
OTHER ASSETS................................................ 417,534 187,094
------------ ------------
$ 92,505,241 75,179,473
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 13,924,672 $ 9,538,428
Accrued employee compensation and benefits................ 1,299,113 2,257,862
Accrued expenses.......................................... 644,139 353,717
Revolving credit facility................................. 8,750,000 8,300,000
Current maturities of long-term debt...................... 20,415 19,912
Income taxes payable...................................... 3,718,971 761,345
Deferred income taxes (Note H)............................ 1,243,803 --
------------ ------------
Total current liabilities......................... 29,601,113 21,231,264
LONG-TERM DEBT, net of current maturities (Note G).......... 605,993 619,835
OTHER LONG-TERM LIABILITIES................................. 70,248 59,661
COMMITMENTS (Note I)
STOCKHOLDER'S EQUITY:
Class A common stock, authorized 50,000 shares of $1 par
value; issued and outstanding 1,000 shares............. 1,000 1,000
Additional paid-in capital................................ 245,060 245,060
Retained earnings......................................... 61,981,827 53,022,653
------------ ------------
Total stockholder's equity........................ 62,227,887 53,268,713
------------ ------------
$ 92,505,241 $ 75,179,473
============ ============
</TABLE>
See notes to financial statements.
F-19
<PAGE> 126
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
AUGUST 31, MARCH 31,
1995 1995
----------------- ------------
<S> <C> <C>
REVENUE..................................................... $83,328,391 $149,227,172
COST OF SALES............................................... 52,753,735 96,317,431
----------- ------------
Gross profit...................................... 30,574,656 52,909,741
OPERATING EXPENSES
Selling, general and administrative....................... 14,728,740 35,324,896
Depreciation.............................................. 871,803 1,888,906
----------- ------------
15,600,543 37,213,802
----------- ------------
INCOME FROM OPERATIONS...................................... 14,974,113 15,695,939
OTHER EXPENSES (INCOME)
Interest expense.......................................... 952,091 766,112
Interest income........................................... (51,318) (224,303)
Other income.............................................. (468,825) (416,248)
----------- ------------
431,948 125,561
----------- ------------
INCOME BEFORE INCOME TAXES.................................. 14,542,165 15,570,378
PROVISION FOR INCOME TAXES (Note H)......................... 5,582,991 5,950,018
----------- ------------
NET INCOME.................................................. $ 8,959,174 $ 9,620,360
=========== ============
</TABLE>
See notes to financial statements
F-20
<PAGE> 127
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, April 1, 1994....................... $1,000 $245,060 $53,402,293 $53,648,353
Net income................................. -- -- 9,620,360 9,620,360
Dividends paid............................. -- -- (10,000,000) (10,000,000)
------ -------- ----------- -----------
BALANCE March 31, 1995....................... 1,000 245,060 53,022,653 53,268,713
Net income................................. -- -- 8,959,174 8,959,174
------ -------- ----------- -----------
BALANCE August 31, 1995...................... $1,000 $245,060 $61,981,827 $62,227,887
====== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 128
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
AUGUST 31, 1995 MARCH 31, 1995
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 8,959,174 $ 9,620,360
Adjustment to reconcile net income to net cash flows
from operating activities:
Depreciation......................................... 871,803 1,888,906
(Gain) loss on disposal of assets.................... (284,680) (11,712)
Deferred tax provision............................... 1,451,487 29,031
Decrease (increase) in non-current portion of other
assets............................................. 1,143,044 (2,220)
Increase (decrease) in non-current portion of other
liabilities........................................ 10,587 (81,672)
(Increase) decrease in current assets:
Receivables........................................ (21,618,781) 1,467,353
Inventories........................................ 4,328,837 (4,720,671)
Prepaid expenses and other assets.................. 105,614 (87,586)
Increase (decrease) in current liabilities:
Accounts payable................................... 4,386,244 1,186,607
Accrued employee compensation and benefits......... (958,749) 412,407
Accrued expenses................................... 290,422 (50,189)
Income taxes payable............................... 2,957,626 358,756
------------ -----------
Net cash flows from operating activities........ 1,642,628 10,009,370
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (801,014) (8,259,660)
Proceeds from sale of property and equipment............ 924,668 76,035
Issuance of notes receivable............................ (252,994) (77,174)
Receipts from notes receivable.......................... 500,000 5,654
------------ -----------
Net cash flows from investing activities........ 370,660 (8,255,145)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net addition in revolving credit facility............... 450,000 8,300,000
Principal payments on long-term debt.................... (13,339) (1,012,309)
Proceeds from issuance of long-term debt................ -- 625,389
Payment of dividends.................................... -- (10,000,000)
------------ -----------
Net cash flows from financing activities........ 436,661 (2,086,920)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 2,449,949 (332,695)
CASH AND CASH EQUIVALENTS, Beginning of period............ 2,290,700 2,623,395
------------ -----------
CASH AND CASH EQUIVALENTS, End of period.................. $ 4,740,649 $ 2,290,700
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................. $ 813,560 $ 740,884
============ ===========
Income taxes......................................... $ 1,173,878 $ 5,562,230
============ ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 129
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
Nebraska Book Company, Inc. (a wholly-owned subsidiary of Lincoln
Industries, Inc., (the Company) participates in the college bookstore industry
by providing used textbooks to college bookstore operators, by operating its own
college bookstores and by providing proprietary college bookstore information
systems and offering consulting services to college bookstores. The Company was
founded in 1915 as a retail bookstore at the University of Nebraska. The Company
entered the wholesale business following World War II, when the production of
new textbooks slowed and the need for buying and reselling used textbooks became
apparent. The Company currently services the college bookstore industry through
its wholesale college bookstore and services operation.
On July 11, 1995, the Company's parent entered into a Stock Purchase
Agreement with NBC Acquisition Corp. to sell 100% of the stock of Nebraska Book
Company, Inc. effective as of the close of business August 31, 1995.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Nebraska Book Company, Inc. employ
accounting policies that are in accordance with generally accepted accounting
principles.
Revenue Recognition: The Company recognizes revenue from product sales at
the time of shipment. The Company has established a program, which under certain
conditions, enables its customers to return product. The effect of this program
is estimated and the current period accounts are adjusted accordingly. The
Company recognizes revenues from the licensing of its software products upon
delivery or installation if the Company is contractually obligated to install
the software.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on
hand and in the bank as well as short-term investments with maturities of three
months or less when purchased.
Fair Value of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of August 31, 1995, because of the
relatively short maturity of these instruments. The carrying value of long-term
debt, including the current portion, approximated fair value as of August 31,
1995, based upon prevailing interest rates for the same or similar debt issues.
Inventories: Inventories are stated at the lower of cost or market.
Inventories for wholesale operations are determined on the average weighted cost
method. College bookstore and other inventories are determined on the first-in,
first-out cost method.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is determined by the straight-line and accelerated method. The
majority of property and equipment have useful lives of five to six years, with
the exception of buildings which are depreciated over 30 years.
Income taxes: The Company provides for deferred income taxes based upon
temporary differences between financial statement and income tax bases of assets
and liabilities, and tax rates in effect for periods in which such temporary
differences are estimated to reverse.
Earnings Per Share: Earnings per share has not been presented within the
financial statements as such presentation would not be meaningful.
F-23
<PAGE> 130
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
----------- -----------
<S> <C> <C>
Trade receivables....................................... $26,474,873 $ 5,879,773
Suppliers and vendors................................... 1,390,005 3,591,610
Buying funds............................................ 1,208,705 1,065,515
Notes receivable, current............................... 1,150,798 --
Computer finance........................................ 45,895 9,241
Other................................................... 2,164,708 270,064
----------- -----------
Receivables............................................. $32,434,984 $10,816,203
=========== ===========
</TABLE>
Trade receivables include the effect of estimated product returns. The
amount of product returns estimated at August 31, 1995 and March 31, 1995, is
$2,946,310 and $2,424,208, respectively.
D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
----------- -----------
<S> <C> <C>
Wholesale............................................... $11,171,165 $20,571,046
College bookstore....................................... 24,654,775 19,561,834
Other................................................... 316,258 338,155
----------- -----------
Inventories............................................. $36,142,198 $40,471,035
=========== ===========
</TABLE>
Wholesale inventories include the effect of estimated product returns. The
amount of product returns estimated at August 31, 1995 and March 31, 1995, is
$1,944,565 and $1,543,215, respectively.
E. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
----------- -----------
<S> <C> <C>
Land.................................................... $ 2,333,733 $ 2,503,529
Buildings and improvements.............................. 13,476,334 13,952,530
Leasehold improvements.................................. 3,078,297 3,050,616
Furniture and fixtures.................................. 3,930,136 3,819,077
Information systems..................................... 7,150,586 6,928,912
Automobiles and trucks.................................. 877,926 840,391
Machinery............................................... 568,921 546,218
Projects in process..................................... 699,021 485,353
----------- -----------
Property and equipment.................................. $32,114,954 $32,126,626
=========== ===========
</TABLE>
F-24
<PAGE> 131
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
F. TRANSACTIONS WITH RELATED PARTIES
The Company and affiliated companies or individuals have participated in
various related party transactions during the period. Accounts with related
parties reflected within the balance sheets in addition to those disclosed in
the balance sheets are as follows:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
---------- ---------
<S> <C> <C>
Accounts payable............................................ $ -- $202,763
</TABLE>
Transactions with related parties which affect the statements of operations
include the following:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
AUGUST 31, MARCH 31,
1995 1995
----------- ----------
<S> <C> <C>
Selling, general and administrative expenses:
Payments to parent for management services............... $ -- $969,178
Rental expense to real estate partnerships............... -- 225,857
Interest expense on revolving credit facility with
parent................................................... -- 322,995
Other income:
Rental income from parent................................ 11,500 33,800
</TABLE>
G. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
1995 1995
---------- ----------
<S> <C> <C>
Mortgage note payable to an insurance company assumed with
the acquisition of a bookstore facility, due December 1,
2013, monthly payments of $6,446 including interest at
10.75%.................................................... $617,519 $621,969
Other note payable, due August 1996, non-interest bearing... 8,889 17,778
-------- --------
626,408 639,747
Less current portion........................................ 20,415 19,912
-------- --------
Long-term debt.............................................. $605,993 $619,835
======== ========
</TABLE>
At August 31, 1995, principal payments for each of the next five years on
long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- -------
<C> <S> <C>
1996.................................................................. $20,415
1997.................................................................. 21,157
1998.................................................................. 13,654
1999.................................................................. 15,196
2000.................................................................. 16,913
</TABLE>
The Company has a revolving credit facility with a bank which provides up
to $45,000,000 of borrowing at prime less 0.5%, adjusted daily. The weighted
average borrowings under the revolving credit facility for the five months ended
August 31, 1995 and the year ended March 31, 1995 were approximately $25,823,000
and $5,486,000, respectively, at a weighted average interest rate of
approximately 8.5% and 6.8%, respectively. The rate at August 31, 1995 was
8.25%. Security pledged includes accounts receivable and inventory. This
facility is through September 1, 1995. In addition, during the year ended March
31, 1995, the Company had a revolving credit facility with its
F-25
<PAGE> 132
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
G. LONG-TERM DEBT (CONTINUED)
parent which allowed the Company to borrow at rates which approximated the rates
on its bank revolving credit facility. The weighted average borrowing under the
parent revolving credit facility for the year ended March 31, 1995, was
approximately $4,755,000, at a weighted average interest rate of approximately
6.75%.
H. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
AUGUST 31, MARCH 31,
1995 1995
----------- ----------
<S> <C> <C>
Currently payable
Federal................................................. $3,615,056 $5,188,599
State................................................... 516,448 793,816
Deferred.................................................. 1,451,487 (32,397)
---------- ----------
Total........................................... $5,582,991 $5,950,018
========== ==========
</TABLE>
The following represents a reconciliation between the actual income tax
expense and income taxes computed by applying the Federal income tax rate to
income before income taxes:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
AUGUST 31, MARCH 31,
1995 1995
----------- ----------
<S> <C> <C>
Statutory rate............................................. 34.0% 34.0%
State income tax effect.................................... 4.0 3.4
Other...................................................... 0.4 0.8
---- ----
38.4% 38.2%
==== ====
</TABLE>
The components of deferred income tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31
1995 1995
----------- -----------
<S> <C> <C>
Deferred income tax assets (liabilities), current:
Vacation accruals.................................... $ 220,000 $ 259,120
Inventory............................................ (1,400,000) --
Installment sale..................................... (63,803) (93,226)
----------- -----------
(1,243,803) 165,894
Deferred income tax assets (liabilities),
non-current:......................................... 28,099 69,889
----------- -----------
Deferred compensation agreements..................... $(1,215,704) $ 235,783
=========== ===========
</TABLE>
The non-current portion of deferred tax assets are classified in other
assets.
F-26
<PAGE> 133
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. COMMITMENTS
The Company leases certain of its facilities and equipment under
noncancelable operating leases expiring at various dates through April 30, 2010.
Operating lease rental expense for the five months ended August 31, 1995 and the
year ended March 31, 1995 was $1,496,941 and $3,522,038, respectively. Certain
of the leases are based on a percentage of sales, ranging from 3.0% to 9.0%.
Percentage rent expense for the five months ended August 31, 1995 and the year
ended March 31, 1995 and the year ended March 31, 1995 was $230,159 and
$379,222, respectively. At August 31, 1995 total future minimum rental
commitments under the operating leases are as follows:
<TABLE>
<S> <C>
Seven Months ended March 31, 1996........................... $ 1,488,974
Year ended March 31, 1997................................... 2,312,860
1998........................................................ 1,780,634
1999........................................................ 1,521,761
2000........................................................ 1,102,900
2001 and thereafter......................................... 3,862,525
-----------
Total minimum payments required................... $12,069,654
===========
</TABLE>
J. RETIREMENT PLAN
The Company participates in and sponsors a 401(k) compensation deferral
plan. The plan covers substantially all employees. The plan provisions include
employee contributions based on a percentage of compensation along with a
sponsor base contribution in addition to a limited matching feature. The sponsor
contributions for the five months ended August 31, 1995 and the year ended March
31, 1995 were $279,395 and $611,682, respectively.
K. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation plan for selected
employees. This plan allows participants to voluntarily elect to defer portions
of their current compensation. The amounts can be distributed upon death,
resignation or termination, voluntary or involuntary. Interest is accrued at the
prime rate adjusted semi-annually on January 1, and July 1 and is compounded as
of March 31. The liability for the deferred compensation is included in other
long-term liabilities.
F-27
<PAGE> 134
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................... 1
Risk Factors............................... 15
The Exchange Offer......................... 21
Use of Proceeds............................ 33
Capitalization............................. 34
Unaudited Pro Forma Consolidated Financial
Data..................................... 35
Selected Historical Consolidated Financial
Data..................................... 41
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 43
Business................................... 50
Management................................. 62
Principal Stockholders..................... 65
Certain Transactions....................... 65
Description of Capital Stock............... 65
Description of Other Indebtedness.......... 66
Description of Debentures.................. 70
Certain Federal Income Tax
Considerations........................... 94
Book-Entry; Delivery and Form.............. 100
Plan of Distribution....................... 102
Legal Matters.............................. 102
Experts.................................... 102
Available Information...................... 103
Index to Financial Statements.............. F-1
</TABLE>
PROSPECTUS
$76,000,000
NBC ACQUISITION CORP.
OFFER TO EXCHANGE ITS 10 3/4% SENIOR
DISCOUNT DEBENTURES DUE 2009 FOR ANY AND
ALL OUTSTANDING 10 3/4% SENIOR DISCOUNT DEBENTURES
[NEBRASKA BOOK COMPANY LOGO]
, 1998
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
agent against reasonable expenses (including attorneys' fees) incurred by him in
connection with any proceeding brought by or on behalf of the corporation and
against judgments, fines, settlements and reasonable expenses (including
attorneys' fees) incurred by him in connection with any other proceeding, if (a)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, however, no indemnification is to be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
corporation.
Section 11.1 of Holdings' by-laws provide that Holdings shall indemnify, in
the manner and to the full extent permitted by law, any person (or the estate of
any person) who was or is a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, whether or not
by or in the right of Holdings, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director, officer, employee or agent of Holdings, or is or was serving at the
request of Holdings as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise. Where
required by law, the indemnification shall be made only as authorized in the
specific case upon a determination, in the manner provided by law, that
indemnification of the director, officer, employee or agent is proper in the
circumstances. Holdings may, to the full extent permitted by law, purchase and
maintain insurance on behalf of any such person against any liability which may
be asserted against such person. To the full extent permitted by law, the
indemnification shall include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, and, in the manner provided by law, any
such expenses may be paid by Holdings in advance of the final disposition of
such action, suit or proceeding. The indemnification shall not be deemed to
limit the right of Holdings to indemnify any other person for any such expenses
to the full extent permitted by law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from Holdings may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Section 102 of the DGCL permits the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) acts or omissions
not in good faith of which involve intentional misconduct or a knowing violation
of the law, (iii) breaches under Section 174 of the DGCL, which relate to
unlawful payments of dividends or unlawful stock repurchase or redemptions, and
(iv) any transaction from which the director derived an improper personal
benefit.
Section 8 of Holdings' restated certificate of incorporation limits the
personal liability of directors of Holdings to the fullest extent permitted by
paragraph (7) of subsection (b) of Section 102 of the DGCL
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Holdings pursuant
to the foregoing provisions, Holdings has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Holdings maintains directors' and officers' liability insurance for its
officers and directors.
II-1
<PAGE> 136
ITEM 21.
<TABLE>
<CAPTION>
(A) EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------------ ------------------------------------------------------------ ------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended, of Holdings.
3.2 By-laws of Holdings.
4.1 Indenture dated as of February 13, 1998 by and between
Holdings and United States Trust Company of New York as
Trustee.
4.2 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Holdings and Chase
Securities Inc.
4.3 Form of Initial Debenture of Holdings (included in Exhibit
4.1 as Exhibit A).
4.4 Form of Exchange Debenture of Holdings (included in Exhibit
4.1 as Exhibit B).
4.5 Indenture dated as of February 13, 1998 by and between
Nebraska Book Company, Inc. and United States Trust Company
of New York, as Trustee.
4.6 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Nebraska Book Company, Inc.
and Chase Securities Inc.
4.7 Form of Initial Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit A).
4.8 Form of Exchange Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit B).
5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Debentures being registered.*
8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding certain federal income tax matters.
10.1 Credit Agreement dated as of February 13, 1998 by and among
Holdings, Nebraska Book Company, Inc., The Chase Manhattan
Bank and certain other financial institutions.
10.2 Guarantee and Collateral Agreement, dated as of February 13,
1998 made by Holdings and Nebraska Book Company, Inc. in
favor of The Chase Manhattan Bank, as administrative agent.
10.3 Purchase Agreement dated February 10, 1998 between Holdings
and Chase Securities, Inc.
10.4 Purchase Agreement dated February 10, 1998 between Nebraska
Book Company, Inc. and Chase Securities Inc.
10.5 Form of Memorandum of Understanding, dated as of February
13, 1998 between Holdings and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe, Kenneth F. Jirovsky,
William H. Allen, Thomas A. Hoff and Ardean A. Arndt.
10.6 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.
10.7 Form of Deferred Compensation Agreement by and between
Nebraska Book Company, Inc. and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe and Thomas A. Hoff.
10.8 NBC Acquisition Corp. 401(k) Savings Plan.
10.9 Merger Agreement dated January 6, 1998 by and between NBC
Merger Corp., Holdings and certain stockholders of Holdings
named therein.
</TABLE>
II-2
<PAGE> 137
<TABLE>
<CAPTION>
(A) EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------------ ------------------------------------------------------------ ------
<S> <C> <C>
10.10.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among Nebraska Book Company, Inc. and
Martin D. Levine, The Lauren E. Levine Grantor Trust and The
Jonathan L. Levine Grantor Trust (the "Collegiate Stores
Corporation Agreement").
10.10.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.
10.11 Commercial Lease Agreement made and entered into March 8,
1989, by and between Robert J. Chaney, Mary Charlotte Chaney
and Robert J. Chaney, as Trustee under the Last Will and
Testament of James A. Chaney, and the Company.
10.12 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.
10.13 Lease Agreement entered into as of September 1, 1986, by and
between John B. DeVine, successor trustee of The Fred C.
Ulrich Trust, as amended, and the Company.
10.14 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.
10.15 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.
10.16 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.
12 Statements regarding computation of ratios.
21 Subsidiaries
23.1 Consent of Deloitte and Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 5 (included in Exhibit 5).*
23.4 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 8 (included in Exhibit 8).
24 Powers of Attorney (included on signature pages).
25 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule for the Nine Months Ended March 31,
1997.
27.2 Financial Data Schedule for the Year Ended March 31, 1997.
</TABLE>
(b) Financial Statement Schedule
Schedule I -- Condensed Financial Information of Registrant.
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are either not required under the related
instructions, are not applicable (and therefore have been omitted), or the
required disclosures are contained in the financial statements included
herein.
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Holdings
pursuant to the provisions described under
II-3
<PAGE> 138
Item 20, or otherwise, Holdings has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Holdings of expenses incurred or paid by a director, officer or
controlling person of Holdings in the successful defense of any action, suit or
proceeding) is asserted by such director, officer nor controlling person in
connection with the securities being registered, Holdings 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 to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lincoln, Nebraska, on
March 18, 1998.
NBC ACQUISITION CORP.
By: /s/ MARK W. OPPEGARD
------------------------------------
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark W.
Oppegard and Bruce E. Nevius, or any one of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him and in his name, place and stead in any and all capacities to execute in
the name of each such person who is then an officer or director of the
Registrant any and all amendments (including post-effective amendments) to this
Registration Statement, 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 required or necessary
to be done in and about the premises as fully 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 substitute or substitutes, may lawfully do or cause to be
done by virtue thereof. Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT B. HAAS
- ---------------------------------------------------
Robert B. Haas Chairman of the Board March 18, 1998
/s/ MARK W. OPPEGARD President and Director
- --------------------------------------------------- (Principal Executive
Mark W. Oppegard Officer) March 18, 1998
/s/ BRUCE E. NEVIUS Vice President and Secretary
- --------------------------------------------------- (Principal Financial and
Bruce E. Nevius Accounting Officer) March 18, 1998
/s/ DOUGLAS D. WHEAT
- ---------------------------------------------------
Douglas D. Wheat Director March 18, 1998
</TABLE>
II-5
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NBC Acquisition Corp.
Lincoln, Nebraska
We have audited the consolidated financial statements of NBC Acquisition
Corp. as of March 31, 1996 and 1997, and for the seven months ended March 31,
1996 and the year ended March 31, 1997, and have issued our report thereon dated
May 16, 1997; such report is included elsewhere in this Registration Statement.
Our audits also included the financial statement schedule of NBC Acquisition
Corp. listed in Item 21(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 16, 1997
S-1
<PAGE> 141
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
INVESTMENT IN AND ADVANCES TO (FROM) SUBSIDIARY (Note A).... $28,262,687 $31,697,179
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES (Note B)
STOCKHOLDERS' EQUITY:
Class A common stock, voting, authorized 4,500,000 shares
of $.01 par value; issued and outstanding 2,751,852
shares................................................. $ 27,519 $ 27,519
Class B common stock, non-voting, authorized 500,000
shares of $.01 par value; issued and outstanding 48,148
shares................................................. 481 481
Additional paid-in capital................................ 30,972,000 30,972,000
Notes receivable from stockholders........................ (236,110) (236,110)
Retained earnings (deficit)............................... (2,501,203) 933,289
----------- -----------
Total Stockholders' Equity........................ $28,262,687 $31,697,179
=========== ===========
</TABLE>
See notes to financial statements.
S-2
<PAGE> 142
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY..................... $(2,501,203) $ 3,434,492
ACCUMULATED DEFICIT -- Beginning of year.................... -- (2,501,203)
----------- -----------
RETAINED EARNINGS (DEFICIT) -- End of year.................. $(2,501,203) $ 933,289
=========== ===========
</TABLE>
See notes to financial statements.
S-3
<PAGE> 143
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS YEAR
ENDED ENDED
MARCH 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(2,501,203) $ 3,434,492
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Equity in (earnings) loss of subsidiary................ 2,501,203 (3,434,492)
----------- -----------
Net cash flows from operating activities............. -- --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to subsidiary.................................... -- (13,890)
Payments on stockholders notes............................ -- 13,890
----------- -----------
Net cash flows from financing activities............. -- --
----------- -----------
NET INCREASE (DECREASE) IN CASH............................. -- --
CASH, Beginning of year..................................... -- --
----------- -----------
CASH, End of year........................................... $ -- $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of 25,000 shares of common stock for stockholder
notes receivable....................................... $ 250,000
-----------
</TABLE>
See notes to financial statements.
S-4
<PAGE> 144
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in and advances to (from) subsidiary -- NBC Acquisition Corp.
accounts for its investment in Nebraska Book Company (Company) under the equity
method of accounting. Advance to (from) the Company are included within the
investment in subsidiaries.
B. COMMITMENTS AND CONTINGENCIES
NBC Acquisition Corp. has provided guarantees of certain indebtedness of
its subsidiary, Nebraska Book Company.
S-5
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------------------------------------------------------------ ------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended, of Holdings.
3.2 By-laws of Holdings.
4.1 Indenture dated as of February 13, 1998 by and between
Holdings and United States Trust Company of New York, as
Trustee.
4.2 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Holdings and Chase
Securities Inc.
4.3 Form of Initial Debenture of Holdings (included in Exhibit
4.1 as Exhibit A).
4.4 Form of Exchange Debenture of Holdings (included in Exhibit
4.1 as Exhibit B).
4.5 Indenture dated as of February 13, 1998 by and between
Nebraska Book Company, Inc. and United States Trust Company
of New York, as Trustee.
4.6 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Nebraska Book Company, Inc.
and Chase Securities Inc.
4.7 Form of Initial Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit A).
4.8 Form of Exchange Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit B).
5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Debentures being registered.*
8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding certain federal income tax matters.
10.1 Credit Agreement dated as of February 13, 1998 by and among
Holdings, Nebraska Book Company, Inc., The Chase Manhattan
Bank and certain other financial institutions.
10.2 Guarantee and Collateral Agreement, dated as of February 13,
1998 made by Holdings and Nebraska Book Company, Inc. in
favor of The Chase Manhattan Bank, as administrative agent.
10.3 Purchase Agreement dated February 10, 1998 between Holdings
and Chase Securities Inc.
10.4 Purchase Agreement dated February 10, 1998 between Nebraska
Book Company, Inc. and Chase Securities Inc.
10.5 Form of Memorandum of Understanding, dated as of February
13, 1998 between Holdings and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe, Kenneth F. Jirovsky,
William H. Allen, Thomas A. Hoff and Ardean A. Arndt.
10.6 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.
10.7 Form of Deferred Compensation Agreement by and between
Nebraska Book Company, Inc. and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe and Thomas A. Hoff.
10.8 NBC Acquisition Corp. 401(k) Savings Plan.
10.9 Merger Agreement dated January 6, 1998 by and between NBC
Merger Corp., Holdings and certain stockholders of Holdings
named therein.
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------------------------------------------------------------ ------
<S> <C> <C>
10.10.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among Nebraska Book Company, Inc. and
Martin D. Levine, The Lauren E. Levine Grantor Trust and The
Jonathan L. Levine Grantor Trust (the "Collegiate Stores
Corporation Agreement").
10.10.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.
10.11 Commercial Lease Agreement made and entered into March 8,
1989, by and between Robert J. Chaney, Mary Charlotte Chaney
and Robert J. Chaney, as Trustee under the Last Will and
Testament of James A. Chaney, and the Company.
10.12 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.
10.13 Lease Agreement entered into as of September 1, 1986, by and
between John B. DeVine, successor trustee of The Fred C.
Ulrich Trust, as amended, and the Company.
10.14 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.
10.15 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.
10.16 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.
12 Statements regarding computation of ratios.
21 Subsidiaries.
23.1 Consent of Deloitte and Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 5 (included in Exhibit 5).*
23.4 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 8 (included in Exhibit 8).
24 Powers of attorney(included on signature pages).
25 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule for the Nine Months Ended December
31, 1997.
27.2 Financial Data Schedule for the Year Ended March 31, 1997.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
Certificate of Incorporation
of
NBC Acquisition Corp.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is NBC Acquisition Corp.
2. The address of the Corporation's registered office in the State
of Delaware is: 32 Loockerman Square, Suite L-100, Dover, Delaware 19901 (County
of Kent). The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
3. The nature of the business or the purposes to be conducted and
promoted by the Corporation are to conduct any lawful business, to promote any
lawful purpose and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
4. The total number of shares of stock which the Corporation shall
have authority to issue is One Hundred (100) shares of Common Stock and the par
value of each such share is $0.01.
The amount of the authorized stock of the Corporation of any class
or classes may be increased or decreased by the affirmative vote or consent of
the holders of a majority of the stock of the Corporation entitled to vote.
5. The names and mailing addresses of the initial board of directors
of the Corporation are as follows:
<PAGE> 2
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Lou Mischianti NBC Acquisition Corp.
Metro Center
One Station Place
Stanford, CT 06902
NBC Acquisition Corp.
Metro Center
One Station Place
Jeff Kwit Stamford, CT 06902
</TABLE>
6. Elections of directors need not be by written ballot unless
required by the Bylaws of the Corporation. Any director may be removed from
office either with or without cause at any time by the affirmative vote of the
holders of a majority of the outstanding stock of the Corporation entitled to
vote, given at a meeting of the stockholders called for that purpose, or by the
consent of the holders of a majority of the outstanding stock of the Corporation
entitled to vote, given in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
7. In furtherance and not in limitation of the powers conferred upon
the Board of Directors by law, the Board of Directors shall have the power to
make, adopt, alter, amend and repeal from time to time the Bylaws of the
Corporation subject to the right of the stockholders entitled to vote with
respect thereto to alter, amend and repeal Bylaws made by the Board of
Directors.
8. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary
2
<PAGE> 3
damages for a breach of fiduciary duty as a director of the Corporation. Any
repeal or modification of this Article by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
9. The incorporator of the Corporation is Eliezer M. Helfgott, whose
mailing address is 1301 Avenue of the Americas, New York, New York 10019.
IN WITNESS WHEREOF, I have executed this Certification of
Incorporation this 1st day of June, 1995.
/s/ Eliezer M. Helfgott
-----------------------------------
Eliezer M. Helfgott
Sole Incorporator
3
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NBC ACQUISITION CORP.
THE UNDERSIGNED, being President and Secretary of NBC ACQUISITION
CORP., a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), DO HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted the resolution set forth below proposing and declaring advisable the
following amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that the first paragraph of Article 4 of the Certificate
of Incorporation of NBC Acquisition Corp. be amended and restated to read
in its entirety as follows:
4. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Five Million (5,000,000) shares of
Common Stock, consisting of (a) 4,500,000 shares of Class A Common Stock, par
value $0.01 per share and (b) 500,000 shares of Class B Common Stock, par value
$0.01 per share.
All shares of Common Stock will be identical and will entitle the
holders thereof to the same rights and privileges, except as otherwise provided
herein.
A. Voting Rights.
1. Class A Common Stock. Except as set forth herein or as
otherwise required by law, each outstanding share of Class A Common Stock
shall be entitled to vote on each matter on which the stockholders of the
Corporation shall be entitled to vote, and each holder of Class A Common
Stock shall be entitled to one vote for each share of such stock held by
such holder. Except as otherwise provided by law, the Class A Common Stock
shall possess full and complete voting power for the election of
directors.
2. Class B Common Stock. Except as set forth herein or as
otherwise required by law, each outstanding share of Class B Common Stock
shall not be entitled to vote on any matter on which the stockholders of
the Corporation shall be entitled to vote, and shares of Class B Common
Stock
1
<PAGE> 5
shall not be included in determining the number of shares voting or
entitled to vote on any such matters; provided that the holders of Class B
Common Stock shall have the right to vote as a separate class on any
merger or consolidation of the Corporation with or into another entity or
entities, or any recapitalization or reorganization, in which shares of
Class B Common Stock would receive or be exchanged for consideration
different on a per share basis from consideration received with respect to
or in exchange for the shares of Class A Common Stock or would otherwise
be treated differently from shares of Class A Common Stock in connection
with such transaction, except that shares of Class B Common Stock may,
without such a separate class vote, receive or be exchanged for non-voting
securities which are otherwise identical on a per share basis in amount
and form to the voting securities received with respect to or exchanged
for the Class A Common Stock so long as (i) such non-voting securities are
convertible into such voting securities on the same terms as the Class B
Common Stock is convertible into Class A Common Stock and (ii) all other
consideration is equal on a per share basis. Notwithstanding the
foregoing, holders of shares of Class B Common Stock shall be entitled to
vote as a separate class on any amendment to this paragraph (2) of this
Section A and on any amendment, repeal or modification of any provision of
this Certificate of Incorporation that adversely affects the powers,
preferences or special rights of holders of the Class B Common Stock.
B. Dividends. Any dividend or distribution on the Common Stock shall
be payable on shares of Class A Common Stock and Class B Common Stock, share and
share alike; provided, that (i) in the case of dividends payable in shares of
Common Stock of the Corporation, or options, warrants or rights to acquire
shares of such Common Stock, or securities convertible into or exchangeable for
shares of such Common Stock, the shares, options, warrants, rights or securities
so payable shall be payable in shares of, or options, warrants or rights to
acquire, so securities convertible into or exchangeable for, Common Stock of the
same class upon which the dividend or distribution is being paid and (ii) if the
dividends consists of other voting securities of the Corporation, the
Corporation shall make available to each holder of Class B Common Stock, at such
holder's request, dividends consisting of non-voting securities of the
Corporation which are otherwise identical to the voting securities and which are
convertible into or exchangeable for such voting securities on the same terms as
the Class B Common Stock is convertible into the Class A Common Stock.
C. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of Class A Common Stock and Class B Common Stock shall be
entitled to share ratably, share and share alike, in the remaining net assets of
the Corporation.
2
<PAGE> 6
D. Conversion.
1. Conversion of Class A Common Stock. Subject to and upon
compliance with the provisions of this Section D, any Regulated
Stockholder (defined below) shall be entitled to convert, at any time and
from time to time, any or all of the shares of Class A Common Stock held
by such stockholder into the same number of shares of Class B Common
Stock.
2. Conversion of Class B Common Stock. Subject to and upon
compliance with the provisions of this Section D, each record holder of
Class B Common Stock shall be entitled at any item and from time to time
in such holder's sole discretion and at such holder's option, to convert
any or all of the shares of such holder's option, to convert any or all of
the shares of such holder's Class B Common Stock into the same number of
shares of Class A Common Stock; provided, however, that Class B Common
Stock constituting Restricted Stock (defined below) with respect to a
particular Regulated Stockholder may not be converted into Class A Common
Stock to the extent that immediately prior thereto, or as a result of such
conversion, the number of shares of Class A Common Stock which constitute
such Restricted Stock held by all holders thereof would exceed the number
of shares of Class A Common Stock which such Regulated Stockholder
reasonably determines it and its Affiliates (defined below) may own,
control or have the power to vote under any law, regulation, rule or other
requirement of any governmental authority at the time applicable to such
Regulated Stockholder or is Affiliates; and, provided, further, that each
holder of Class B Common Stock may convert such shares into Class A Common
Stock if such holder reasonably believes that such converted shares will
be transferred within fifteen (15) days pursuant to a Conversion Event
(defined below) and such holder agrees not to vote any such shares of
Class A Common Stock prior to such Conversion Event and undertakes to
promptly convert such shares back into Class B Common Stock if such shares
are not transferred pursuant to a Conversion Event. Each Regulated
Stockholder may provide for further restrictions upon the conversion of
any shares of Restricted Stock by providing the Corporation with signed,
written instructions specifying such additional restrictions and legending
such shares as to the existence of such restrictions.
3. Conversion Procedure. Each conversion of shares of Common
Stock of the Corporation into shares of another class of Common Stock of
the Corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Converting
Shares") at the principal office of the Corporation (or such other office
or agency or the Corporation as the Corporation may designate by written
notice to the holders of Common Stock) at any time during its usual
business hours, together with written notice by the holder of such
Converting Shares, stating that such holder desires to convert the
Converting Shares, or a stated number of shares
3
<PAGE> 7
represented by such certificate or certificates, into an equal number of
shares of the class into which such shares may be converted (the
"Converted Shares"). Such notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for
Converted Shares are to be issued and shall include instructions for the
delivery thereof. The Corporation shall promptly notify each Regulated
Stockholder of its receipt of such notice. Promptly after such surrender
and the receipt of such written notice, the Corporation will issue and
deliver in accordance with the surrendering holder's instructions the
certificate or certificates evidencing the Converted Shares issuable upon
such conversion, and the Corporation will deliver to the converting holder
a certificate (which shall contain such legends as were set forth on the
surrendered certificate or certificates) representing any shares which
were represented by the certificate or certificates that were delivered to
the Corporation in connection with such conversion, but which were not
converted; provided, however, that if such conversion is subject to
paragraph (4) of this Section D, the Corporation shall not issue such
certificate or certificates until the expiration of the Deferral Period
referred to therein. Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the close of business on the
date on which such certificate or certificates shall have been surrendered
and such notice shall have been received by the Corporation, and at such
time the rights of the holder of the Converting Shares as such holder
shall cease (except that, in the case of a conversion subject to paragraph
(4) of this Section D below, the conversion shall be deemed to be
effective upon the expiration of the Deferral Period referred to therein)
and the person or persons in whose name or names the certificate or
certificates for the Converted Shares are to be issued upon such
conversion shall be deemed to have become the holder or holders of record
of the Converted Shares. Upon issuance of shares in accordance with this
Section D, such Converted Shares shall be deemed to be duly authorized,
validly issued, fully paid and non-assessable. The Corporation shall take
all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for
official notice of issuance which will be immediately transmitted by the
Corporation upon issuance). The Corporation shall not close its books
against the transfer of shares of Common Stock in any manner which would
interfere with the timely conversion of any shares of Common Stock.
Notwithstanding any provision of this Section D to the contrary,
each holder of Class B Common Stock shall be entitled to covert shares of
Class B Common Stock in connection with any Conversion Event if such
holder reasonably believes that such Conversion Event will be consummated,
and a written request for conversion from any holder of Class B Common
Stock to the Corporation stating such holder's reasonable belief that a
Conversion Event
4
<PAGE> 8
shall occur shall be conclusive and shall obligate the Corporation to
effect such conversion in a timely manner so as to enable each such holder
to participate in such Conversion Event. The Corporation will not cancel
the shares of Class B Common Stock so converted before the 15th day
following such Conversion Event and will reserve such shares until such
15th day for reissuance in compliance with the next sentence. If any
shares of Class B Common Stock are converted into shares of Class A Common
Stock in connection with a Conversion Event and such shares of Class A
Common Stock are not actually distributed, disposed of or sold pursuant to
such Conversion Event, such shares of Class A Common Stock shall be
promptly converted back into the same number of shares of Class B Common
Stock.
4. Notice of Conversion to Other Regulated Stockholders;
Deferral. The Corporation shall not convert or directly or indirectly
redeem, purchase or otherwise acquire any shares of Class A Common Stock
or any other class of capital stock of the Corporation or take any other
action affecting the voting rights of such shares, if such action will
increase the percentage of any class of outstanding voting securities
owned or controlled by any Regulated Stockholder (other than any such
stockholder which requested that the Corporation take such action, or
which otherwise waives in writing its rights under this paragraph (4) of
this Section D), unless the Corporation gives written notice (the
"Deferral Notice") of such action to each Regulated Stockholder. The
Corporation will defer making any such conversion, redemption, purchase or
other acquisition, or taking any such other action for a period of twenty
(20) days (the "Deferred Period") after giving the Deferral Notice in
order to allow each Regulated Stockholder to determine whether it wishes
to convert or take any other action with respect to the Common Stock it
owns, controls or has the power to vote, and if any such Regulated
Stockholder then elects to convert any shares of Class A Common Stock, it
shall notify the Corporation in writing within ten (10) days of the
issuance of the Deferral Notice, in which case the Corporation shall (i)
promptly notify from time to time prior to the end of such 20-day period
each other Regulated Stockholder holding shares of each proposed
conversion, and (ii) effect the conversions requested by all Regulated
Stockholders in response to the notices issued pursuant to this paragraph
(4) of this Section D at the end of the Deferral Period. Upon complying
with the procedures hereinabove set forth in this paragraph (4) of this
Section D, the Corporation may so convert or directly or indirectly
redeem, purchase or otherwise acquire any shares of Class A Common Stock
or any other class of capital stock of the Corporation or take any other
action affecting the voting rights of such shares.
E. Miscellaneous.
1. Restrictions on Redemptions, Etc. The Corporation shall not
redeem, purchase, acquire or take any other action affecting outstanding
5
<PAGE> 9
shares of Common Stock if, after giving effect to such redemption,
purchase, acquisition or other action, a Regulated Stockholder would own
more than 4.99% of any class of voting securities of the Corporation
(other than any class of voting securities which is (or is made prior to
any such redemption, purchase, acquisition or other action) convertible
into a class of non-voting securities which are otherwise identical to the
voting securities and convertible into such voting securities on terms
reasonably acceptable to such Regulated Stockholder) or more than 24.99%
of the total equity of the Corporation or more than 24.99% of the total
value of all capital stock and subordinated debt of the Corporation (in
each case determined by assuming such Regulated Holder (but no other
holder) has exercised, converted or exchanged all of its options, warrants
and other convertible or exchangeable securities).
2. Stock Splits; Adjustments. If the Corporation shall in any
manner subdivide (by stock split, stock dividend or otherwise) or combine
(by reverse stock split or otherwise) the outstanding shares of the Class
A Common Stock or the Class B Common Stock, then the outstanding shares of
each other class of Common Stock shall be subdivided or combined, as the
case may be, to the same extent, share and share alike, and effective
provision shall be made for the protection of the conversion rights
hereunder.
In case of any reorganization, reclassification or change of shares
of the Class A Common Stock or Class B Common Stock (other than a change
in par value or from par to no par value or as a result of subdivision or
combination), or in case of any consolidation of the Corporation with one
or more corporations or a merger of the Corporation with another
corporation (other than a consolidation or merger in which the Corporation
is the resulting or surviving corporation and which does not result in any
reclassification of change of outstanding shares of Class A Common Stock
or Class B Common Stock), each holder of a share of Class A Common Stock
or Class B Common Stock shall have the right at any time thereafter, so
long as the conversion right hereunder with respect to such share would
exist had such event not occurred, to convert such share into the kind and
amount of shares of stock and other securities and properties (including
cash) receivable upon such reorganization, reclassification, change,
consolidation or merger by a holder of the number of shares of Class A
Common Stock or Class B Common Stock into which such shares of Class A
Common Stock or Class B Common Stock, as the case may be, might have been
converted immediately prior to such reorganization, reclassification,
change, consolidation or merger. In the event of such reorganization,
reclassification, change, consolidation or merger, effective provision
shall be made in the certificate of incorporation of the resulting or
surviving corporation or otherwise for the protection of the conversion
rights of the shares of Class A Common Stock and Class B Common Stock that
shall be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities and property deliverable upon
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<PAGE> 10
conversion of such shares of Class A Common Stock or Class B Common Stock
into which such Class A Common Stock or Class B Common Stock might have
been converted immediately prior to such event.
3. Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Class A Common Stock and Class B Common Stock or its treasury shares,
solely for the purpose of issuance upon the conversion of shares of Class
A Common Stock and Class B Common Stock, such number of shares of such
class as are then issuable upon the conversion of all outstanding shares
of Class A Common Stock and Class B Common Stock which may be converted.
4. No Charge. The issuance of certificates for shares of any
class of Common Stock (upon conversion of shares of any other class of
Common Stock or otherwise) shall be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred
by the Corporation in connection with such conversion and/or the issuance
of shares of Common Stock; provided, however, that the Corporation shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Common Stock converted.
5. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock.
Upon the surrender of any certificate representing shares of any class of
Common Stock at such place, the Corporation shall, at the request of the
registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the
aggregate the number of shares of such class represented by the
surrendered certificate, and the Corporation forthwith shall cancel such
surrendered certificate. Each such new certificate will represent such
number of shares of such class as requested by the holder of the
surrendered certificate and will be substantially identical in form to the
surrendered certificate. Subject to any other restrictions on transfer to
which such holder or such shares may be bound, the Corporation will also
register such new certificate in such name as requested by the holder of
the surrendered certificate.
6. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder
will be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of any class
of Common Stock, and in the case of any loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other institutional
investor its own agreement will be
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<PAGE> 11
satisfactory), or, in the case of any such mutilation upon surrender of
such certificate, the Corporation shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
7. Notices. All notices referred to herein shall be in
writing, shall be delivered personally or by first class mail, postage
prepaid, and shall be deemed to have been given when so delivered or
mailed to the Corporation at its principal executive offices and to any
stockholder at such holder's address as it appears in the stock records of
the Corporation (unless otherwise specified in a written notice to the
Corporation by such holder).
F. Definitions. As used herein, the following terms shall have the
meanings shown below:
1. "Affiliate" shall mean with respect to any Person, any
other person, directly or indirectly controlling, controlled by or under
common control with such Person. For the purpose of the above definition,
the term "control" (including with correlative meaning, the terms
"controlling", "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
2. "Conversion Event" shall mean (a) any public offering or
public sale of securities of the Corporation (including a public offering
registered under the Securities Act of 1933 and a public sale pursuant to
Rule 144 of the Securities and Exchange Commission or any similar rule
then in force), (b) any sale of securities of the Corporation to a person
or group of persons (within the meaning of the Securities Exchange Act of
1934, as amended (the "1934 Act")) if, after such sale, such person or
group of persons in the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to elect a majority of
the Corporation's directors (provided that such sale has been approved by
the Corporation's Board of Directors or a committee thereof), (c) any sale
of securities of the Corporation to a person or group of persons (within
the meaning of the 1934 Act) if, after such sale, such person or group of
persons in the aggregate would own or control securities of the
Corporation (excluding any Class B Common being converted and disposed of
in connection with such Conversion Event) which possess in the aggregate
the ordinary voting power to elect a majority of the Corporation's
directors, (d) any sale of securities of the Corporation to a person or
group of persons (within the meaning of the 1934 Act) if, after such sale,
such person or group of persons would not, in the aggregate, own, control
or have the right to acquire more than two percent
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<PAGE> 12
(2%) of the outstanding securities of any class of voting securities of
the Corporation, and (e) a merger, consolidation or similar transaction
involving the Corporation if, after such transaction, a person or group of
persons (within the meaning of the 1934 Act) in the aggregate would own or
control securities which possess in the aggregate the ordinary voting
power to elect a majority of the surviving corporation's directors
(provided that the transaction has been approved by the Corporation's
Board of Directors or a committee thereof).
3. "Person" or "person" shall be construed broadly and shall
include an individual, a partnership, a limited liability company, a
corporation, a trust, a joint venture, an unincorporated organization or a
government or any department or agency thereof.
4. "Regulated Stockholder" shall mean any stockholder (i) that
is subject to the provisions of Regulation Y of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such
Regulation) ("Regulation Y") and (ii) that holds shares of Common Stock of
the Corporation and (iii) that the provided written notice to the
Corporation of its status as a "Regulated Stockholder" hereunder.
5. "Restricted Stock" means, with respect to any Regulated
Stockholder, any outstanding shares of Class A Common Stock and/or Class B
Common Stock ever held of record by such Regulated Stockholder or its
Affiliates, excluding treasury shares; provided, however, that any such
shares shall cease to be Restricted Stock with respect to such Regulated
Stockholder when such shares are transferred in a transaction which is a
Conversion Event or are acquired by the Corporation or any subsidiary of
the Corporation; and provided, further, that the Corporation shall have no
responsibility for determining whether any outstanding shares of Common
Stock and/or Class A Common Stock and/or Class B Common Stock constitute
Restricted Stock with respect to any particular Regulated Stockholder, but
shall instead be entitled to receive, and rely exclusively upon, a written
notice provided by such Regulated Stockholder designating such shares as
Restricted Stock.
SECOND: That this amendment has been duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware by consent
of the stockholders of the Corporation obtained in lieu of a special meeting of
the stockholders of the Corporation in accordance with Section 228 of the
General Corporation Law of the State of Delaware following the adoption of a
resolution by the Corporation's Board of Directors setting forth the amendment
and declaring its advisability.
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<PAGE> 13
IN WITNESS WHEREOF, we have signed this certificate and caused the
corporate seal of to be hereunto affixed this 29th day of August, 1995.
NBC ACQUISITION CORP
By: /s/ Louis J. Mischianti
-------------------------------------
Louis J. Mischianti
President
ATTEST
By: /s/ Jeffrey Kwit
---------------------------
Jeffrey Kwit
Secretary
10
<PAGE> 14
CERTIFICATE OF MERGER
OF
NBC MERGER CORP.
INTO
NBC ACQUISITION CORP.
UNDER SECTION 251 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), NBC Acquisition Corp., a Delaware corporation (the
"Company"), hereby certifies to the following information relating to the merger
(the "Merger") of NBC Merger Corp., a Delaware corporation (the "Merging
Company"), into the Company:
FIRST: That the names and states of incorporation of the Company and the
Merging Company, which are the constituent corporations in the Merger (the
"Constituent Corporations"), are as follows:
<TABLE>
<CAPTION>
Name State
---- -----
<S> <C>
NBC Acquisition Corp. Delaware
NBC Merger Corp. Delaware
</TABLE>
SECOND: That the Agreement and Plan of Merger dates as of January 6, 1998
(the "Merger Agreement") between the Constituent Corporations and the Executing
Shareholders (as defined therein) setting forth the terms and conditions of the
Merger, has been approved, adopted, certified, executed and acknowledged by each
of the Constituent Corporations in accordance with the provisions of section 251
of the DGCL.
THIRD: That NBC Acquisition Corp. is the corporation that will survive the
Merger (the "Surviving Corporation").
<PAGE> 15
2
FOURTH: That the Certificate of Incorporation of the Surviving Corporation
is hereby amended as follows:
(i) Article Fourth is amended to read in its entirety as follows: "The
total number of shares of stock that this corporation shall have
authority to issue is five million (5,000,000) shares of Class A
Common Stock, $.01 par value per share ("Common Stock"). Each share
of Common Stock shall be entitled to one vote."
Except to the extent amended hereby, the provisions of the Certificate of
Incorporation of the Surviving Corporation shall remain unmodified and in full
force and effect.
FIFTH: That the executed Merger Agreement is on file at the principal
place of business of the Surviving Corporation. The address of the principal
place of business of the Surviving Corporation is: c/o Haas Wheat & Partners
Incorporated, 300 Crescent Court, Suite 1700, Dallas, Texas 75201.
SIXTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of either
of the Constituent Corporations.
SEVENTH: That this Certificate of Merger shall be effective on February
13, 1998.
<PAGE> 16
3
IN WITNESS WHEREOF, NBC Acquisition Corp. has cause this certificate to be
signed by its President this 13th day of February, 1998
NBC ACQUISITION CORP.
By: /s/ Douglas D. Wheat
--------------------------------------
Vice President
ATTEST:
By: /s/ H Scurry Johnson
---------------------------
Secretary
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
NBC ACQUISITION CORP.
ARTICLE I
Meetings of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business as
properly may come before such meeting shall be held each year on such date, and
at such time and place within or without the State of Delaware, as may be
designated by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of the stockholders
for any proper purpose or purposes may be called at any time by the Board of
Directors, the President or any Vice President, to be held on such date, and at
such time and place within or without the State of Delaware, as the Board of
Directors, the President or any Vice President, whichever has called the
meeting, shall direct. A special meeting of the stockholders shall be called by
the President or any Vice President whenever stockholders owning a majority of
the shares of the Corporation then issued and outstanding and entitled to vote
on matters to be submitted to stockholders of the Corporation shall make
application therefor in writing. Any such written request shall state a proper
purpose or purposes of the meeting and shall be delivered to the President or
any Vice President.
<PAGE> 2
Section 1.3 Notice of Meeting. Written notice, signed by the
President, any Vice President, the Secretary or any Assistant Secretary, of
every meeting of stockholders stating the date and time when, and the place
where, such meeting is to be held, shall be delivered either personally or by
mail to each stockholder entitled to vote at such meeting not less than ten nor
more than sixty days before the date of such meeting, except as otherwise
provided by law. The purpose or purposes for which such meeting is called may,
in the case of an annual meeting, and shall in the case of a special meeting,
also be stated in such notice. If mailed, such notice shall be directed to a
stockholder at such stockholder's address as it shall appear on the stock books
of the Corporation, unless such stockholder shall have filed with the Secretary
a written request that notices intended for such stockholder be mailed to some
other address, in which case it shall be mailed to the address designated in
such request. Whenever any notice is required to be given under the provisions
of the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws, a waiver thereof, signed by the stockholder
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a stockholder at a meeting shall be
deemed equivalent to a written waiver of notice of such meeting.
Section 1.4 Quorum. The presence at any meeting of stockholders, in
person or by proxy, of the holders of record of a majority of the shares then
issued and outstanding and entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business, except as otherwise
provided by law.
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<PAGE> 3
Section 1.5 Adjournments. In the absence of a quorum, a majority in
interest of the stockholders entitled to vote, present in person or by proxy,
or, if no stockholder entitled to vote is present in person or by proxy, any
officer entitled to preside at or act as secretary of a meeting of stockholders,
may adjourn such meeting from time to time until a quorum shall be present.
Section 1.6 Voting. Directors shall be chosen by a plurality of the
votes cast at the election, and, except as otherwise provided by law or by the
Certificate of Incorporation, all other questions shall be determined by a
majority of the votes cast on such question.
Section 1.7 Proxies. Any stockholder entitled to vote may vote by
proxy, provided that the instrument authorizing such proxy to act shall have
been executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or by such stockholder's duly authorized attorney.
Section 1.8 Judges of Election. The Board of Directors may appoint
judges of election to serve at any election of directors and at balloting on any
other matter that may properly come before a meeting of stockholders. If no such
appointment shall be made, or if any of the judges so appointed shall fail to
attend, or refuse or be unable to serve, then such appointment may be made by
the presiding officer at the meeting.
ARTICLE II
Board of Directors
Section 2.1 Number. The number of directors which shall
constitute the whole Board of Directors shall be fixed from time to time by
resolution of the
3
<PAGE> 4
Board of Directors or stockholders (any such resolution of either the Board of
Directors or stockholders being subject to any later resolution of either of
them). The first Board of Directors and subsequent Boards of Directors shall
consist of two directors until changed as herein provided.
Section 2.2 Election and Term of Office. Directors shall be elected
at the annual meeting of the stockholders, except as provided in Section 2.3.
Each director (whether elected at an annual meeting or to fill a vacancy or
otherwise) shall continue in office until such director's successor shall have
been elected and qualified or until such director's earlier death, resignation
or removal in the manner hereinafter provided.
Section 2.3 Vacancies and Additional Directorships. If any vacancy
shall occur among the directors by reason of death, resignation or removal, or
as the result of an increase in the number of directorships, a majority of the
directors then in office, or a sole remaining director, though less than a
quorum, may fill any such vacancy.
Section 2.4 Regular Meetings. A regular meeting of the Board of
Directors shall be held for organization, for the election of officers and for
the transaction of such other business as may properly come before such meeting,
within thirty days after each annual meeting of stockholders. The Board of
Directors by resolution may provide for the holding of other regular meetings
and may fix the times and places at which such meetings shall be held. Notice of
regular meetings shall not be required to be given, provided that whenever the
time or place of regular meetings shall be fixed or changed, notice of such
action shall be mailed promptly to
4
<PAGE> 5
each director who shall not have been present at the meeting at which such
action was taken, addressed to such director at such director's residence or
usual place of business.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors shall be held upon call by or at the direction of the President, any
Vice President or any two directors, except that when the Board of Directors
consists of one director, then the one director may call a special meeting.
Except as otherwise required by law, notice of each special meeting shall be
mailed to each director, addressed to such director at such director's residence
or usual place of business, at least two days before the day on which the
meeting is to be held, or shall be sent to such director at such place by telex,
facsimile transmission, telegram, radio or cable, or telephoned or delivered to
him personally, not later than the day before the day on which the meeting is to
be held. Such notice shall state the time and place of such meeting, but need
not state the purposes thereof, unless otherwise required by law, the
Certificate of Incorporation or these By-Laws.
Section 2.6 Waiver of Notice. Whenever any notice is required to be
given under the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these By-Laws, a waiver thereof,
signed by the director entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a director at
a meeting shall be deemed equivalent to a written waiver of notice of such
meeting.
Section 2.7 Quorum and Manner of Acting. At each meeting of the
Board of Directors the presence of a majority of the total number of members of
the
5
<PAGE> 6
Board of Directors as constituted from time to time, shall be necessary and
sufficient to constitute a quorum for the transaction of business, except that
when the Board of Directors consists of one or two directors, then the one or
two directors, respectively, shall constitute a quorum. In the absence of a
quorum, a majority of those present at the time and place of any meeting may
adjourn the meeting from time to time until a quorum shall be present and the
meeting may be held as so adjourned without further notice or waiver. A majority
of those present at any meeting at which a quorum is present may decide any
question brought before such meeting, except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws.
Section 2.8 Resignation of Directors. Any director may resign at any
time by giving written notice of such resignation to the Board of Directors, the
President, any Vice President or the Secretary. Unless otherwise specified in
such notice, such resignation shall take effect upon receipt thereof by the
Board of Directors or any such officer, and the acceptance of such resignation
shall not be necessary to make it effective.
Section 2.9 Removal of Directors. At any special meeting of the
stockholders, duly called as provided in these By-Laws, any director or
directors may be removed from office, either with or without cause, as provided
by law. At such meeting, a successor or successors may be elected by a plurality
of the votes cast, or if any such vacancy is not so filled, it may be filled by
the directors as provided in Section 2.3.
Section 2.10 Compensation of Directors. Directors shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a
6
<PAGE> 7
fixed fee for attendance at meetings, with expenses, if any, as the Board of
Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE III
Committees of the Board
Section 3.1 Designation, Power, Alternate Members and Term of
Office. The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in such resolution and permitted by law, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation or a facsimile thereof to be affixed to or reproduced on
all such papers as said committee shall designate. The Board of Directors may
designate one or more directors as alternate members of any committee who, in
the order specified by the Board of Directors, may replace any absent or
disqualified member at any meeting of such committee. If at a meeting of any
committee one or more of the members thereof should be absent or disqualified,
and if either the Board of Directors has not so designated any alternate member
or members, or the number of absent or disqualified members exceeds the number
of alternate members who are present at such meeting, then the member or members
of such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not he or they constitute a
7
<PAGE> 8
quorum, may unanimously appoint another director to act at such meeting in the
place of any such absent or disqualified member. The term of office of the
members of each committee shall be as fixed from time to time by the Board of
Directors, subject to these By-Laws; provided, however, that any committee
member who ceases to be a member of the Board of Directors shall ipso facto
cease to be a committee member. Each committee shall appoint a secretary, who
may be the Secretary of the Corporation or an Assistant Secretary thereof.
Section 3.2 Executive Committee. If an Executive Committee is
designated by the Board of Directors in accordance with the provisions of
Section 3.1 hereof, the Executive Committee shall have and may exercise all the
powers and authority 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; but the Executive Committee shall
not have power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, amending the
By-Laws of the Corporation, declaring a dividend or authorizing the issuance of
stock. The provisions of Article III of these By-Laws shall apply to the
Executive Committee.
Section 3.3 Meetings, Notices and Records. Each committee may
provide for the holding of regular meetings, with or without notice, and may fix
the times and places at which such meetings shall be held. Special meetings of
each
8
<PAGE> 9
committee shall be held upon call by or at the direction of its chairman or, if
there be no chairman, by or at the direction of any one of its members. Except
as otherwise provided by law, notice of each special meeting of a committee
shall be mailed to each member of such committee, addressed to such member at
such member's residence or usual place of business, at least two days before the
day on which the meeting is to be held, or shall be sent to him at such place by
telex, facsimile transmission, telegram, radio or cable, or telephoned or
delivered to such member personally, not later than the before the day on which
the meeting is to be held. Such notice shall state the time and place of such
meeting, but need not state the purposes thereof, unless otherwise required by
law, the Certificate of Incorporation of the Corporation or these By-Laws.
Notice of any meeting of a committee need not be given to any member
thereof who shall attend such meeting in person or who shall waive notice
thereof, before or after such meeting, in a signed writing. Each committee shall
keep a record of its proceedings.
Section 3.4 Quorum and Manner of Acting. At each meeting of any
committee the presence of a majority of its members then in office shall be
necessary and sufficient to constitute a quorum for the transaction of business,
except that when a committee consists of one member, then the one member shall
constitute a quorum. In the absence of a quorum, a majority of the members
present at the time and place of any meeting may adjourn the meeting from time
to time until a quorum shall be present and the meeting may be held as so
adjourned without further notice or waiver. The act of a majority of the members
present at any meeting at which a quorum is
9
<PAGE> 10
present shall be the act of such committee. Subject to the foregoing and other
provisions of these By-Laws and except as otherwise determined by the Board of
Directors, each committee may make rules for the conduct of its business.
Section 3.5 Resignations. Any member of a committee may resign at
any time by giving written notice of such resignation to the Board of Directors,
the President, any Vice President or the Secretary. Unless otherwise specified
in such notice, such resignation shall take effect upon receipt thereof by the
Board of Directors or any such officer, and the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.6 Removal. Any member of any committee may be removed at
any time with or without cause by the Board of Directors.
Section 3.7 Vacancies. If any vacancy shall occur in any committee
by reason of death, resignation, disqualification, removal or otherwise, the
remaining member or members of such committee, so long as a quorum is present,
may continue to act until such vacancy is filled by the Board of Directors.
Section 3.8 Compensation. Committee members shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the Corporation
in any other capacity and receiving compensation therefor.
10
<PAGE> 11
ARTICLE IV
Officers
Section 4.1 Officers. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary, and such other officers as
may be appointed in accordance with the provisions of Section 4.3.
Section 4.2 Election, Term of Office and Qualifications. Each
officer (except such officers as may be appointed in accordance with the
provisions of Section 4.3) shall be elected by the Board of Directors. Each such
officer shall hold such office until such officer's successor shall have been
elected and shall qualify, or until such officer's death, or until such officer
shall have resigned in the manner provided in Section 4.4 or shall have been
removed in the manner provided in Section 4.5.
Section 4.3 Subordinate Officers and Agents. The Board of Directors
from time to time may appoint other officers or agents (including one or more
Assistant Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers), to hold office for such periods, have such authority and
perform such duties as are provided in these By-Laws or as may be provided in
the resolutions appointing them. The Board of Directors may delegate to any
officer or agent the power to appoint any such subordinate officers or agents
and to prescribe their respective terms of office, authorities and duties.
Section 4.4 Resignations. Any officer may resign at any time by
giving written notice of such resignation to the Board of Directors, the
President, any Vice President or the Secretary. Unless otherwise specified in
such written notice,
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such resignation shall take effect upon receipt thereof by the Board of
Directors or any such officer, and the acceptance of such resignation shall not
be necessary to make it effective.
Section 4.5 Removal. Any officer specifically designated in Section
4.1 may be removed with or without cause at any meeting of the Board of
Directors by affirmative vote of a majority of the directors then in office. Any
officer or agent appointed in accordance with the provisions of Section 4.3 may
be removed with or without cause at any meeting of the Board of Directors by
affirmative vote of a majority of the directors present at such meeting, or at
any time by any superior officer or agent upon whom such power of removal shall
have been conferred by the Board of Directors.
Section 4.6 Vacancies. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these By-Laws for
regular election or appointment to such office.
Section 4.7 The President. The President shall be the chief
executive and chief operating officer of the Corporation, subject to the
direction of the Board of Directors, shall have general charge of the business,
affairs and property of the Corporation and general supervision over its
officers and agents. The President shall preside at all meetings of the Board of
Directors and of the stockholders of the Corporation and the President shall see
that all orders and resolutions of the Board of Directors are carried into
effect. The President may sign, with any other officer thereunto duly
authorized, certificates representing stock of the Corporation the
12
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issuance of which shall have been duly authorized (the signature to which may be
a facsimile signature), and may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts, agreements or other instruments duly
authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent or shall be required by law to be otherwise executed.
From time to time, the President shall report to the Board of Directors all
matters within the President's knowledge which the interests of the Corporation
may require to be brought to their attention. The President shall have such
other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors or these By-Laws. If no Treasurer shall
have been appointed by the Board of Directors, the President shall have, in
addition to and not in limitation of the foregoing, the powers afforded the
Treasurer pursuant to Section 4.10.
Section 4.8 The Vice Presidents. At the request of the President or
in the absence or disability of the President, the Vice President designated by
the Board of Directors shall perform all the duties of the President and, when
so acting, shall have all the powers of and be subject to all restrictions upon
the President. Any Vice President may also sign, with any other officer
thereunto duly authorized, certificates representing stock of the Corporation
the issuance of which shall have been duly authorized (the signature to which
may be a facsimile signature), and may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts, agreements or other instruments
duly authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the
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Board of Directors to some other officer or agent or shall be required by law to
be otherwise executed. Each Vice President shall have such other powers and
perform such other-duties as may from time to time be prescribed by the Board of
Directors, the President or these By-Laws.
Section 4.9 The Secretary. The Secretary shall:
(a) record all the proceedings of the meetings of the stockholders,
the Board of Directors, and any committees of the Board of Directors in a
book or books to be kept for that purpose;
(b) cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) whenever any committee shall be appointed in pursuance of a
resolution of the Board of Directors, furnish the chairman of such
committee with a copy of such resolution;
(d) be custodian of the records and of the seal of the Corporation,
and cause such seal to be affixed to or a facsimile to be reproduced on
all certificates representing stock of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf
of the Corporation under its seal shall have been duly authorized;
(e) see that its lists, books, reports, statements, certificates and
other documents and records required by law are properly kept and filed;
(f) have charge of the stock and transfer books of the Corporation,
and exhibit such stock book at all reasonable times to such persons as are
entitled by law to have access thereto;
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(g) sign (unless the Treasurer or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of
Secretary and have such other powers and perform such other duties as may
from time to time be prescribed by the Board of Directors, the President
or these By-Laws.
Section 4.10 Assistant Secretaries. The Assistant Secretary
designated by the Secretary (or in the absence of such designation, the
Assistant Secretary designated by the Board of Directors or the President) shall
perform all the duties of the Secretary and, when so acting, shall have all the
powers of and be subject to all restrictions upon the Secretary. Each Assistant
Secretary shall have such other powers and perform such other duties as may from
time to time be prescribed by the Board of Directors, the President, the
Secretary or these By-Laws.
Section 4.11 The Treasurer. The Treasurer shall:
(a) have charge of and supervision over and be responsible for the
funds, securities, receipts and disbursements of the Corporation;
(b) cause the moneys and other valuable effects of the Corporation
to be deposited in the name and to the credit of the Corporation in such
banks or trust companies or with such bankers or other depositaries as
shall be selected in accordance with section 5.3 or to be otherwise dealt
with in such manner as the Board of Directors may direct;
15
<PAGE> 16
(c) cause the funds of the Corporation to be disbursed by checks or
drafts upon the authorized depositaries of the Corporation, and cause to
be taken and preserved proper vouchers for all moneys disbursed;
(d) render to the Board of Directors or the President, whenever
requested, a statement of the financial condition of the Corporation and
of all his transactions as Treasurer;
(e) cause to be kept at the Corporation's principal office correct
books of account of all its business and transactions and such duplicate
books of account as the Treasurer shall determine and upon application
cause such books or duplicates thereof to be exhibited to any director;
(f) be empowered, from time to time, to require from the officers or
agents of the Corporation reports or statements giving such information as
the Treasurer may desire with respect to any and all financial
transactions of the Corporation;
(g) sign (unless the Secretary or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of
Treasurer and have such other powers and perform such other duties as may
from time to time be prescribed by the Board of Directors, the President
or these By-Laws.
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Section 4.12 Assistant Treasurers. At the request of the Treasurer
or in the absence or disability of the Treasurer, the Assistant Treasurer
designated by the Treasurer (or in the absence of such designation, the
Assistant Treasurer designated by the Board of Directors or the President) shall
perform all the duties of the Treasurer and, when so acting, shall have all the
powers of and be subject to all restrictions upon the Treasurer. Each Assistant
Treasurer shall have such other powers and perform such other duties as may from
time to time be prescribed by the Board of Directors, the President, the
Treasurer or these By-Laws.
Section 4.13 Salaries. The salaries of the officers of the
Corporation shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person the power to fix the
salaries or other compensation of any officers or agents appointed in accordance
with the provisions of section 4.3. No officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a director of the
corporation.
ARTICLE V
Execution of Instruments and
Deposit of Corporate Funds
Section 5.1 Execution of Instruments Generally. The President, any
Vice President, the Secretary or the Treasurer, subject to the approval of the
Board of Directors, may enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. The Board of Directors
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute and
17
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deliver any instrument in the name and on behalf of the Corporation, and such
authorization may be general or confined to specific instances.
Section 5.2 Borrowing. No loans or advances shall be obtained or
contracted for, by or on behalf of the Corporation and no negotiable paper shall
be issued in its name, unless and except as authorized by the Board of
Directors. Such authorization may be general or confined to specific instances.
Any officer or agent of the Corporation thereunto so authorized may obtain loans
and advances for the Corporation, and for such loans and advances may make,
execute and deliver promissory notes, bonds, or other evidences of indebtedness
of the Corporation. Any officer or agent of the Corporation thereunto so
authorized may pledge, hypothecate or transfer as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal property at any
time held by the Corporation, and to that end may endorse, assign and deliver
the same and do every act and thing necessary or proper in connection therewith.
Section 5.3 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to its credit in such banks or
trust companies or with such bankers or other depositories as the Board of
Directors may select, or as may be selected by any officer or officers or agent
or agents authorized so to do by the Board of Directors. Endorsements for
deposit to the credit of the Corporation in any of its duly authorized
depositaries shall be made in such manner as the Board of Directors from time to
time may determine.
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Section 5.4 Checks Drafts etc. All checks, drafts or other orders
for the payment of money, and all notes or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officers or agent or agents of the Corporation, and in such manner, as from time
to time shall be determined by the Board of Directors.
Section 5.5 Proxies. Proxies to vote with respect to shares of stock
of other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
Chairman of the Board, the President or any Vice President or by any other
person or persons thereunto authorized by the Board of Directors.
VI ARTICLE
Record Dates
Section 6.1 Record Dates. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall be not more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only those stockholders of record on the date so fixed shall be
entitled to any of the foregoing rights, notwithstanding the transfer of
19
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any such stock on the books of the Corporation after any such record date fixed
by the Board of Directors.
ARTICLE VII
Corporate Seal
Section 7.1 Corporate Seal. The corporate seal shall be circular in
form and shall bear the name of the Corporation and words and figures denoting
its organization under the laws of the State of Delaware and the year thereof
and otherwise shall be in such form as shall be approved from time to time by
the Board of Directors.
ARTICLE VIII
Fiscal Year
Section 8.1 Fiscal Year. The fiscal year of the corporation shall be
the calendar year.
ARTICLE IX
Amendments
Section 9.1 Amendments. All By-Laws of the Corporation may be
amended or repealed, and new By-Laws may be made by an affirmative vote of a
majority of the directors present at any organizational, regular, or special
meeting of the Board of Directors.
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ARTICLE X
Action without a Meeting
Section 10.1 Action without a Meeting. Any action which might have
been taken under these By-Laws by a vote of the stockholders at a meeting
thereof may be taken without a meeting, without prior notice and without a vote,
if a consent in writing setting forth the action so taken, shall be individually
signed and dated by the holders of outstanding shares of stock of the
corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, provided that no written
consent will be effective unless the necessary number of written consents is
delivered to the Corporation within sixty days of the earliest delivered consent
to the Corporation, and provided further that prompt notice shall be given to
those stockholders who have not so consented if less than unanimous written
consent is obtained. Any action which might have been taken under these By-laws
by vote of the directors at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting if all the members of the Board
of Directors or such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of the Board of Directors
or such committee.
XI ARTICLE
Indemnification
Section 11.1 Indemnification. The Corporation shall indemnify, in
the manner and to the full extent permitted by law, any person (or the estate of
any
21
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person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent or
another corporation, partnership, joint venture, trust or other enterprise.
Where required by law, the indemnification provided for herein shall be made
only as authorized in the specific case upon a determination, in the manner
provided by law, that indemnification of the director, officer, employee or
agent is proper in the circumstances. The Corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a
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director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
23
<PAGE> 1
Exhibit 4.1
EXECUTION COPY
============================================================
NBC ACQUISITION CORP.
10 3/4% Senior Discount Debentures due 2009
INDENTURE
Dated as of February 13, 1998
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
============================================================
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1) ........................................ 6.10
(a)(2) ........................................ 6.10
(a)(3) ........................................ N.A.
(a)(4) ........................................ N.A.
(b) ........................................ 6.8; 6.10
(c) ........................................ N.A.
311(a) ........................................ 6.11
(b) ........................................ 6.11
(c) ........................................ N.A.
312(a) ........................................ 2.5
(b) ........................................ 10.3
(c) ........................................ 10.3
313(a) ........................................ 6.6
(b)(1) ........................................ N.A.
(b)(2) ........................................ 6.6
(c) ........................................ 6.6
(d) ........................................ 6.6
314(a) ........................................ 3.2; 3.10; 11.2
(b) ........................................ N.A.
(c)(1) ........................................ 11.4
(c)(2) ........................................ 11.4
(c)(3) ........................................ N.A.
(d) ........................................ N.A.
(e) ........................................ 11.5
(f) ........................................ 3.9
315(a) ........................................ 6.1
(b) ........................................ 6.5; 11.2
(c) ........................................ 6.1
(d) ........................................ 6.1
(e) ........................................ 5.11
316(a)(last sentence) ........................................ 11.6
(a)(1)(A) ........................................ 5.5
(a)(1)(B) ........................................ 5.4
(a)(2) ........................................ N.A.
(b) ........................................ 5.7
317(a)(1) ........................................ 5.8
(a)(2) ........................................ 5.9
(b) ........................................ 2.4
318(a) ........................................ 11.1
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
- i -
<PAGE> 3
TABLE OF CONTENTS
Page
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ARTICLE I
Definitions and Incorporation by Reference.................... 1
SECTION 1.1. Definitions................................................... 1
SECTION 1.2. Other Definitions............................................. 16
SECTION 1.3. Incorporation by Reference of Trust Indenture Act............. 17
SECTION 1.4. Rules of Construction......................................... 18
ARTICLE II
The Securities.............................. 19
SECTION 2.1. Form, Dating.................................................. 19
SECTION 2.2. Execution and Authentication.................................. 25
SECTION 2.3. Registrar and Paying Agent.................................... 26
SECTION 2.4. Paying Agent To Hold Money in Trust........................... 27
SECTION 2.5. Securityholder Lists.......................................... 27
SECTION 2.6. Transfer and Exchange......................................... 27
SECTION 2.7. Form of Certificate to be Delivered in Connection
with Transfers to Institutional Accredited
Investors .................................................. 31
SECTION 2.8. Form of Certificate to be Delivered in Connection
with Transfers Pursuant to Regulation S..................... 32
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities............... 33
SECTION 2.10. Outstanding Securities........................................ 34
SECTION 2.11. Temporary Securities.......................................... 35
SECTION 2.12. Cancellation.................................................. 35
SECTION 2.13. Payment of Interest; Defaulted Interest....................... 35
SECTION 2.14. Computation of Interest....................................... 36
SECTION 2.15. CUSIP Numbers................................................. 36
ARTICLE III
Covenants....................................... 37
SECTION 3.1. Payment of Securities......................................... 37
SECTION 3.2. SEC Reports and Available Information......................... 37
SECTION 3.3. Limitation on Indebtedness.................................... 37
SECTION 3.4. Limitation on Sale/Leaseback Transactions..................... 39
SECTION 3.5. Limitation on Restricted Payments............................. 39
SECTION 3.6. Limitation on Restrictions on Distributions from
Restricted Subsidiaries..................................... 41
SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock............ 42
SECTION 3.8. Limitation on Affiliate Transactions.......................... 45
SECTION 3.9. Change of Control............................................. 45
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<PAGE> 4
Page
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SECTION 3.10. Limitation on Capital Stock of Restricted Subsidiaries........ 48
SECTION 3.11. Limitation on Liens........................................... 48
SECTION 3.12. Future Subsidiary Guarantors.................................. 48
SECTION 3.13. Limitation on Lines of Business............................... 49
SECTION 3.14. [Intentionally Omitted]....................................... 49
SECTION 3.15. Maintenance of Office or Agency............................... 49
SECTION 3.16. Corporate Existence........................................... 50
SECTION 3.17. Payment of Taxes and Other Claims............................. 50
SECTION 3.18. Compliance Certificate........................................ 50
SECTION 3.19. Further Instruments and Acts.................................. 50
ARTICLE IV
Successor Company............................. 50
SECTION 4.1. Merger and Consolidation....................................... 50
ARTICLE V
Redemption of Securities.......................... 51
SECTION 5.1. Optional Redemption........................................... 51
SECTION 5.2. Applicability of Article...................................... 52
SECTION 5.3. Election to Redeem; Notice to Trustee......................... 52
SECTION 5.4. Selection by Trustee of Securities to Be Redeemed............. 52
SECTION 5.5. Notice of Redemption.......................................... 52
SECTION 5.6. Deposit of Redemption Price................................... 53
SECTION 5.7. Notes Payable on Redemption Date.............................. 53
SECTION 5.8. Securities Redeemed in Part................................... 54
ARTICLE VI
Defaults and Remedies......................... 54
SECTION 6.1. Events of Default............................................. 54
SECTION 6.2. Acceleration.................................................. 56
SECTION 6.3. Other Remedies................................................ 57
SECTION 6.4. Waiver of Past Defaults....................................... 57
SECTION 6.5. Control by Majority........................................... 57
SECTION 6.6. Limitation on Suits........................................... 57
SECTION 6.7. Rights of Holders to Receive Payment.......................... 58
SECTION 6.8. Collection Suit by Trustee.................................... 58
SECTION 6.9. Trustee May File Proofs of Claim.............................. 58
SECTION 6.10. Priorities.................................................... 58
SECTION 6.11. Undertaking for Costs......................................... 59
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Page
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ARTICLE VII
Trustee................................. 59
SECTION 7.1. Duties of Trustee............................................. 59
SECTION 7.2. Rights of Trustee............................................. 61
SECTION 7.3. Individual Rights of Trustee.................................. 61
SECTION 7.4. Trustee's Disclaimer.......................................... 61
SECTION 7.5. Notice of Defaults............................................ 61
SECTION 7.6. Reports by Trustee to Holders................................. 62
SECTION 7.7. Compensation and Indemnity.................................... 62
SECTION 7.8. Replacement of Trustee........................................ 63
SECTION 7.9. Successor Trustee by Merger................................... 63
SECTION 7.10. Eligibility; Disqualification................................. 64
SECTION 7.11. Preferential Collection of Claims Against Company............. 64
ARTICLE VIII
Discharge of Indenture; Defeasance........................... 64
SECTION 8.1. Discharge of Liability on Securities; Defeasance.............. 64
SECTION 8.2. Conditions to Defeasance...................................... 65
SECTION 8.3. Application of Trust Money.................................... 66
SECTION 8.4. Repayment to Company.......................................... 67
SECTION 8.5. Indemnity for U.S. Government Obligations..................... 67
SECTION 8.6. Reinstatement................................................. 67
ARTICLE IX
Amendments................................ 67
SECTION 9.1. Without Consent of Holders.................................... 67
SECTION 9.2. With Consent of Holders....................................... 68
SECTION 9.3. Compliance with Trust Indenture Act........................... 69
SECTION 9.4. Revocation and Effect of Consents and Waivers................. 69
SECTION 9.5. Notation on or Exchange of Securities......................... 69
SECTION 9.6. Trustee To Sign Amendments.................................... 70
ARTICLE X
Miscellaneous............................. 70
SECTION 10.1. Trust Indenture Act Controls................................. 70
SECTION 10.2. Notices...................................................... 70
SECTION 10.3. Communication by Holders with other Holders.................. 71
SECTION 10.4. Certificate and Opinion as to Conditions Precedent........... 71
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<PAGE> 6
Page
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SECTION 10.5. Statements Required in Certificate or Opinion................ 71
SECTION 10.6. When Securities Disregarded.................................. 72
SECTION 10.7. Rules by Trustee, Paying Agent and Registrar................. 72
SECTION 10.8. Legal Holidays............................................... 72
SECTION 10.9. GOVERNING LAW................................................ 72
SECTION 10.10. No Recourse Against Others................................... 72
SECTION 10.11. Successors................................................... 72
SECTION 10.12. Multiple Originals........................................... 72
SECTION 10.13. Variable Provisions.......................................... 73
SECTION 10.14. Qualification of Indenture................................... 73
SECTION 10.15. Table of Contents; Headings.................................. 73
EXHIBIT A Form of the Initial Security
EXHIBIT B Form of the Exchange Security
EXHIBIT C Form of Subsidiary Guarantee
- v -
<PAGE> 7
INDENTURE dated as of February 13, 1998, between NBC ACQUISITION CORP, a
Delaware corporation (the "Company", or "Holdings"), and UNITED STATES TRUST
COMPANY OF NEW YORK, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 10 3/4%
Senior Discount Debentures due 2009 (the "Initial Securities") and, if and when
issued in exchange for Initial Securities as provided in the Registration Rights
Agreement (as hereinafter defined), the Company's 10 3/4% Senior Discount
Debentures due 2009 (the "Exchange Securities" and, together with the Initial
Securities, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.
"Accreted Value" means as of the date of determination prior to
February 15, 2003, with respect to any Security, the sum of (a) the initial
offering price of such Security and (b) the portion of the excess of the
principal amount of such Security over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 10 3/4% per annum of the initial offering price of
such Security, compounded semi-annually on each February 15 and August 15 from
the Issue Date through the date of determination, computed on the basis of a
360-day year of twelve 30-day months. The Accreted Value of any Security on or
after February 15, 2003 shall be 100% of the principal amount thereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by Holdings or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by Holdings or a Restricted Subsidiary of Holdings; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary of Holdings; provided, however, that, in the case of clauses (ii) and
(iii), such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than
<PAGE> 8
2
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by Holdings or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to Holdings or by the Company or a Restricted Subsidiary
to a Subsidiary Guarantor, (ii) the disposition of Cash Equivalents in the
ordinary course of business, (iii) a disposition of inventory or other property
in the ordinary course of business, (iv) a disposition of obsolete, damaged or
worn out equipment or equipment that is no longer useful in the conduct of the
business of Holdings and its Restricted Subsidiaries and that is disposed of in
each case in the ordinary course of business, (v) transactions permitted under
Section 4.1 of this Indenture, (vi) for purposes of Section 3.7 of this
Indenture only, a disposition subject to Section 3.5 of this Indenture, (vii)
transactions permitted by paragraph (b) under Section 3.8 of this Indenture,
(viii) the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind and (ix) pursuant to
foreclosure or other exercise of remedies.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest (or accretion) rate borne by the Senior Subordinated
Notes, compounded semi-annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banking institutions are authorized or required by law
to close in New York City.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the
<PAGE> 9
3
Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date such lease may be
terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Rating Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof 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 investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means NBC Acquisition Corp. or a successor.
"Consolidated Coverage Ratio": as of any date of determination
means, with respect to any Person, the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) If Holdings or any Restricted Subsidiary (x) has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (except that in
making such computation, the amount of Indebtedness under any revolving credit
facility outstanding on the date of such calculation shall be computed based on
(A) the average daily balance of such Indebtedness during such four fiscal
quarters or such shorter period for which such facility was outstanding or (B)
if such facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the date of
creation of such facility to the date of such calculation)
<PAGE> 10
4
and the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case
other than Indebtedness incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period, (2) if since the beginning of such period Holdings or
any Restricted Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, the Consolidated EBITDA for such period shall be
reduced by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
Holdings or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Holdings and its continuing Restricted Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period Holdings or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary or is merged with or into Holdings)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into Holdings
or any Restricted Subsidiary since the beginning of such period) shall have made
any Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (2) or (3) above if made by Holdings
or a Restricted Subsidiary during such period, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of Holdings. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in
<PAGE> 11
5
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
twelve months). Notwithstanding anything herein to the contrary, if at the time
the calculation of the Consolidated Coverage Ratio is to be made, Holdings does
not have available consolidated financial statements reflecting the ownership by
the Company of CSC and Specialty Books for a period of at least four full fiscal
quarters, all calculations required by the Consolidated Coverage Ratio shall be
prepared on a pro forma basis, as though each such transaction (to the extent
not otherwise reflected in the consolidated financial statements of Holdings)
had occurred on the first day of the four fiscal quarter period for which such
calculation is being made.
"Consolidated EBITDA" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA of such
Person only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total
interest expense of Holdings and its consolidated Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense attributable
to Capitalized Lease Obligations and the interest portion of rent expense
associated with Attributable Indebtedness in respect of the relevant lease
giving rise thereto, determined as if such lease were a capitalized lease in
accordance with GAAP, (ii) amortization of debt discount and debt issuance cost
(other than such discounts and costs incurred in connection with the
Recapitalization), (iii) capitalized interest and accrued interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by Holdings or any such Subsidiary under any Guarantee of
Indebtedness or other obligation of any other Person, (vii) net costs associated
with Hedging Obligations (including amortization of fees), (viii) dividends in
respect of all Disqualified Stock of Holdings and all Preferred Stock of
Subsidiaries, in each case, held by Persons other than Holdings or a Wholly
Owned Subsidiary and (ix) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than Holdings) in connection
with Indebtedness Incurred by such plan or trust; provided, however, that there
shall be excluded therefrom any such interest expense of any Unrestricted
Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by
Holdings or any Restricted Subsidiary; less interest income. For purposes of the
foregoing, total interest expense shall be determined after giving effect to any
net payments made or received by Holdings and its Subsidiaries with respect to
Interest Rate Agreements. Notwithstanding the foregoing, the
<PAGE> 12
6
Consolidated Interest Expense with respect to any Restricted Subsidiary of
Holdings that was not a Wholly-Owned Subsidiary shall be included only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income
(loss) of Holdings and its Consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in (iv) below, Holdings' equity in the
net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to Holdings or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) Holdings' equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income to the extent such loss has been funded
with cash from Holdings or a Restricted Subsidiary; (ii) any net income (loss)
of any Person acquired by Holdings or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income of any Restricted Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to
Holdings (other than restrictions permitted by Section 3.6), except that (A)
subject to the limitations contained in (iv) below Holdings' equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to Holdings or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this clause)
and (B) Holdings' equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (loss) realized upon the sale or other disposition of any property,
plant or equipment of Holdings or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (loss) realized upon
the sale or other disposition of any Capital Stock of any Person; (v) any
extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Tangible Assets" means, as of any date of
determination, the total assets, less goodwill, deferred financing costs and
other intangibles less accumulated amortization, shown on the balance sheet of
Holdings and its Restricted Subsidiaries as of the most recent date for which
such balance sheet is available, determined on a consolidated basis in
accordance with GAAP.
"Credit Agreement" means (i) the Credit Agreement dated as of
February 13, 1998 among Holdings, Nebraska Book, The Chase Manhattan Bank, as
Administrative Agent, and the lenders parties thereto from time to time, as the
same may be amended, supplemented or otherwise modified from time to time and
any guarantees issued thereunder
<PAGE> 13
7
and (ii) any renewal, extension, refunding, restructuring, replacement or
refinancing thereof (whether with the original Administrative Agent and lenders
or another administrative agent or agents or other lenders and whether provided
under the original Credit Agreement or any other credit or other agreement or
indenture).
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning set forth in Section
2.13.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of Holdings or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Securities, provided, that only
the portion of Capital Stock which so matures or is mandatorily redeemable, is
so convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering or issuance for cash by Holdings
of its respective common stock, or options, warrants or rights with respect to
its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Securities" means, if and when issued in exchange for the
Initial Securities as provided in the Registration Rights Agreement, the
Company's 10 3/4% Senior Discount Debentures due 2009.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance
<PAGE> 14
8
or supply funds for the purchase or payment of) such Indebtedness of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered in the Note Register.
"Holdings" means NBC Acquisition Corp., a Delaware corporation, or
any successor thereto which assumes the obligations under the Debentures
pursuant to the Indenture.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary,
any Preferred Stock (but excluding, in each case, any accrued dividends); (vii)
all Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided, however,
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to
the extent Guaranteed by such Person; and (ix) to the extent not otherwise
included in this definition, net obligations of such Person under Interest Rate
Agreements (the amount of any such obligations to be equal at any time to the
termination value of such agreement or arrangement giving rise to such
obligation that would be payable
<PAGE> 15
9
by such Person at such time). The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Independent Appraiser" means, with respect to any transaction or
series of related transactions, an independent, nationally recognized appraisal
or investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Initial Securities" means the Company's 10 3/4% Senior Discount
Debentures due 2009 issued under this Indenture.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business) or
other extension of credit (including by way of Guarantee or similar arrangement,
but excluding any debt or extension of credit represented by a bank deposit
other than a time deposit) or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to Holdings' equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of Holdings at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) Holdings' "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Holdings' equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of Holdings.
"Issue Date" means the date on which the Initial Securities are
originally issued.
<PAGE> 16
10
"Legal Holiday" has the meaning ascribed to it in Section 10.8.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Nebraska Book" means Nebraska Book Company, Inc., a Kansas
corporation, or any successor thereto which assumes the obligations under the
Senior Subordinated Notes.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) the deduction of appropriate amounts to be provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained by
Holdings or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Note Register" means the register of Securities, maintained by the
Trustee, pursuant to Section 2.3.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Holdings.
"Officers' Certificate" means a certificate signed by two Officers.
<PAGE> 17
11
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
Holdings or the Trustee.
"Permitted Holders" means each of (i) HWH Capital Partners, L.P.
(the "Partnership") or Haas Wheat & Partners Incorporated and any of their
respective Affiliates; (ii) any officer or other member of management employed
by Holdings or any Subsidiary as of the date of this Indenture; (iii) Robert B.
Haas and Douglas D. Wheat; (iv) family members or relatives of the persons
described in clauses (ii) and (iii); (v) any trusts created for the benefit of
the persons described in clause (ii), (iii) or (iv); (vi) in the event of the
incompetence or death of any of the persons described in clauses (ii), (iii) and
(iv), such person's estate, executor, administrator, committee or other personal
representatives or beneficiaries; and (vii) upon a distribution by the
Partnership of all or any of the stock of Holdings, the affiliated partners of
the Partnership and any Affiliate thereof.
"Permitted Investment" means an Investment by Holdings or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business; (iii) cash
and Cash Equivalents; (iv) receivables owing to Holdings or any Restricted
Subsidiary created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as Holdings or any
such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary; and (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
including carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for taxes, assessments or other
<PAGE> 18
12
governmental charges not yet subject to penalties for non-payment or which are
being contested in good faith by appropriate proceedings provided appropriate
reserves have been taken on the books of Holdings; (d) Liens in favor of issuers
of surety bonds or letters of credit issued pursuant to the request of and for
the account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e)
encumbrances, easements or reservations of, or rights of others for, licenses,
rights of way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or liens incidental to the conduct of the business of such Person or
to the ownership of its properties which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (f) Liens securing an Interest
Rate Agreement so long as the related Indebtedness is, and is permitted to be
under this Indenture, secured by a Lien on the same property securing the
Interest Rate Agreement; (g) leases and subleases of real property which do not
materially interfere with the ordinary conduct of the business of Holdings or
any of its Restricted Subsidiaries; (h) judgment Liens not giving rise to an
Event of Default so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (i) Liens for the purpose
of securing the payment (or the refinancing of the payment) of all or a part of
Purchase Money Indebtedness relating to assets or property acquired or
constructed in the ordinary course of business provided that (x) the aggregate
principal amount of Indebtedness secured by such Liens shall not exceed the cost
of the assets or property so acquired or constructed and (y) such Liens shall
not encumber any other assets or property of Holdings or any Restricted
Subsidiary other than such Assets or property and assets affixed or appurtenant
thereto; (j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (x) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Holdings in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and (y) such deposit account is not intended by
Holdings or any Restricted Subsidiary to provide collateral to the depository
institution; (k) Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by Holdings and its Restricted
Subsidiaries in the ordinary course of business (l) Liens existing on the Issue
Date; (m) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming a Subsidiary; provided further, however, that any such Lien may
not extend to any other property owned by Holdings or any Restricted Subsidiary;
(n) Liens on property at the time Holdings or a Subsidiary acquired the
property, including any acquisition by means of a merger or consolidation with
or into Holdings or any Restricted Subsidiary; provided, however, that such
Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that such Liens
may not extend to any other property owned by Holdings or any Restricted
Subsidiary; (o) Liens securing Indebtedness or other obligations of a Subsidiary
owing to Holdings or a Wholly Owned Subsidiary; and (p) Liens securing
Refinancing Indebtedness incurred to Refinance Indebtedness that was previously
so secured, provided
<PAGE> 19
13
that any such Lien is limited to all or part of the same property or assets
(plus improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under which
the original Lien arose, could secure) the obligations to which such Liens
relate.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Exchange Securities" shall have the meaning set forth in
the Registration Rights Agreement.
A "Public Market" exists at any time with respect to the common
stock of Holdings if (i) the common stock of Holdings is then registered with
the Securities and Exchange Commission pursuant to Section 12(b) or 12(g) of
Exchange Act and traded either on a national securities exchange or in the
National Association of Securities Dealers Automated Quotation System and (ii)
at least 15% of the total issued and outstanding common stock of Holdings has
been distributed prior to such time by means of an effective registration
statement under the Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness
of such person to any seller or other person incurred to finance the acquisition
or construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of Holdings is related
to a Related Business of Holdings and which is incurred concurrently with, or
within 180 days of, such acquisition or the completion of such construction and,
if secured, is secured only by the assets so financed.
"QIB" means any "qualified institutional buyer" (as defined in Rule
144A under the Securities Act).
"Recapitalization" shall have the meaning set forth in the Offering
Memorandum, dated February 10, 1998, relating to the Initial Securities.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of this Indenture or Incurred in compliance with this Indenture (including
Indebtedness of Holdings that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any
<PAGE> 20
14
Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness,
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced, and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium and defeasance costs) of the Indebtedness being refinanced.
"Registered Exchange Offer" shall have the meaning set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement, dated February 13, 1998, between Holdings and Chase Securities
Inc.
"Related Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of Holdings and its
Restricted Subsidiaries on the date of this Indenture.
"Representative" means any trustee, agent or representative (if any)
of an issue of Senior Indebtedness.
"Restricted Period" means the 40 consecutive days beginning on and
including the later of (A) the day on which the Initial Securities are offered
to persons other than distributors (as defined in Regulation S under the
Securities Act) and (B) the Issue Date.
"Restricted Securities Legend" means the Private Placement Legend
set forth in clause (A) of Section 2.1(c) or the Regulation S Legend as set
forth in clause (B) of Section 2.1(c), as applicable.
"Restricted Subsidiary" means any Subsidiary of Holdings other than
an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby Holdings or a Restricted
Subsidiary transfers such property to a Person and Holdings or a Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Holdings secured by
a Lien.
"Securities" means the Securities issued under this Indenture.
<PAGE> 21
15
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Senior Subordinated Note Indenture" means the Indenture dated as of
the date hereof between Nebraska Book and the Trustee relating to the Senior
Subordinated Notes.
"Senior Subordinated Notes" means the $110.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2008 of Nebraska Book.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Indebtedness" means any Indebtedness of the Holdings
(whether outstanding on the date of this Indenture or thereafter Incurred) which
is subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subordinated Obligation" means any Indebtedness of Holdings
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of Holdings.
"Subsidiary Guarantee" means, individually, any Guarantee of payment
of the Securities by a Subsidiary Guarantor pursuant to the terms of this
Indenture, and, collectively, all such Guarantees. Each such Subsidiary
Guarantee will be in the form set forth in Exhibit C. "Subsidiary Guarantor"
means any Restricted Subsidiary created or acquired by Holdings after the Issue
Date which Guarantees Indebtedness of Holdings.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb), as in effect on the date of this Indenture.
<PAGE> 22
16
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of Holdings (including any newly acquired or newly formed Subsidiary of
Holdings) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Holdings or any Restricted Subsidiary of Holdings that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $10,000 or less or (B) if such Subsidiary has consolidated assets greater
than $10,000, then such designation would be permitted under "Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) Holdings could Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) under "Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Holdings,
all of the Capital Stock of which (other than directors' qualifying shares) is
owned by Holdings or another Wholly-Owned Subsidiary.
<PAGE> 23
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SECTION 1.2. Other Definitions.
Defined in
Term Section
---- ----------
"Affiliate Transaction"...................................... 3.8
"Agent Member"............................................... 2.1(d)
"Authenticating Agent" ...................................... 2.2
"Bankruptcy Law"............................................. 6.1
"Blockage Notice"............................................ 10.3
"Change of Control".......................................... 3.9
"Change of Control Offer".................................... 3.9
"Change of Control Payment".................................. 3.9
"Change of Control Payment Date"............................. 3.9
"Company Order".............................................. 2.2
"covenant defeasance option"................................. 8.1(b)
"Custodian".................................................. 6.1
"Definitive Securities"...................................... 2.1(e)
"Event of Default"........................................... 6.1
"Exchange Global Note"....................................... 2.1
"Global Securities".......................................... 2.1(a)
"Institutional Accredited Investor Global Note".............. 2.1
"Institutional Accredited Investor Note"..................... 2.1
"legal defeasance option".................................... 8.1(b)
"Offer" ..................................................... 3.7
"Offer Amount"............................................... 3.7
"Offer Period"............................................... 3.7
"Offer Proceeds"............................................. 3.7
"pay the Securities"......................................... 10.3
"Paying Agent"............................................... 2.3
"Payment Blockage Period".................................... 10.3
"Private Placement Legend"................................... 2.1(c)
"Purchase Date".............................................. 3.7
"Registrar".................................................. 2.3
"Regulation S"............................................... 2.1(a)
"Regulation S Certificate"................................... 2.1
"Regulation S Global Note"................................... 2.1
"Regulation S Legend"........................................ 2.1
"Regulation S Note".......................................... 2.1
"Regulation S Permanent Global Note"......................... 2.1
"Regulation S Temporary Global Note"......................... 2.1
"Release Date"............................................... 2.1
"Resale Restriction Termination Date"........................ 2.6
"Restricted Payment"......................................... 3.5
"Rule 144A".................................................. 2.1(b)
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"Rule 144A Global Note"...................................... 2.1
"Rule 144A Note"............................................. 2.1
"Special Interest Payment Date".............................. 2.13
"Special Record Date"........................................ 2.13
"Successor Company".......................................... 4.1
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by the TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
<PAGE> 25
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(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE II
The Securities
SECTION 2.1. Form, Dating and Terms. (a) The Initial Securities are
being offered and sold by the Company pursuant to a Purchase Agreement, dated
February 10, 1998, between the Company and Chase Securities Inc.
Initial Securities offered and sold to the qualified institutional
buyers (as defined in Rule 144A under the Securities Act ("Rule 144A") in the
United States of America (the "Rule 144A Note") will be issued on the Issue Date
in the form of a permanent global Security substantially in the form of Exhibit
A, which is hereby incorporated by reference and made a part of this Indenture,
together with appropriate legends as set forth in Section 2.1 (c) (the "Rule
144A Global Note"), deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The Rule 144A Global Note may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate. The aggregate
principal amount of the Rule 144A Global Note may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Initial Securities offered and sold outside the United States of
America ("Regulation S Note") in reliance on Regulation S will be issued on the
Issue Date in the form of a temporary global Note, without interest coupons,
substantially in the form set forth in Exhibits A and B, which are hereby
incorporated by reference and made a part of this Indenture, together with
appropriate legends as set forth in Section 2.1(c) (a "Regulation S Temporary
Global Note"). Beneficial interests in a Regulation S Temporary Global Note will
be exchangeable for beneficial interests in a single permanent global security
(the "Regulation S Permanent Global Note", together with the Regulation S
Temporary Global Note, the "Regulation S Global Note") on or after the
expiration of the Restricted Period (the "Release Date") upon the receipt by the
Trustee or its agent of a certificate certifying that the Holder of the
beneficial interest in the Regulation S Temporary Global Note is a non-United
States Person within the meaning of Regulation S (a "Regulation S Certificate"),
substantially in the form set forth in Section 2.8. Upon receipt by the Trustee
or Paying Agent of a Regulation S Certificate, (i) with respect to the first
such Regulation S
<PAGE> 26
20
Certificate, the Company shall execute and upon receipt of a Company Order for
authentication, the Authenticating Agent (as defined in Section 2.2) shall
authenticate and deliver to the custodian, the applicable Regulation S Permanent
Global Note and (ii) with respect to the first and all subsequent Regulation S
Certificates, the custodian shall exchange on behalf of the applicable
beneficial owners the portion of the applicable Regulation S Temporary Global
Note covered by such Regulation S Certificates for a comparable portion of the
applicable Regulation S Permanent Global Note. Upon any exchange of a portion of
a Regulation S Temporary Global Note for a comparable portion of a Regulation S
Permanent Global Note, the custodian shall endorse on the schedules affixed to
each of such Regulation S Global Note (or on continuations of such schedules
affixed to each of such Regulation S Global Note and made parts thereof)
appropriate notations evidencing the date of transfer and (x) with respect to
the applicable Regulation S Temporary Global Note, a decrease in the principal
amount thereof equal to the amount covered by the applicable certification and
(y) with respect to the applicable Regulation S Permanent Global Note, an
increase in the principal amount thereof equal to the principal amount of the
decrease in the applicable Regulation S Temporary Global Note pursuant to clause
(x) above. The Regulation S Global Note will be deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The Regulation S Global Note may be
represented by more than one certificate, if so required by the Depositary's
rules regarding the maximum principal amount to be represented by a single
certificate. The aggregate principal amount of the Regulation S Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Securities resold to institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) in the
United States of America (the "Institutional Accredited Investor Note") will be
issued in the form of a permanent global Security substantially in the form set
forth in Exhibit A hereto, which is hereby incorporated by reference and made a
part of this Indenture, together with appropriate legends as set forth in
Section 2.1(c) (the "Institutional Accredited Investor Global Note") deposited
with the Trustee, as custodian for the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The Institutional
Accredited Investor Global Note may be represented by more than one certificate,
if so required by the Depositary's rules regarding the maximum principal amount
to be represented by a single certificate. The aggregate principal amount of the
Institutional Accredited Investor Global Note may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Exchange Securities exchanged for interests in the Rule 144A Note,
the Regulation S Note and the Institutional Accredited Investor Note will be
issued in the form of a permanent global Security substantially in the form set
forth in Exhibit B hereto, which is hereby incorporated by reference and made a
part of this Indenture, deposited with the Trustee as hereinafter provided, with
the appropriate legend set forth in Section 2.1(c) hereof (the "Exchange Global
Note"). The Exchange Global Note may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate.
<PAGE> 27
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The Rule 144A Global Note, the Regulation S Global Note, the
Exchange Global Note and the Institutional Accredited Investor Global Note are
sometimes collectively herein referred to as the "Global Securities."
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose pursuant to Section 2.3;
provided, however, that, at the option of the Company, each installment of
interest may be paid by (i) check mailed to addresses of the Persons entitled
thereto as such addresses shall appear on the Note Register or (ii) wire
transfer to an account located in the United States maintained by the payee.
The Private Exchange Securities shall be in the form of Exhibit A
hereto. The Securities may have notations, legends or endorsements required by
law, stock exchange rule or usage, in addition to those set forth on Exhibits A
and B and Section 2.1(c). The Company and the Trustee shall approve the forms of
the Securities and any notation, endorsement or legend on them. Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in Exhibit A and Exhibit B are part of the terms of this Indenture and, to
the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to be bound by such terms.
(b) Denominations. The Securities shall be issuable only in fully
registered form, without coupons, and only in denominations of $1,000 and any
integral multiple thereof.
(c) Restrictive Legends. Unless and until (i) an Initial Security is
sold under an effective registration statement or (ii) an Initial Security is
exchanged for an Exchange Security in connection with an effective registration
statement, in each case pursuant to the Registration Rights Agreement, (A) such
Rule 144A Global Note and the Institutional Accredited Investor Global Note
shall bear the following legend (the "Private Placement Legend") on the face
thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN
BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED
SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO
THE DATE (THE
<PAGE> 28
22
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR,
IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF
$250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE."; and
(B) the Regulation S Global Note shall bear the following legend
(the "Regulation S Legend") on the face thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S.
PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) BY ITS
ACCEPTANCE HEREOF
<PAGE> 29
23
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR
ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT
TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE
MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT
IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN TRANSACTION
INVOLVING A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN
CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND IN
THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE
LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER
THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE
CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT."
The Global Securities, whether or not an Initial Security, shall
bear the following legend on the face thereof:
<PAGE> 30
24
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF."
The Regulation S Temporary Global Note shall also bear the following
legend on the face thereof:
THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE
OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE
REFERRED TO BELOW.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED
CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE.
(d) Book-Entry Provisions. (i) This Section 2.1(d) shall apply only
to Global Securities deposited with the Trustee, as custodian for the
Depositary.
(ii) Each Global Security initially shall (x) be registered in the
name of the Depositary for such Global Security or the nominee of such
Depositary, (y) be delivered to the Trustee as custodian for such Depositary and
(z) bear legends as set forth in Section 2.1(c).
(iii) Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf
<PAGE> 31
25
by the Depositary or by the Trustee as the custodian of the Depositary or under
such Global Security, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices of the
Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(iv) In connection with any transfer of a portion of the beneficial
interest in a Global Security pursuant to subsection (e) of this Section to
beneficial owners who are required to hold Definitive Securities, the Security
Trustee shall reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Definitive Securities of like tenor and amount.
(v) In connection with the transfer of an entire Global Security to
beneficial owners pursuant to subsection (e) of this Section, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in such Global Security, an equal aggregate principal amount
of Definitive Securities of authorized denominations.
(e) Definitive Securities. Except as provided below, owners of
beneficial interests in Global Securities will not be entitled to receive
certificated Securities ("Definitive Securities"). If required to do so pursuant
to any applicable law or regulation, beneficial owners may obtain Definitive
Securities in exchange for their beneficial interests in a Global Security upon
written request in accordance with the Depositary's and the Registrar's
procedures. In addition, Definitive Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in a Global
Security if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Security or the Depositary
ceases to be a clearing agency registered under the Exchange Act, at a time when
the Depositary is required to be so registered in order to act as Depositary,
and in each case a successor depositary is not appointed by the Company within
90 days of such notice or, (ii) the Company executes and delivers to the Trustee
and Registrar an Officers' Certificate stating that such Global Security shall
be so exchangeable or (iii) an Event of Default has occurred and is continuing
and the Registrar has received a request from the Depositary.
(f) Any Definitive Security delivered in exchange for an interest in
a Global Security pursuant to Section 2.1(d)(iv) and (v) shall, except as
otherwise provided by paragraph (c) of Section 2.6, bear the applicable legend
regarding transfer restrictions applicable to the Definitive Security set forth
in Section 2.1(c).
<PAGE> 32
26
(g) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.2. Execution and Authentication. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. If an Officer
whose signature is on a Security no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually authenticates the Security. The signature of the Trustee on a
Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
At any time and from time to time after the execution and delivery
of this Indenture, the Trustee shall authenticate and make available for
delivery: (1) Initial Securities for original issue in an aggregate principal
amount of $76.0 million and (2) Exchange Securities for issue only in a
Registered Exchange Offer pursuant to the Registration Rights Agreement, and
only in exchange for Initial Securities of an equal principal amount, in each
case upon a written order of the Company signed by two Officers or by an Officer
and either an Assistant Treasurer or an Assistant Secretary of the Company (the
"Company Order"). Such Company Order shall specify the amount of the Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and whether the Securities are to be Initial Securities or
Exchange Securities. The aggregate principal amount of Securities outstanding at
any time may not exceed $76.0 million except as provided in Section 2.9.
The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent.
In case the Company or any Subsidiary Guarantor (if any), pursuant
to Article IV, shall be consolidated or merged with or into any other Person or
shall convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company or
any Subsidiary Guarantor (if any) shall have been merged, or the Person which
shall have received a conveyance, transfer, lease or other disposition as
aforesaid, shall have executed an indenture supplemental hereto with the Trustee
pursuant to Article IV, any of the Securities authenticated or delivered prior
to such consolidation, merger, conveyance, transfer, lease or other disposition
may, from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such
<PAGE> 33
27
exchange and of like principal amount; and the Trustee, upon Company Order of
the successor Person, shall authenticate and deliver Securities as specified in
such order for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 2.2 in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities at
the time outstanding for Securities authenticated and delivered in such new
name.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Company shall
cause each of the Registrar and the Paying Agent to maintain an office or agency
in the Borough of Manhattan, The City of New York. The Registrar shall keep a
register of the Securities and of their transfer and exchange (the "Note
Register"). The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly-Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent for the Securities.
SECTION 2.4. Paying Agent To Hold Money in Trust. By at least 10:00
a.m (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying Agent
a sum sufficient to pay such principal or interest when due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that such
Paying Agent shall hold in trust for the benefit of Securityholders or the
Trustee all money held by such Paying Agent for the payment of principal of or
interest on the Securities and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
(other than the Trustee) to pay all money held by it to the Trustee and to
account for any funds disbursed by such Paying Agent. Upon complying with this
Section, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money delivered to the Trustee. Upon any
bankruptcy, reorganization or similar proceeding with respect to the Company,
the Trustee shall serve as Paying Agent for the Securities.
<PAGE> 34
28
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.6. Transfer and Exchange.
(a) The following provisions shall apply with respect to any
proposed transfer of a Rule 144A Note or an Institutional Accredited Investor
Note prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Securities (or any predecessor thereto) (the
"Resale Restriction Termination Date"):
(i) a transfer of a Rule 144A Note or an Institutional
Accredited Investor Note or a beneficial interest therein to a QIB shall
be made upon the representation of the transferee that it is purchasing
the Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company
as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor
is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A;
(ii) a transfer of a Rule 144A Note or an Institutional
Accredited Investor Note or a beneficial interest therein to an
institutional accredited investor shall be made upon receipt by the
Trustee or its agent of a certificate substantially in the form set forth
in Section 2.7 hereof from the proposed transferee and, if requested by
the Company or the Trustee, the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them; and
(iii) a transfer of a Rule 144A Note or an Institutional
Accredited Investor Note or a beneficial interest therein to a Non-U.S.
Person shall be made upon receipt by the Trustee or its agent of a
certificate substantially in the form set forth in Section 2.8 hereof from
the proposed transferee and, if requested by the Company or the Trustee,
the delivery of an opinion of counsel, certification and/or other
information satisfactory to each of them.
(b) The following provisions shall apply with respect to any
proposed transfer of a Regulation S Note prior to the expiration of the
Restricted Period:
(i) a transfer of a Regulation S Note or a beneficial interest
therein to a QIB shall be made upon the representation of the transferee
that it is purchasing the Security for its own account or an account with
respect to which it exercises sole
<PAGE> 35
29
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A;
(ii) a transfer of a Regulation S Note or a beneficial
interest therein to an institutional accredited investor shall be made
upon receipt by the Trustee or its agent of a certificate substantially in
the form set forth in Section 2.7 hereof from the proposed transferee and,
if requested by the Company or the Trustee, the delivery of an opinion of
counsel, certification and/or other information satisfactory to each of
them; and
(iii) a transfer of a Regulation S Note or a beneficial
interest therein to a Non-U.S. Person shall be made upon receipt by the
Trustee or its agent of a certificate substantially in the form set forth
in Section 2.8 hereof from the proposed transferee and, if requested by
the Company or the Trustee, receipt by the Trustee or its agent of an
opinion of counsel, certification and/or other information satisfactory to
each of them.
After the expiration of the Restricted Period, interests in the
Regulation S Note may be transferred without requiring certification set forth
in Section 2.8 or any additional certification.
(c) Restricted Securities Legend. Upon the transfer, exchange or
replacement of Securities not bearing a Restricted Securities Legend, the
Registrar shall deliver Securities that do not bear a Restricted Securities
Legend. Upon the transfer, exchange or replacement of Securities bearing a
Restricted Securities Legend, the Registrar shall deliver only Securities that
bear a Restricted Securities Legend unless there is delivered to the Registrar
an Opinion of Counsel to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) The Company shall deliver to the Trustee an Officer's
Certificate setting forth the Resale Restriction Termination Date and the
Restricted Period.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.1 or this Section 2.6. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
(e) Obligations with Respect to Transfers and Exchanges of
Securities.
<PAGE> 36
30
(i) To permit registrations of transfers and exchanges, the
Company shall, subject to the other terms and conditions of this Article
II, execute and the Trustee shall authenticate Definitive Securities and
Global Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments or similar governmental charges payable upon
exchange or transfer pursuant to Sections 3.7, 3.9 or 9.5).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of any Security for a period
beginning (1) 15 days before the mailing of a notice of an offer to
repurchase or redeem Securities and ending at the close of business on the
day of such mailing or (2) 15 days before an interest payment date and
ending on such interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar may deem and treat the person in whose name
a Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of and interest on such Security
and for all other purposes whatsoever, whether or not such Security is
overdue, and none of the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar shall be affected by notice to the contrary.
(v) Any Definitive Security delivered in exchange for an
interest in a Global Security pursuant to Section 2.1(d) shall, except as
otherwise provided by Section 2.6(c), bear the applicable legend regarding
transfer restrictions applicable to the Definitive Security set forth in
Section 2.1(c).
(vi) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt and
shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(f) No Obligation of the Trustee. (i) The Trustee shall have no
responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in, the Depositary or other Person with respect to
the accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount or delivery of
any Securities (or other security or property) under or with respect to such
Securities. All notices and communications to be given to the Holders and all
payments to be made to Holders in respect of the Securities shall be given or
made only to or upon the order of the
<PAGE> 37
31
registered Holders (which shall be the Depositary or its nominee in the case of
a Global Security). The rights of beneficial owners in any Global Security shall
be exercised only through the Depositary subject to the applicable rules and
procedures of the Depositary. The Trustee may rely and shall be fully protected
in relying upon information furnished by the Depositary with respect to its
members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Depositary
participants, members or beneficial owners in any Global Security) other than to
require delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
SECTION 2.7. Form of Certificate to be Delivered in Connection with
Transfers to Institutional Accredited Investors.
[Date]
United States Trust Company of New York
[ ]
[ ]
Attention: Corporate Trust Trustee Department
Dear Sirs:
This certificate is delivered to request a transfer of $ principal
amount of the 10 3/4% Senior Discount Debentures due 2009 (the "Securities") of
NBC Acquisition Corp. (the "Company").
Upon transfer, the Securities would be registered in the name of the
new beneficial owner as follows:
Name: ___________________________________
Address: ________________________________
Taxpayer ID Number: _____________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited
<PAGE> 38
32
investor" at least $250,000 principal amount of the Securities, and we are
acquiring the Securities not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act. We have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risk of our investment in the Securities and we invest
in or purchase securities similar to the Securities in the normal course of our
business. We and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
2. We understand that the Securities have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf of
any investor account for which we are purchasing Securities to offer, sell or
otherwise transfer such Securities prior to the date which is two years after
the later of the date of original issue and the last date on which the Company
or any affiliate of the Company was the owner of such Securities (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) in a transaction complying with the
requirements of Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is purchasing for its own account or for the account of such
an institutional "accredited investor," in each case in a minimum principal
amount of Securities of $250,000 or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
our property or the property of such investor account or accounts be at all
times within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Securities is proposed to be made pursuant to clause (e) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of this letter to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) and that it is acquiring such Securities
for investment purposes and not for distribution in violation of the Securities
Act. Each purchaser acknowledges that the Company and the Trustee reserve the
right prior to any offer, sale or other transfer prior to the Resale Termination
Date of the Securities pursuant to clauses (d), (e) or (f) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and the Trustee.
TRANSFEREE:_____________________
BY______________________________
<PAGE> 39
33
SECTION 2.8. Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S.
[Date]
United States Trust Company of New York
[ ]
[ ]
Attention: Corporate Trust Trustee Department
Re: NBC Acquisition Corp. 10 3/4% Senior Discount Debentures due
2009 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(a) the offer of the Securities was not made to a person in the
United States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States or (ii) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(c) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative
<PAGE> 40
34
or legal proceedings or official inquiry with respect to the matters covered
hereby. Terms used in this certificate have the meanings set forth in Regulation
S.
Very truly yours,
[Name of Transferor]
By:____________________________
_______________________________
Authorized Signature Signature Medallion Guaranteed
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities. If a
mutilated Security is surrendered to the Registrar or if the Holder of a
Security claims that the Security has been lost, destroyed or wrongfully taken,
the Company shall issue and the Trustee shall authenticate a replacement
Security if the requirements of Section 8-405 of the Uniform Commercial Code are
met and the Holder satisfies any other reasonable requirements of the Trustee.
If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a Security is
replaced, then, in the absence of notice to the Company, any Subsidiary
Guarantor or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, any Subsidiary Guarantor (if
applicable) and any other obligor upon the Securities, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
<PAGE> 41
35
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.10. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security ceases to be outstanding in the event the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.9, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.11. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
Definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Securities. After
the preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at any office or agency maintained by the Company for that purpose
and such exchange shall be without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute,
and the Trustee shall authenticate and make available for delivery in exchange
therefor, one or more Definitive Securities representing an equal principal
amount of Securities. Until so exchanged, the Holder of temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as a
holder of Definitive Securities.
SECTION 2.12. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
return to the Company all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such destruction
to the Company. The Company may not issue new Securities to replace Securities
it has paid or delivered to the Trustee for cancellation.
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SECTION 2.13. Payment of Interest; Defaulted Interest. Interest on
any Security which is payable, and is punctually paid or duly provided for, on
any interest payment date shall be paid to the Person in whose name such
Security (or one or more predecessor Securities) is registered at the close of
business on the regular record date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 2.3.
Any interest on any Security which is payable, but is not paid when
the same becomes due and payable and such nonpayment continues for a period of
30 days shall forthwith cease to be payable to the Holder on the regular record
date by virtue of having been such Holder, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by the
Securities (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") shall be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date (as defined below) for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Interest Payment Date"), and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a record date (the "Special Record Date") for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the Special Interest Payment Date and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date, and in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date and Special Interest Payment Date
therefor to be given in the manner provided for in Section 10.2, not less
than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date and Special
Interest Payment Date therefor having been so given, such Defaulted
Interest shall be paid on the Special Interest Payment Date to the Persons
in whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed
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payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.14. Computation of Interest. Interest on the Securities
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2.15. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such CUSIP
numbers.
ARTICLE III
Covenants
SECTION 3.1. Payment of Securities. Holdings shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
Holdings shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, Holdings may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes imposed by the United States of America
from principal or interest payments hereunder.
SECTION 3.2. SEC Reports and Available Information. Notwithstanding
that Holdings may not be subject to the reporting requirements of Section 13(a)
or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the
Company will file with the SEC, and provide, within 15 days after the Company is
or would be required to file the same
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38
with the SEC, the Trustee and the holders of Securities with the annual reports
and the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may, by rules and regulations prescribe) that
are specified in Sections 13 and 15(d) of the Exchange Act. In the event that
Holdings is not permitted to file such reports, documents and information with
the SEC pursuant to the Exchange Act, Holdings will nevertheless deliver such
Exchange Act information to the Trustee and the holders of the Debentures as if
Holdings were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act. In addition, for so long as any of the Securities remain
outstanding the Company shall make available to any prospective purchaser of the
Securities or beneficial owner of the Securities in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act.
The Company shall also comply with the other provisions of TIA ss. 314(a).
SECTION 3.3. Limitation on Indebtedness. (a) Holdings shall not, and
shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness;
provided, however, that prior to the second anniversary of the Issue Date,
Nebraska Book and its Restricted Subsidiaries may Incur Indebtedness permitted
to be Incurred pursuant to the Senior Subordinated Note Indenture and provided
further, that Holdings and its Restricted Subsidiaries may Incur Indebtedness
after the second anniversary of the Issue Date if on the date thereof the
Consolidated Coverage Ratio for Holdings and its Restricted Subsidiaries is at
least 1.75 to 1.00, if such Indebtedness is Incurred on or prior to the fifth
anniversary of the Issue Date and (ii) 2.00 to 1.00, if such Indebtedness is
Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a) Holdings and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to the Credit Agreement; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $110 million at any time outstanding, less the aggregate principal
amount of all scheduled repayments of principal thereof and all mandatory
prepayments of principal thereof applied to permanently reduce the outstanding
Indebtedness and commitments thereunder; (ii) the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness
of Holdings owing to and held by any Wholly-Owned Subsidiary or Indebtedness of
a Restricted Subsidiary owing to and held by Holdings or any Wholly-Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to Holdings or a Wholly-Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by the
issuer thereof; (iv) Indebtedness represented by (x) the Securities and the
Senior Subordinated Notes, (y) any Indebtedness (other than the Indebtedness
described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and (z)
any Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) above;
(v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date
on which such Restricted Subsidiary was acquired by Holdings (other than
Indebtedness Incurred to provide all or any portion of the funds utilized to
consummate the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by
Holdings); provided, however, that at the
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39
time such Restricted Subsidiary is acquired by Holdings, Holdings would have
been able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a)
above after giving effect to the Incurrence of such Indebtedness pursuant to
this clause (v); (vi) Indebtedness under (a) Interest Rate Agreements entered
into in connection with the Credit Agreement and (b) other Interest Rate
Agreements; provided, however, that such other Interest Rate Agreements are
entered into for bona fide hedging purposes of Holdings or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors or senior
management of Holdings) and correspond in terms of notional amount, duration,
currencies and interest rates, as applicable, to Indebtedness of Holdings or its
Restricted Subsidiaries Incurred without violation of this Indenture; (vii)
Purchase Money Indebtedness of Holdings or any Subsidiary Guarantor incurred on
or after the Issue Date, provided, that (i) the aggregate principal amount of
such Indebtedness incurred on or after the Issue Date and outstanding at any
time pursuant to this clause (vii) (including any Indebtedness issued to
refinance, replace, renew, repay, extend or refund such Indebtedness) shall not
exceed $5 million, and (ii) in each case, such Indebtedness as originally
incurred shall not constitute more than 100% of the cost (determined in
accordance with GAAP) to Holdings or such Subsidiary Guarantor, as applicable,
of the property so purchased or leased and (viii) Indebtedness (in addition to
Indebtedness described in clauses (i) - (vii)) in a principal amount which, when
taken together with the principal amount of all other Indebtedness Incurred
pursuant to this clause (viii) and then outstanding, will not exceed $10 million
(which Indebtedness may be incurred under the Credit Agreement).
(c) In the event that Indebtedness meets the criteria of more than
one of the types of Indebtedness described in paragraph (b) above, Holdings, in
its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
SECTION 3.4. Limitation on Sale/Leaseback Transactions. Holdings
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any Sale/Leaseback Transaction unless (i) Holdings or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Sale/Leaseback Transaction at least equal to the fair market value (as evidenced
by a resolution of the Board of Directors delivered to the Trustee) of the
property subject to such transaction; (ii) Holdings or such Restricted
Subsidiary with respect thereto could have Incurred Indebtedness in an amount
equal to the Attributable Indebtedness in respect of such Sale--Leaseback
Transaction pursuant to the covenant described under Section 3.3 of this
Indenture; (iii) Holdings or such Restricted Subsidiary would be permitted to
create a Lien on the property subject to such Sale-Leaseback Transaction without
securing the Securities by the covenant described under Section 3.11 of this
Indenture; and (iv) the Sale/Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of this Indenture described under Section
3.7 of this Indenture (including the provisions concerning the application of
Net Available Cash) are satisfied with respect to such Sale/Leaseback
Transaction, treating all of the consideration received in such Sale/Leaseback
Transaction as Net Available Cash for purposes of such covenant.
SECTION 3.5. Limitation on Restricted Payments. (a) Holdings shall
not, and shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to (i) declare or
<PAGE> 46
40
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
Holdings or any of its Restricted Subsidiaries) except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock and (B)
dividends or distributions payable to Holdings or a Restricted Subsidiary of
Holdings (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to
its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem,
retire or otherwise acquire for value any Capital Stock of Holdings held by
Persons other than a Restricted Subsidiary of Holdings or any Capital Stock of a
Restricted Subsidiary of Holdings held by any Affiliate of Holdings, other than
another Restricted Subsidiary (in either case, other than in exchange for its
Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to in clauses (i)
through (iv) as a "Restricted Payment"), if at the time Holdings or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) Holdings shall
not be able to incur an additional $1.00 of Indebtedness pursuant to paragraph
(a) under Section 3.3 of this Indenture; or (3) the aggregate amount of such
Restricted Payments and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the first day of the quarter in which the Issue Date occurs to the
end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by Holdings from the issue or sale of its
Capital Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of Holdings or an employee stock
ownership plan or similar trust to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from or guaranteed by
Holdings or any Restricted Subsidiary unless such loans have been repaid with
cash on or prior to the date of determination); (C) the amount by which
Indebtedness of Holdings is reduced on Holdings' balance sheet upon the
conversion or exchange (other than by a Subsidiary of Holdings) subsequent to
the Issue Date of any Indebtedness of Holdings convertible or exchangeable for
Capital Stock of Holdings (less the amount of any cash, or other property,
distributed by Holdings upon such conversion or exchange); (D) the amount equal
to the net reduction in Investments made by Holdings or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser, repayments of loans or advances or other transfers
of assets (including by way of dividend or distribution) by such Person to
Holdings or any Restricted Subsidiary of Holdings or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries
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(valued in each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by Holdings or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included under
this clause (D) to the extent it is already included in Consolidated Net Income
and (E) until December 31, 1999, $1 million (reduced on a dollar for dollar
basis by the sum of the amounts described in (A), (B), (C) and (D)). For
purposes of this covenant, the amount of any Restricted Payments, if other than
in cash, shall be determined in good faith by the Board of Directors as
evidenced by a certificate filed with the Trustee, except that in the event the
value of any non-cash consideration shall be $5 million or more, the value shall
be as determined in writing by an Independent Appraiser.
(b) The provisions of paragraph (a) of this Section 3.5 shall not
prohibit: (i) any purchase or redemption of Capital Stock or Subordinated
Obligations of Holdings made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Holdings (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or similar trust to the extent such sale to
an employee stock ownership plan or similar trust is financed by loans from or
guaranteed by Holdings or any Restricted Subsidiary unless such loans have been
repaid with cash on or prior to the date of determination); provided, however,
that (A) such purchase or redemption shall be excluded in subsequent
calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any
purchase or redemption of Subordinated Obligations of Holdings made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of Holdings; provided, however, that such purchase or
redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under Section 3.7 of
this Indenture; provided, however, that such purchase or redemption shall be
excluded in subsequent calculations of the amount of Restricted Payments; (iv)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; provided,
however, that such dividends shall be included in subsequent calculations of the
amount of Restricted Payments; (v) payments for the purpose of, and in amounts
equal to, amounts required to permit Holdings (A) to redeem or repurchase
Capital Stock of Holdings from existing or former employees or management of
Holdings or any Subsidiary or their assigns, estates or heirs, in each case in
connection with the repurchase provisions under employee stock option or stock
purchase agreements or other agreements to compensate management employees;
provided that such redemption or repurchases pursuant to this clause shall not
exceed $2 million in the aggregate; provided, however, that such dividends shall
be included in the calculation of the amount of Restricted Payments, and (B) to
make loans or advances to employees or directors of Holdings or any Subsidiary
the proceeds of which are used to purchase Capital Stock of Holdings, in an
aggregate amount not in excess of $1 million at any one time outstanding;
provided, however, that such dividends shall be included in the calculation of
the amount of Restricted Payments; and (vi) repurchases of Capital Stock deemed
to occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price
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thereof; provided, however, that such repurchases shall be excluded from the
calculation of the amount of Restricted Payments.
SECTION 3.6. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. Holdings will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to Holdings,
(ii) make any loans or advances to Holdings or (iii) transfer any of its
property or assets to Holdings, except (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the date of this
Indenture (including, without limitation, the Credit Agreement and the Senior
Subordinated Notes); (b) any encumbrance or restriction imposed by Indebtedness
incurred under the Credit Agreement in accordance with this Indenture, provided,
however that such encumbrance or restriction is not materially more restrictive
than that imposed by the Credit Agreement as of the Issue Date; (c) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by
Holdings (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Holdings) and outstanding on
such date; (d) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (a), (b) or (c) of this
covenant or this clause (d) or contained in any amendment to an agreement
referred to in clause (a) (b) or (c) of this covenant or this clause (d);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such agreement or amendment are not
materially more restrictive than encumbrances and restrictions contained in such
agreements; (e) in the case of clause (iii) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any such lease, license or
other contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of Holdings or any
Restricted Subsidiary not otherwise prohibited by this Indenture (including any
Permitted Lien), (C) contained in mortgages, pledges or other security
agreements securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such mortgages, pledges or other security agreements or (D) pursuant to
customary provisions restricting dispositions of real property interests set
forth in any reciprocal easement agreements of the Company or any Restricted
Subsidiary; (f) any restriction with respect to a Restricted Subsidiary (or any
of its property or assets) imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary (or the property or assets that
are subject to such restriction) pending the closing of such sale or
disposition; (g) encumbrances or restrictions arising or existing by reason of
applicable law; (h) restrictions on transfer contained in Purchase Money
Indebtedness incurred pursuant to paragraph (b)(vii) of Section 3.3 of this
Indenture, provided such restrictions relate only to the transfer of the
property
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acquired with the proceeds of such Purchase Money Indebtedness and (i) any
restriction pursuant to the Senior Subordinated Note Indenture and the Senior
Subordinated Notes of Nebraska Book.
SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock. (a)
Holdings shall not, and shall not permit any of its Restricted Subsidiaries to,
make any Asset Disposition unless (i) Holdings or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 75% of the consideration
thereof received by Holdings or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by Holdings (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent Holdings or any
Restricted Subsidiary, as the case may be, elects (or is required by the terms
of any Indebtedness), to prepay, repay or purchase Indebtedness (other than
Indebtedness owed to Holdings or an Affiliate of Holdings) within 180 days from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), at Holdings' election to
the investment in Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase the Senior
Subordinated Notes at par plus accrued and unpaid interest, if any, thereon; and
(D) fourth, to make an offer to purchase (an "Offer") the Securities at a price
in cash equal to, prior to February 15, 2003, 100% of the Accreted Value thereof
on the purchase date and, thereafter, 100% of the Accreted Value thereof plus
accrued and unpaid interest to the purchase date, and other pari passu debt
obligations subject to a similar covenant (collectively, the "pari passu debt
obligations") at par plus accrued and unpaid interest to the purchase date; and
(E) fifth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B), (C) and (D) for other general
corporate purposes not prohibited by this Indenture; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) above, Holdings or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, Holdings and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant exceed $500,000. Holdings shall not be required to make an Offer for
the Securities and for the pari passu debt obligations pursuant to this covenant
if the Net Available Cash available therefor (after application of the proceeds
as provided in clauses (A), (B) and (C)) are less than $5 million for any
particular Asset Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
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(b) If the aggregate principal amount (or accreted value, as
applicable) of Securities and pari passu debt obligations validly tendered and
not withdrawn in connection with an Offer pursuant to clause (C) above exceeds
the funds available therefor ("Offer Proceeds"), the Offer Proceeds will be
apportioned between the Securities and such pari passu debt obligations, with
the portion of the Offer Proceeds payable in respect of the Securities equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Securities and the
denominator of which is the sum of the outstanding principal amount of the
Securities and the outstanding principal amount (or accreted value, as
applicable) of the relevant pari passu debt obligations, and (ii) the aggregate
principal amount of Securities validly tendered and not withdrawn.
(c) For the purposes of this covenant, the following will be deemed
to be cash: (x) the assumption by the transferee of Indebtedness of Holdings or
Indebtedness of any Restricted Subsidiary of Holdings and the release of
Holdings or such Restricted Subsidiary from all liability on such Indebtedness
in connection with such Asset Disposition (in which case Holdings shall, without
further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph) and (y) securities
received by Holdings or any Restricted Subsidiary of Holdings from the
transferee that are promptly converted by Holdings or such Restricted Subsidiary
into cash.
(d) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (a)(iii)(D), Holdings will be required to
purchase Securities tendered pursuant to an Offer made by Holdings for the
Securities at a price in cash equal to, prior to February 15, 2003, 100% of the
Accreted Value thereof on the purchase date and, thereafter, 100% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the purchase
date in accordance with the procedures (including prorating in the event of
oversubscription) set forth below. If the aggregate purchase price of the pari
passu debt obligations tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the pari passu debt obligations,
Holdings will apply the remaining Net Available Cash in accordance with clause
(a)(iii)(E) above.
(e)(1) Promptly, and in any event within 10 days after Holdings is
required to make an Offer, Holdings will deliver to the Trustee and send, by
first-class mail to each Holder, a written notice stating that the Holder may
elect to have his Securities purchased by Holdings either in whole or in part
(subject to prorating as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date").
(2) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, Holdings will deliver to the
Trustee an Officers' Certificate setting forth (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions as a result of which such Offer is being made and (iii) the
compliance of such allocation with the provisions of Section 3.7(a). Upon the
expiration of the period (the "Offer Period") for which the Offer remains open,
Holdings shall deliver to the Trustee for cancellation the Securities or
portions thereof which
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have been properly tendered to and are to be accepted by Holdings. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering Holder in
the amount of the purchase price of the Securities tendered by such Holder to
the extent such funds are available to the Trustee.
(3) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to Holdings
at the address specified in the notice prior to the expiration of the Offer
Period. Each Holder will be entitled to withdraw its election if the Trustee or
Holdings receives, not later than one Business Day prior to the expiration of
the Offer Period, a facsimile transmission or overnight mail from such Holder
setting forth the name of such Holder, the principal amount of the Security or
Securities which were delivered for purchase by such Holder and a statement that
such Holder is withdrawing his election to have such Security or Securities
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, Holdings
shall select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by Holdings so that only Securities in
denominations of $1,000, or integral multiples thereof, shall be purchased).
Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
Holdings will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of Section 3.7, Holdings will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Indenture by virtue thereof.
SECTION 3.8. Limitation on Affiliate Transactions. (a) Holdings will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of Holdings (an "Affiliate Transaction") unless: (i) the terms of such
Affiliate Transaction are no less favorable to Holdings or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1 million, the terms of such transaction have been approved
by a majority of the members of the Board of Directors of Holdings and by a
majority of the members of such Board having no personal stake in such
transaction, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i) above);
and (iii) in the event such Affiliate Transaction involves an aggregate amount
in excess of $5 million, Holdings has received a written opinion from an
independent investment banking firm of nationally recognized standing that such
Affiliate Transaction is not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arms-length basis from a Person that is not an Affiliate.
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(b) The foregoing paragraph (a) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to Section 3.5 of this
Indenture, (ii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors of Holdings, (iii) loans or advances to employees in the ordinary
course of business of Holdings or any of its Restricted Subsidiaries, (iv) the
fees payable by Holdings in connection with the Recapitalization, or (v) any
transaction between Holdings and a Wholly-Owned Subsidiary or between
Wholly-Owned Subsidiaries.
SECTION 3.9. Change of Control. Upon the occurrence of any of the
following events (each a "Change of Control"), each holder will have the right
to require Holdings to repurchase all or any part of such holder's Securities at
a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date) or in the case of purchases of Securities
prior to February 15, 2003, at a purchase price equal to 101% of the Accreted
Value thereof as of the date of purchase (the "Change of Control Payment"):
(i) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of Holdings or Nebraska Book (or its
successor by merger, consolidation or purchase of all or substantially all
of its assets) (for the purposes of this clause, such person shall be
deemed to beneficially own any Voting Stock of Holdings or Nebraska Book
held by a parent corporation, if such person "beneficially owns" (as
defined above), directly or indirectly, more than 35% of the voting power
of the Voting Stock of such parent corporation); and (B) the Permitted
Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of Holdings (or
its successor by merger, consolidation or purchase of all or substantially
all of its assets) than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of Holdings or such
successor (for the purposes of this clause, such other person shall be
deemed to beneficially own any Voting Stock of a specified corporation
held by a parent corporation, if such other person "beneficially owns" (as
defined in clause (A) above), directly or indirectly, more than 35% of the
voting power of the Voting Stock of such parent corporation and the
Permitted Holders "beneficially own" (as defined in this clause (B)),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation); or
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(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of
Holdings or Nebraska Book (together with any new directors whose election
by such Board of Directors or whose nomination for election by the
shareholders of Holdings or Nebraska Book, as the case may be, was
approved by a vote of at least a majority of the directors of Holdings or
Nebraska Book then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved or is a designee of the Permitted Holders or was
nominated or elected by such Permitted Holders or any of their designees)
cease for any reason to constitute a majority of the Board of Directors of
Holdings or Nebraska Book then in office; or
(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of
Holdings and its Restricted Subsidiaries taken as a whole to any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
other than a Permitted Holder; or
(iv) the adoption by the stockholders of a plan for the liquidation
or dissolution of Holdings.
Within 30 days following any Change of Control, unless Holdings has
mailed a redemption notice with respect to all the outstanding Securities, the
Company shall mail a notice to each holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such holder has the right to
require Holdings pursuant to this Section 3.9 to purchase such holder's
Securities (the "Change of Control Offer") at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on a record
date to receive interest on the relevant interest payment date) or in the case
of purchases of Securities prior to February 15, 2003, at a purchase price equal
to 101% of the Accreted Value thereof as of the date of purchase; (ii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); (iii) that any Security not tendered shall
continue to accrue interest, if any; (iv) that, unless the Company defaults in
the payment of principal or interest, all Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest, if any,
after the Change of Control Payment Date; (v) that holders electing to have any
Securities purchased pursuant to a Change of Control Offer shall be required to
surrender the Securities to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day preceding the
date of purchase for the Change of Control Payment Date; (vi) that holders shall
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of Securities
delivered for purchase, and a statement that such holder is withdrawing his
election to have the Securities purchased; and (vii) that holders whose
Securities are being purchased only in part shall be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
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On a Business Day that is no earlier than 30 days nor later than 60
days from the date that the Company mails or causes to be mailed notice of the
Change of Control to the holders (the "Change of Control Payment Date"), the
Company shall, to the extent lawful, (i) accept for payment all Securities or
portions thereof properly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all the Securities or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount of
such Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to each Holder of the Securities so tendered the
Change of Control Payment for such Securities, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Security equal in principal amount to any unpurchased portion of the
Securities surrendered, if any; provided that each such new Security shall be in
a principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in this Section 3.9
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
Holdings will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Indenture, Holdings will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in this Indenture by virtue thereof.
SECTION 3.10. Limitation on Capital Stock of Restricted
Subsidiaries. Holdings will not sell any shares of Capital Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any shares of its Capital Stock (other than in
connection with foreclosure or the exercise of remedies) except: (i) to Holdings
or a Wholly Owned Subsidiary; or (ii) in compliance with Section 3.7 of this
Indenture if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would continue to constitute a Restricted Subsidiary.
Notwithstanding the foregoing, Holdings is permitted to sell all the Capital
Stock of a Subsidiary as long as Holdings is in compliance with the terms of
Section 3.7 of this Indenture.
SECTION 3.11. Limitation on Liens. Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur or suffer to exist any Lien (other than Permitted Liens) upon any of its
property or assets (including Capital Stock), whether owned on the date of this
Indenture or thereafter acquired, securing any Indebtedness of Holdings or, in
the case of a Restricted Subsidiary, any Guarantee of Indebtedness of Holdings,
unless contemporaneously therewith effective provision is made to
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49
secure the Indebtedness due under this Indenture and the Securities or, in
respect of Liens on any Restricted Subsidiary's property or assets, securing
Indebtedness of Holdings, the Guarantee by such Restricted Subsidiary of the
Securities required by "Future Subsidiary Guarantors", equally and ratably with
(or prior to in the case of Liens with respect to Subordinated Obligations) the
Indebtedness secured by such Lien for so long as such Indebtedness is so
secured.
SECTION 3.12. Future Subsidiary Guarantors. After the Issue Date,
Holdings will cause each Restricted Subsidiary which Guarantees Indebtedness of
Holdings to execute and deliver to the Trustee a Subsidiary Guarantee pursuant
to which such Subsidiary Guarantor will unconditionally Guarantee, on a joint
and several basis, the full and prompt payment of the principal of, premium, if
any and interest on the Securities on the same terms as the Guarantee of such
Indebtedness except that if such Indebtedness is a Subordinated Obligation, any
such Guarantee of such Restricted Subsidiary with respect to such Indebtedness
shall be subordinated to such Subsidiary Guarantor's Subsidiary Guarantee of the
Securities to the same extent as such Indebtedness is subordinated to the
Securities.
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
Guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under this
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell its assets to Holdings or another Subsidiary Guarantor
without limitation. Each Subsidiary Guarantor will be permitted to consolidate
with or merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than Holdings or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of Holdings, which sale or
disposition is otherwise in compliance with this Indenture (including the
covenant described under Section 3.7 of this Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under this Indenture
and its Subsidiary Guarantee and such Subsidiary Guarantee shall terminate;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
other Indebtedness of Holdings shall also terminate upon such release, sale or
transfer.
SECTION 3.13. Limitation on Lines of Business. Holdings will not,
and will not permit any Restricted Subsidiary to, engage in any business other
than a Related Business.
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SECTION 3.14. [Intentionally Omitted]
SECTION 3.15. Maintenance of Office or Agency. Holdings will
maintain in The City of New York, an office or agency where the Securities may
be presented or surrendered for payment, where, if applicable, the Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon Holdings in respect of the Securities and this Indenture
may be served. The corporate trust office of the Trustee shall be such office or
agency of Holdings, unless Holdings shall designate and maintain some other
office or agency for one or more of such purposes. Holdings will give prompt
written notice to the Trustee of any change in the location of any such office
or agency. If at any time Holdings shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and Holdings hereby appoints the Trustee
as its agent to receive all such presentations, surrenders, notices and demands.
Holdings may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve Holdings of its obligation
to maintain an office or agency in The City of New York for such purposes.
Holdings will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 3.16. Corporate Existence. Subject to Article IV, Holdings
will do or cause to be done all things necessary to preserve and keep in full
force and effect the corporate existence and that of each Restricted Subsidiary
and the corporate rights (charter and statutory) licenses and franchises of
Holdings and each Restricted Subsidiary; provided, however, that Holdings shall
not be required to preserve any such existence (except Holdings), right, license
or franchise if the Board of Directors of Holdings shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
Holdings and each of its Restricted Subsidiaries, taken as a whole, and that the
loss thereof is not, and will not be, disadvantageous in any material respect to
the Holders.
SECTION 3.17. Payment of Taxes and Other Claims. Holdings will pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all material taxes, assessments and governmental charges levied
or imposed upon Holdings or any Subsidiary or upon the income, profits or
property of Holdings or any Subsidiary and (ii) all lawful claims for labor,
materials and supplies, which, if unpaid, might by law become a material
liability or lien upon the property of Holdings or any Restricted Subsidiary;
provided, however, that Holdings shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate reserves, if necessary (in the
good faith judgment of management of Holdings), are being maintained in
accordance with GAAP or where the failure to effect such payment will not be
disadvantageous to the Holders.
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SECTION 3.18. Compliance Certificate. Holdings shall deliver to the
Trustee within 120 days after the end of each fiscal year of Holdings an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of Holdings they would normally have
knowledge of any Default or Event of Default and whether or not the signers know
of any Default or Event of Default that occurred during such period. If they do,
the certificate shall describe the Default or Event of Default, its status and
what action Holdings is taking or proposes to take with respect thereto.
Holdings also shall comply with TIA ss. 314(a)(4).
SECTION 3.19. Further Instruments and Acts. Upon request of the
Trustee, Holdings will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE IV
Successor Company
SECTION 4.1. Merger and Consolidation. Holdings shall not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited liability
company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not Holdings) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of Holdings under the Securities and this
Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of Section 3.3 of this Indenture;
and
(iv) Holdings shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, Holdings under this Indenture, but, in
the case of a lease
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of all or substantially all its assets, Holdings will not be released from the
obligation to pay the principal of and interest on the Securities. Solely for
the purpose of computing amounts described in clause 3(A) of Section 3.5(a), the
Successor Company shall only be deemed to have succeeded and be substituted for
Holdings with respect to periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
Notwithstanding the foregoing clauses (ii) and (iii) of the first
sentence of this Section 4.1: (i) any Restricted Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to Holdings and (ii) Holdings may merge with an Affiliate incorporated
solely for the purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
ARTICLE V
Redemption of Securities
SECTION 5.1. Optional Redemption. The Securities may or shall, as
the case may be, be redeemed, as a whole or from time to time in part, subject
to the conditions and at the Redemption Prices specified in the form of
Securities set forth in Exhibits A and B hereto, which are hereby incorporated
by reference and made a part of this Indenture, together with accrued and unpaid
interest to the redemption date.
SECTION 5.2. Applicability of Article. Redemption of Securities at
the election of the Company or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision and
this Article.
SECTION 5.3. Election to Redeem; Notice to Trustee. The election of
the Company to redeem any Securities pursuant to Section 5.1 shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company,
the Company shall, upon not less than 30 and not more than 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 5.4.
SECTION 5.4. Selection by Trustee of Securities to Be Redeemed. If
less than all the Securities are to be redeemed at any time pursuant to an
optional redemption, the particular Securities to be redeemed shall be selected
not more than 90 days prior to the Redemption Date by the Trustee, from the
outstanding Securities not previously called for redemption, in compliance with
the requirements of the principal securities exchange, if any, on which such
Securities are listed, or, if such Securities are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee shall deem fair and
appropriate (and in such manner as complies with applicable legal requirements)
and which may provide for the selection for redemption of portions of the
principal of the Securities; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of a Security not redeemed to
less than $1,000.
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The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 5.5. Notice of Redemption. Notice of redemption shall be
given in the manner provided for in Section 10.2 not less than 30 nor more than
60 days prior to the Redemption Date, to each Holder of Notes to be redeemed.
The Trustee shall give notice of redemption in the Company's name and at the
Company's expense; provided, however, that the Company shall deliver to the
Trustee, at least 45 days prior to the Redemption Date, an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in the following items.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 5.7, if any,
(c) if less than all outstanding Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
Outstanding after such partial redemption,
(d) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will receive,
without charge, a new Security or Securities of authorized denominations
for the principal amount thereof remaining unredeemed,
(e) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
5.7) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Securities called for redemption (or
the portion thereof) will cease to accrue on and after said date,
(f) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any,
(g) the name and address of the Paying Agent,
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(h) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price,
(i) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Securities, and
(j) the paragraph of the Securities pursuant to which the Securities
are to be redeemed.
SECTION 5.6. Deposit of Redemption Price. Prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 2.4) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 5.7. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified (together with accrued interest, if any, to the Redemption Date), and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Company at the Redemption Price,
together with accrued interest, if any, to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Regular Record Date or Special Record Date, as the case may be,
according to their terms and the provisions of Section 2.13.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 5.8. Securities Redeemed in Part. Any Security which is to
be redeemed only in part (pursuant to the provisions of this Article) shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 3.15 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security at the
expense of the Company, a new Security or Securities, of any authorized
denomination as requested by such Holder, in an aggregate principal amount equal
to and in exchange for the unredeemed portion of the principal of the Security
so surrendered, provided, that each such new Security will be in a principal
amount of $1,000 or integral multiple thereof.
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ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable and such default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal or premium,
if any, of any Security when the same becomes due and payable at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
(3) the Company fails to comply with Article IV of this Indenture;
(4) the Company fails to comply with Section 3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.15, 3.16 and 3.17 (in each
case other than a failure to repurchase Securities when required pursuant
to Sections 3.7 or 3.9 of this Indenture, which failure shall constitute
an Event of Default under Section 6.1(2) of this Indenture) and such
failure continues for 30 days after the notice specified below;
(5) the Company defaults in the performance of or a breach by the
Company of any other covenant or agreement in this Indenture or under the
Securities (other than those referred to in (1), (2), (3) or (4) above)
and such default continues for 60 days after the notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof and the total amount of such unpaid or
accelerated Indebtedness exceeds $10.0 million or its foreign currency
equivalent at the time;
(7) the Company or a Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law (as defined below):
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian (as defined
below) of it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
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(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10.0 million or its foreign currency equivalent at the time is rendered
against the Company or a Significant Subsidiary if such judgment or decree
remains undischarged or unstayed for a period of 60 days following such
judgment or decree becomes final and non-appealable; or
(10) the failure of any Subsidiary Guarantee by a Subsidiary
Guarantor (if any) to be in full force and effect (except as contemplated
by the terms thereof) or the denial or disaffirmation by any such
Subsidiary Guarantor of its obligations under any Subsidiary Guarantee.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under clause (4) or (5) of
this Section 6.1 will not constitute an Event of Default until the Trustee or
the Holders of more than 25% in principal amount of the outstanding Securities
notify the Company of the Default and the Company does not cure such Default
within the time specified in said clause (4) or (5) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Default or Event of Default under clauses (3), (4), (5), (6), (9) or (10) of
this Section 6.1.
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SECTION 6.2. Acceleration. If an Event of Default (other than an
Event of Default specified in Sections 6.1(7) or (8) with respect to the Company
or a Significant Subsidiary) occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in outstanding principal amount of
the Securities by notice to the Company and the Trustee, may, and the Trustee at
the request of such Holders shall, declare the principal of (or if prior to
February 15, 2003, the Accreted Value of), premium, if any, and accrued but
unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal (or Accreted Value), premium and interest shall,
subject to Section 10.4 of this Indenture, be immediately due and payable. In
the event of a declaration of acceleration because an Event of Default set forth
in Section 6.1(6) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default or payment default triggering such Event of Default pursuant to Section
6.1(6) shall be remedied or cured by the Company and/or the relevant Significant
Subsidiaries or waived by the holders of the relevant Indebtedness within 60
days after the declaration of acceleration with respect thereto. If an Event of
Default specified in Sections 6.1(7) or (8) with respect to the Company occurs,
the principal of, premium and accrued and unpaid interest on all the Securities
will become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive all past
defaults (except with respect to nonpayment of principal, premium or interest)
and rescind an acceleration with respect to the Securities and its consequences
if (i) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction and (ii) all existing Events of Default, other than
the nonpayment of principal or interest that has become due solely because of
such acceleration, have been cured or waived. No such rescission shall affect
any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default or Event of Default and its consequences except (i) a Default
or Event of Default in the payment of the principal of or interest on a Security
or (ii) a Default or Event of Default in respect of a provision that under
Section 9.2 cannot be amended without the consent of each Securityholder
affected. When a Default or Event of Default is waived, it is deemed cured, but
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequent right.
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SECTION 6.5. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Sections 7.1 and 7.2, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in outstanding principal amount of
the Securities make a request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Securities are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of, premium (if any) or interest on the Securities held by
such Holder, on or after the respective due dates expressed in the Securities,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
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SECTION 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its Subsidiaries or
their respective creditors or properties and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by the Company, a suit by a Holder pursuant to Section 6.7 or a
suit by Holders of more than 10% in outstanding principal amount of the
Securities.
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ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
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(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(i) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(j) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.2. Rights of Trustee. Subject to Section 7.1, (a) The
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on an
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee.
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Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if a Trust Officer has actual knowledge thereof,
the Trustee shall mail to each Securityholder notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or Event
of Default in payment of principal of, premium (if any), or interest on any
Security (including payments pursuant to the optional redemption or required
repurchase provisions of such Security, if any), the Trustee may withhold the
notice if and so long as its board of directors, a committee of its board of
directors or a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall also transmit by mail all reports required by TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, costs of
preparing and reviewing reports, certificates and other documents, costs of
preparation and mailing of notices to Securityholders and reasonable costs of
counsel retained by the Trustee in connection with the delivery of an Opinion of
Counsel or otherwise, in addition to the compensation for its services. Such
expenses shall include the reasonable compensation and expenses, disbursements
and advances of the Trustee's agents, counsel, accountants and experts. The
Company shall indemnify the Trustee against any and all loss, liability or
expense (including reasonable attorneys' fees and expenses) incurred by it
without negligence or bad faith on its part in connection with the
administration of this trust and the performance of its duties hereunder,
including the costs
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and expenses of enforcing this Indenture (including this Section 7.7) and of
defending itself against any claims (whether asserted by any Securityholder, the
Company or otherwise). The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee may have separate counsel and the Company
shall pay the fees and expenses of such counsel provided that the Company shall
not be required to pay such fees and expenses if it assumes the Trustee's
defense, and, in the reasonable judgement of outside counsel to the Trustee,
there is no conflict of interest between the Company and the Trustee in
connection with such defense. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities. The Trustee's right to
receive payment of any amounts due under this Section 7.7 shall not be
subordinate to any other liability or indebtedness of the Company.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of the Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring
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Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. The successor
Trustee shall mail a notice of its succession to Securityholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
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ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.9) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.9), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 3.2, 3.3,
3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.15, 3.16, 3.17, and
4.1(iii) and the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.1(3) and
6.1(4) ("covenant defeasance option"), but except as specified above, the
remainder of this Indenture and the Securities shall be unaffected thereby. The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its
covenant defeasance option, the Company may, by written notice to the Trustee
prior to the delivery of the Opinion of Counsel referred to in Section 8.2(8),
elect to have any Subsidiary Guarantees in effect at such time terminate.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default and the
Subsidiary Guarantees in effect at such time shall terminate. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.1(4), 6.1(6),
6.1(7), (but only with respect to a Significant Subsidiary), 6.1(9) (but only
with respect to a Significant Subsidiary), 6.1(9) and 6.1(10) or because of the
failure of the Company to comply with Section 4.1(iii).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
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(c) Notwithstanding the provisions of Sections 8.1(a) and (b), the
Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 7.7, 7.8, 8.4,
8.5 and 8.6 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5 shall
survive.
SECTION 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee for
the benefit of the Holders money in U.S. dollars or U.S. Government
Obligations or a combination thereof for the payment of principal of and
interest on the Securities to maturity;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default with respect to the Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the
Securities concurrently with such incurrence);
(4) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a Default under this Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (A) the Securities and (B) assuming no
intervening bankruptcy of the Company between the date of deposit and the
91st day following the deposit and that no Holder of the Securities is an
insider of the Company, after 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' right
generally;
(6) the deposit does not constitute a default under any other
agreement binding on the Company;
(7) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(8) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has
<PAGE> 73
67
received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been
a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance had not
occurred;
(9) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
to the effect that the Securityholders will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and
(10) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities and this Indenture as
contemplated by this Article VIII have been complied with.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal of or interest on the Securities that remains
unclaimed for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors.
SECTION 8.5. Indemnity for U.S. Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the obligations of the Company under
this Indenture and the Securities shall be revived and
<PAGE> 74
68
reinstated as though no deposit had occurred pursuant to this Article VIII until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article VIII; provided,
however, that, if the Company has made any payment of interest on or principal
of any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article IV in respect of the assumption by a
Successor Company of an obligation of the Company under this Indenture;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities or to secure
the Securities;
(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to provide for the issuance of the Exchange Securities, which
will have terms substantially identical in all material respects to the
Initial Securities (except that the transfer restrictions contained in the
Initial Securities will be modified or eliminated, as appropriate), and
which will be treated, together with any outstanding Initial Securities,
as a single issue of securities.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such
<PAGE> 75
69
notice to all Securityholders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may or shall be
redeemed or repurchased in accordance with this Indenture;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Securities on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Securities;
(7) make any change to the amendment provisions which require each
Holder's consent or to the waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on
<PAGE> 76
70
the Security. However, any such Holder or subsequent Holder may revoke the
consent or waiver as to such Holder's Security or portion of the Security if the
Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective. After an amendment or waiver becomes effective, it
shall bind every Securityholder. An amendment or waiver shall become effective
upon receipt by the Trustee of the requisite number of written consents under
Section 9.1 or 9.2 as applicable.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall become
valid or effective more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Sections 7.1 and 7.2) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such amendment is authorized or permitted by this Indenture.
ARTICLE X
Miscellaneous
SECTION 10.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control.
SECTION 10.2. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
<PAGE> 77
71
if to the Company:
Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, NE 68501
Attention: Mark W. Oppegard
With a copy to:
Paul Weiss Rifkind Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attention: Mitchell S. Fishman
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.3. Communication by Holders with other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 10.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
<PAGE> 78
72
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 10.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
In giving such Opinion of Counsel, counsel may rely as to factual
matters on an Officer's Certificate or on certificates of public
officials.
SECTION 10.6. When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by, or a meeting of,
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 10.8. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or other day on which commercial banking institutions are authorized or
required to be closed in New York City. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
<PAGE> 79
73
SECTION 10.9. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 10.10. No Recourse Against Others. An incorporator,
director, officer, employee, stockholder or controlling person, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder shall waive and release all such liability. The waiver and
release shall be part of the consideration for the issue of the Securities.
SECTION 10.11. Successors. All agreements of the Company in this
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 10.13. Variable Provisions. The Company initially appoints
the Trustee as Paying Agent and Registrar and custodian with respect to any
Global Securities.
SECTION 10.14. Qualification of Indenture. The Company shall qualify
this Indenture under the TIA in accordance with the terms and conditions of the
Registration Rights Agreement and shall pay all reasonable costs and expenses
(including attorneys' fees and expenses for the Company, the Trustee and the
Holders) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of this Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive from
the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 10.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE> 80
74
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
NBC ACQUISITION CORP.
Attest: By: /s/ Mark W. Oppegard
-------------------------------------
Name: Mark W. Oppegard
/s/ Bruce E. Nevius Title: President and Chief Executive
- ----------------------------- Officer
UNITED STATES TRUST COMPANY
OF NEW YORK
Attest: By: /s/ Gerard F. Ganey
-------------------------------------
/s/ Sirojni Dindial Name: Gerard F. Ganey
- ------------------------------ Title: Senior Vice President
<PAGE> 81
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
No. [___] Principal Amount $[______________]
CUSIP NO. ____________
10 3/4% Senior Discount Debentures due 2009
NBC Acquisition Corp., a Delaware corporation, promises to pay to
[___________], or registered assigns, the principal sum of [__________________]
Dollars on February 15, 2009.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: NBC ACQUISITION CORP.
By:
--------------------------------------
By:
--------------------------------------
<PAGE> 82
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
United States Trust Company of New York,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By
-----------------------------------
Authorized Signatory February 13, 1998
<PAGE> 83
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10 3/4% Senior Discount Debentures due 2009
1. Interest
NBC Acquisition Corp., a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security as described below.
The Senior Discount Debentures due 2009 (the "Securities") will
accrete in value until February 15, 2003 at a rate of 10 3/4% per annum,
compounded semi-annually, to an aggregate principal amount of $76,000,000. Cash
interest will not accrue on the Debentures prior to February 15, 2003.
Thereafter, interest will accrue at the rate of 10 3/4% per annum and will be
payable semi-annually in cash and in arrears to the Holders of record on each
February 1 or August 1 immediately preceding the interest payment date on
February 15 and August 15 of each year, commencing August 15, 2003. Cash
interest on the Securities will accrue from the most recent interest payment
date to which interest has been paid or, if no interest has been paid, from
February 15, 2003. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except Defaulted Interest) to the Persons who are registered Holders of
Securities at the close of business on the February 1 or August 1 next preceding
the interest payment date even if Securities are cancelled, repurchased or
redeemed after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a banking
corporation duly organized and existing under the laws of the State of New York
(the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
<PAGE> 84
2
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior obligations of the
Company limited to $76.0 million aggregate principal amount (subject to Section
2.9 of the Indenture). This Security is one of the Initial Securities referred
to in the Indenture. The Securities include the Initial Securities and any
Exchange Securities issued in exchange for the Initial Securities pursuant to
the Indenture and the Registration Rights Agreement. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on: the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and its
Restricted Subsidiaries, the purchase or redemption of Capital Stock of the
Company and Capital Stock of such Restricted Subsidiaries, certain purchases or
redemptions of Subordinated Indebtedness, the Incurrence of Liens by the Company
or its Restricted Subsidiaries, the entering into Sale/Leaseback transactions by
the Company or its Restricted Subsidiaries, the sale or transfer of assets and
Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the business activities and investments of the
Company and its Restricted Subsidiaries and, transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and its Restricted
Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
5. Redemption
Except as set forth below, the Securities will not be redeemable at
the option of the Company prior to February 15, 2003. On and after such date,
the Securities will be redeemable, at the Company's option, in whole or in part,
at any time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12-month period commencing on February 15 of
the years set forth below:
<PAGE> 85
3
<TABLE>
<CAPTION>
<S> <C>
Period Redemption Price
------ ----------------
2003 105.375%
2004 103.583%
2005 101.792%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15,
2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the net proceeds of one or more Equity
Offerings received by, or invested in, the Company so long as there is a Public
Market at the time of such redemption, at a redemption price (expressed as a
percentage of the Accreted Value) of 110.75%; provided, however, that at least
65% of the original principal amount of the Securities must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the Securities
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Securities of $1,000 in original principal amount
or less will be redeemed in part. If any Security is to be redeemed in part
only, the notice of redemption relating to such Security shall state the portion
of the principal amount thereof to be redeemed. A new Security in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Security.
6. Repurchase Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) or, in the case of
purchases of Securities prior to February 15, 2003, at a purchase price equal to
101% of the Accreted Value thereof as of the date of purchase as provided in,
and subject to the terms of, the Indenture.
If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, when the aggregate amount of Offer Proceeds
equals or exceeds $5.0 million, the Company shall make an Offer for all
outstanding Securities pro rata up to a maximum principal amount (expressed as a
multiple of $1,000) of Securities equal to such Offer Proceeds, at a purchase
price in cash equal to, prior to February 15, 2003, 100% of the Accreted Value
thereof on the purchase date and thereafter, 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase in accordance with the procedures set forth in Section 3.7 of the
Indenture.
<PAGE> 86
4
7. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount or Accreted Value (as applicable) of $1,000
and whole multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange (i) any Securities selected for
redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) for a period beginning 15 days
before a selection of Securities to be redeemed and ending on the date of such
selection or (ii) any Securities for a period beginning 15 days before an
interest payment date and ending on such interest payment date.
8. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
9. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
10. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
11. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities and (ii) any default (other than with respect to nonpayment) or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the then outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article IV of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or
<PAGE> 87
5
to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make any change that does not adversely
affect the rights of any Securityholder, or to provide for the issuance of
Exchange Securities.
12. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest when due on the Securities; (ii) default in payment
of principal on the Securities at maturity, upon required repurchase, or upon
redemption pursuant to paragraphs 5 and 6 of the Securities, upon declaration or
otherwise; (iii) the failure by the Company to comply with its obligations under
Article IV of the Indenture (iv) failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
Section 3.9 of the Indenture or under other covenants specified in the Indenture
(in each case, other than a failure to purchase Securities which shall
constitute an Event of Default under clause (ii) above), (v) the failure by the
Company to comply for 60 days after notice with its other agreements contained
in the Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10 million (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"), (viii) any judgment or decree for the payment of money in excess
of $10 million is rendered against the Company or a Significant Subsidiary and
such judgment or decree shall remain undischarged or unstayed for a period of 60
days after such judgment becomes final and non-appealable (the "judgment default
provision") or (ix) any Subsidiary Guarantee ceases to be in full force and
effect (except as contemplated by the terms of the Indenture) or any Subsidiary
Guarantor denies or disaffirms its obligations under the Indenture or its
Subsidiary Guarantee. However, a default under clauses (iv) and (v) will not
constitute an Event of Default until the Trustee or the holders of more than 25%
in principal amount of the outstanding Securities notify the Company of the
default and the Company does not cure such default within the time specified in
clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
(or, if prior to February 15, 2003, the Accreted Value of) or interest) if it
determines that withholding notice is in their interest.
<PAGE> 88
6
13. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
14. No Recourse Against Others
An incorporator, director, officer, employee, stockholder or
controlling person, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
15. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
16. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
17. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
18. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
<PAGE> 89
7
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy of
the Indenture which has in it the text of this Security in larger
type. Requests may be made to:
NBC Acquisition Corp.
4700 South 19th Street
Lincoln, NE 68501
Attention of: Ardean A. Arndt
<PAGE> 90
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the books of
the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date:____________________ Your Signature:___________________
Signature Guarantee:______________________________
(Signature must be guaranteed)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 |_| acquired for the undersigned's own account, without transfer; or
2 |_| transferred to the Company; or
3 |_| transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"); or
4 |_| transferred pursuant to an effective registration statement under
the Securities Act; or
<PAGE> 91
2
5 |_| transferred pursuant to and in compliance with Regulation S under
the Securities Act; or
6 |_| transferred to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter appears
as Section 2.7 of the Indenture); or
7 |_| transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:
- ------------------------------ ------------------------------
(Signature must be guaranteed) Signature
- ------------------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying
<PAGE> 92
3
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
- ----------------------------------
Dated:
<PAGE> 93
4
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
[TO BE ATTACHED TO GLOBAL SECURITIES]
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or
Exchange Global Security Global Security such decrease or increase Securities Custodian
- -------- --------------- --------------- ------------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 94
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.7 or 3.9 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ____________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 95
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
No. [_____] Principal Amount $[____________]
CUSIP NO. _____________
10 3/4% Senior Discount Debentures due 2009
NBC Acquisition Corp., a Delaware corporation, promises to pay to
[______________], or registered assigns, the principal sum of [_______________]
Dollars on February 15, 2009.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other
side of this Security.
NBC ACQUISITION CORP.
By:
----------------------------------------
By:
----------------------------------------
<PAGE> 96
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
United States Trust Company of New York,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:
--------------------------------
Authorized Signatory Date:
<PAGE> 97
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10 3/4% Senior Discount Debentures due 2009
1. Interest
NBC Acquisition Corp., a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security as described below.
The Senior Discount Debentures due 2009 (the "Securities") will
accrete in value until February 15, 2003 at a rate of 10 3/4% per annum,
compounded semi-annually, to an aggregate principal amount of $76,000,000. Cash
interest will not accrue on the Securities prior to February 15, 2003.
Thereafter, interest will accrue at the rate of 10 3/4% per annum and will be
payable semi-annually in cash and in arrears to the Holders of record on each
February 1 or August 1 immediately preceding the interest payment date on
February 15 and August 15 of each year, commencing August 15, 2003. Cash
interest on the Securities will accrue from the most recent interest payment
date to which interest has been paid or, if no interest has been paid, from
February 15, 2003. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except Defaulted Interest) to the Persons who are registered Holders of the
Securities at the close of business on the February 1 or August 1 next preceding
the interest payment date even if Securities are cancelled, repurchased or
redeemed after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a banking
corporation duly organized and existing under the laws of the State of New York
(the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
<PAGE> 98
2
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior obligations of the
Company limited to $76.0 million aggregate principal amount (subject to Section
2.9 of the Indenture). This Security is one of the Exchange Securities referred
to in the Indenture. The Securities include the Initial Securities and any
Exchange Securities issued in exchange for the Initial Securities pursuant to
the Indenture and the Registration Rights Agreement. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on: the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and its
Restricted Subsidiaries, the purchase or redemption of Capital Stock of the
Company and Capital Stock of such Restricted Subsidiaries, certain purchases or
redemptions of Subordinated Indebtedness, the Incurrence of Liens by the Company
or its Restricted Subsidiaries, the entering into Sale/Leaseback transactions by
the Company or its Restricted Subsidiaries, the sale or transfer of assets and
Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the business activities and investments of the
Company and its Restricted Subsidiaries, and transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and its Subsidiaries
to restrict distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth below, the Securities will not be redeemable at
the option of the Company prior to February 15, 2003. On and after such date,
the Securities will be redeemable, at the Company's option, in whole or in part,
at any time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12-month period commencing on February 15 of
the years set forth below:
<PAGE> 99
3
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
2003 105.375%
2004 103.583%
2005 101.792%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15,
2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the net proceeds of one or more Equity
Offerings received by, or invested in, the Company so long as there is a Public
Market at the time of such redemption, at a redemption price (expressed as a
percentage of the Accreted Value) of 110.75%; provided, however, that at least
65% of the original principal amount of the Securities must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the Securities
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Securities of $1,000 in original principal amount
or less will be redeemed in part. If any Security is to be redeemed in part
only, the notice of redemption relating to such Security shall state the portion
of the principal amount thereof to be redeemed. A new Security in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Security.
6. Repurchase Provisions
Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) or, in the case of
purchases of Securities prior to February 15, 2003, at a purchase price equal to
101% of the Accreted Value thereof as of the Date of purchase as provided in,
and subject to the terms of, the Indenture.
If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, when the aggregate amount of Offer Proceeds
equals or exceeds $5.0 million, the Company shall make an Offer for all
outstanding Securities pro rata up to a maximum principal amount (expressed as a
multiple of $1,000) of Securities equal to such Offer Proceeds, at a purchase
price in cash equal to, prior to February 15, 2003, 100% of the Accreted Value
thereof on the purchase date and thereafter, 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase in accordance with the procedures set forth in Section 3.7 of the
Indenture.
<PAGE> 100
4
7. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount or Accreted Value (as applicable) of $1,000
and whole multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange (i) any Securities selected for
redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or for a period beginning 15 days
before a selection of Securities to be redeemed and ending on the date of
selection or (ii) any Securities for a period beginning 15 days before an
interest payment date and ending on such interest payment date.
8. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
9. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
10. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
11. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities and (ii) any default (other than with respect to nonpayment) or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the then outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article IV of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or
<PAGE> 101
5
to add additional covenants or surrender rights and powers conferred on the
Company or Communications or to comply with any request of the SEC in connection
with qualifying the Indenture under the Act, or to make any change that does not
adversely affect the rights of any Securityholder, or to provide for the
issuance of Exchange Securities.
12. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest when due on the Securities; (ii) default in payment
of principal on the Securities at maturity, upon required repurchase, upon
required repurchase or upon redemption pursuant to paragraphs 5 and 6 of the
Securities, upon declaration or otherwise; (iii) the failure by the Company to
comply with its obligations under Article IV of the Indenture, (iv) failure by
the Company to comply for 30 days after notice with any of its obligations under
the covenants described under Section 3.9 of the Indenture or under covenants
specified in the Indenture (in each case, other than a failure to purchase
Securities which shall constitute an Event of Default under clause (ii) above),
(v) the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Restricted Subsidiary not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $10 million (the
"cross acceleration provision"), (vii) certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"), (viii) any judgment or decree for the payment of money in excess
of $10 million is rendered against the Company or a Significant Subsidiary and
such judgment or decree shall remain undischarged or unstayed for a period of 60
days after such judgment becomes final and non-appealable (the "judgment default
provision") or (ix) any Subsidiary Guarantee ceases to be in full force and
effect (except as contemplated by the terms of the Indenture) or any Subsidiary
Guarantor denies or disaffirms its obligations under the Indenture or its
Subsidiary Guarantee. However, a default under clauses (iv) and (v) will not
constitute an Event of Default until the Trustee or the holders of more than 25%
in principal amount of the outstanding Securities notify the Company of the
default and the Company does not cure such default within the time specified in
clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or, if prior to February 15, 2003, the Accreted Value of or interest) if it
determines that withholding notice is in their interest.
<PAGE> 102
6
13. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
14. No Recourse Against Others
An incorporator, director, officer, employee, stockholder or
controlling person, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
15. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
16. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
17. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
18. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
<PAGE> 103
7
The Company will furnish to any Securityholder upon request
and without charge to the Securityholder a copy of the Indenture
which has in it the text of this Security in larger type. Requests
may be made to:
NBC Acquisition Corp.
4700 South 19th Street
Lincoln, NE 68501
Attention of: Ardean A. Arndt
<PAGE> 104
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: _______________ Your Signature ____________________
Signature Guarantee: ____________________________________
(Signature must be guaranteed)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 105
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.7 or 3.9 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: _______________ Your Signature: ____________________________________
(Sign exactly as your name appears on the other side
of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 106
EXHIBIT C
FORM OF SUBSIDIARY GUARANTEE
This Supplemental Indenture, dated as of [__________] (this
"Supplemental Indenture" or "Guarantee"), among [name of Subsidiary Guarantor]
(the "Guarantor"), NBC Acquisition Corp. (together with its successors and
assigns, the "Company"), [each other then existing Subsidiary Guarantor under
the Indenture referred to below,] and [Trustee], as Trustee under the Indenture
referred to below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture, dated as of February 13, 1998 (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of an
aggregate principal amount of $76.0 million of 10 3/4% Senior Discount Notes due
2009 of the Company (the "Securities");
WHEREAS, Section 3.12 of the Indenture provides that the Company is
required to cause each Restricted Subsidiary which Guarantees Indebtedness of
the Company to execute and deliver to the Trustee a Subsidiary Guarantee
pursuant to which such Subsidiary Guarantor will unconditionally Guarantee, on a
joint and several basis, the full and prompt payment of the principal of,
premium, if any and interest on the Securities on the same terms as the
Guarantee of such Indebtedness except that if such Indebtedness is a
Subordinated Obligation, any such Guarantee of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Subsidiary
Guarantor's Subsidiary Guarantee of the Securities to the same extent as such
Indebtedness is subordinated to the Securities; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and
the Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Securityholder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the Company[, the other Subsidiary Guarantors] and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders of
the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1 Defined Terms. As used in this Guarantee, terms defined
in the Indenture or in the preamble or recital hereto are used herein as therein
defined, except that the term "Holders" in this Guarantee shall refer to the
term "Holders" as defined in the Indenture and the Trustee acting on behalf or
for the benefit of such holders. The words "herein," "hereof" and "hereby" and
other words of similar import used in this Supplemental
<PAGE> 107
2
Indenture refer to this Supplemental Indenture as a whole and not to any
particular section hereof.
ARTICLE II
Guarantee
SECTION 2.1 Guarantee. The Guarantor hereby fully, unconditionally
and irrevocably guarantees, as primary obligor and not merely as surety, jointly
and severally with each other Subsidiary Guarantor, to each Holder of the
Securities the full and punctual payment when due, whether at maturity, by
acceleration, by redemption or otherwise, of the principal of, premium, if any,
and interest on the Securities (all the foregoing being hereinafter collectively
called the "Obligations"). The Guarantor further agrees (to the extent permitted
by law) that the Obligations may be extended or renewed, in whole or in part,
without notice or further assent from it, and that it will remain bound under
this Article II notwithstanding any extension or renewal of any Obligation.
The Guarantor waives presentation to, demand of payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The Guarantor waives notice of any default under the
Securities or the Obligations. The obligations of the Guarantor hereunder shall
not be affected by (a) the failure of any Holder to assert any claim or demand
or to enforce any right or remedy against the Company or any other person under
the Indenture, the Securities or any other agreement or otherwise; (b) any
extension or renewal of any thereof; (c) any rescission, waiver, amendment or
modification of any of the terms or provisions of the Indenture, the Securities
or any other agreement; (d) the release of any security held by any Holder or
the Trustee for the Obligations or any of them; (e) the failure of any Holder to
exercise any right or remedy against any other Subsidiary Guarantor; or (f) any
change in the ownership of the Company.
The Guarantor further agrees that its Guarantee herein constitutes a
guarantee of payment when due (and not a guarantee of collection) and waives any
right to require that any resort be had by any Holder to any security held for
payment of the Obligations.
The obligations of the Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason (other than
payment of the Obligations in full), including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense of
setoff, counterclaim, recoupment or termination whatsoever or by reason of the
invalidity, illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Guarantor herein shall not be discharged or impaired or otherwise affected by
the failure of any Holder to assert any claim or demand or to enforce any remedy
under the Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of the Guarantor or would otherwise
operate as a discharge of the Guarantor as a matter of law or equity.
<PAGE> 108
3
The Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any of the
Obligations is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder has at law or in equity against the Guarantor by virtue
hereof, upon the failure of the Company to pay any of the Obligations when and
as the same shall become due, whether at maturity, by acceleration, by
redemption or otherwise, the Guarantor hereby promises to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders an amount equal to the sum of (i) the unpaid amount of such
Obligations then due and owing and (ii) accrued and unpaid interest on such
Obligations then due and owing (but only to the extent not prohibited by law).
The Guarantor further agrees that, as between the Guarantor, on the
one hand, and the Holders, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in the Indenture
for the purposes of the Guarantee herein, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby and (y) in the event of any such declaration of acceleration
of such Obligations, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantor for the purposes of this
Guarantee.
The Guarantor also agrees to pay any and all reasonable costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or the
Holders in enforcing any rights under this Section.
SECTION 2.2 Limitation on Liability; Termination, Release and
Discharge. The obligations of the Guarantor hereunder will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of the Guarantor (including, without limitation, any guarantees
under the Credit Agreement) and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture or as
set forth below, result in the obligations of the Guarantor under this Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
The Guarantor may consolidate with or merge into or sell its assets
to the Company or another Subsidiary Guarantor without limitation. The Guarantor
may consolidate with or merge into or sell all or substantially all its assets
to a corporation, partnership or trust other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor).
Upon the sale or disposition of the Guarantor (by merger, consolidation, the
sale of all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company,
which sale or disposition is otherwise in compliance with the Indenture
(including Section 3.7), the Guarantor shall be deemed released from all its
obligations under the Indenture and this Subsidiary Guarantee and this
Subsidiary Guarantee shall terminate; provided, however, that
<PAGE> 109
4
any such termination shall occur only to the extent that all obligations of the
Guarantor under all of its guarantees of, and under all of its pledges of assets
or other security interests which secure, any other Indebtedness of the Company
shall also terminate upon such release, sale or transfer.
SECTION 2.3 Right of Contribution. The Guarantor hereby agrees that
to the extent that any Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made under the Subsidiary Guarantees, the
Guarantor shall be entitled to seek and receive contribution from and against
any other Subsidiary Guarantor (including the Guarantor) who has not paid its
proportionate share of such payment. The provisions of this Section 2.3 shall in
no respect limit the obligations and liabilities of the Guarantor to the Trustee
and the Holders and the Guarantor shall remain liable to the Trustee and the
Holders for the full amount guaranteed by the Guarantor hereunder.
SECTION 2.4 No Subrogation. Notwithstanding any payment or payments
made by the Guarantor hereunder, the Guarantor shall not be entitled to be
subrogated to any of the rights of the Trustee or any Holder against the Company
or any other Subsidiary Guarantor or any collateral security or guarantee or
right of offset held by the Trustee or any Holder for the payment of the
Obligations, nor shall the Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Subsidiary Guarantor
in respect of payments made by the Guarantor hereunder, until all amounts owing
to the Trustee and the Holders by the Company on account of the Obligations are
paid in full. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Guarantor in trust for the
Trustee and the Holders, segregated from other funds of the Guarantor, and
shall, forthwith upon receipt by the Guarantor, be turned over to the Trustee in
the exact form received by the Guarantor (duly indorsed by the Guarantor to the
Trustee, if required), to be applied against the Obligations.
ARTICLE III
Miscellaneous
SECTION 3.1 Notices. All notices and other communications pertaining
to this Guarantee or any Security shall be in writing and shall be deemed to
have been duly given upon the receipt thereof. Such notices shall be delivered
by hand, or mailed, certified or registered mail with postage prepaid (a) if to
the Guarantor, at its address set forth below, with a copy to the Company as
provided in the Indenture for notices to the Company, and (b) if to the Holders
or the Trustee, as provided in the Indenture. The Guarantor by notice to the
Trustee may designate additional or different addresses for subsequent notices
to or communications with the Guarantor.
SECTION 3.2 Parties. Nothing expressed or mentioned in this
Guarantee is intended or shall be construed to give any Person, firm or
corporation, other than the
<PAGE> 110
5
Holders and the Trustee, any legal or equitable right, remedy or claim under or
in respect of this Guarantee or any provision herein contained.
SECTION 3.3 Governing Law. This Agreement shall be governed by the
laws of the State of New York.
SECTION 3.4 Severability Clause. In case any provision in this
Guarantee shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and such provision shall be ineffective only to the extent of
such invalidity, illegality or unenforceability.
SECTION 3.5 Waivers and Remedies. Neither a failure nor a delay on
the part of the Holders or the Trustee in exercising any right, power or
privilege under this Guarantee shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Holders and
the Trustee herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Guarantee or
at law, in equity, by statute or otherwise.
SECTION 3.6 Successors and Assigns. Subject to Section 2.2 hereof,
(a) this Guarantee shall be binding upon and inure to the benefit of the
Guarantor, the Trustee, any other parties hereto, the Holders and their
respective successors and assigns and (b) in the event of any transfer or
assignment of rights by any Holder, the rights and privileges conferred upon
that party in this Guarantee and in the Securities shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions of this Guarantee and the Indenture.
SECTION 3.7 Modification, etc. Subject to the provisions of, and
except as otherwise provided in, Article IX of the Indenture (including without
limitation Sections 9.1 and 9.2 thereof), no modification, amendment or waiver
of any provision of this Guarantee, nor the consent to any departure by the
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and consented to by the Trustee (with the consent of the Holders of at
least a majority of the Securities if required by Section 9.2 of the Indenture)
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which it was given. No notice to or demand on the
Guarantor in any case shall entitle such Guarantor or any other guarantor to any
other or further notice or demand in the same, similar or other circumstances.
SECTION 3.8 Entire Agreement. This Guarantee is intended by the
parties to be a final expression of their agreement in respect of the subject
matter contained herein and, together with the Indenture, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
SECTION 3.9 Ratification of Indenture; Supplemental Indentures Part
of Indenture. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and
<PAGE> 111
6
effect. This Supplemental Indenture shall form a part of the Indenture for all
purposes, and every holder of Securities heretofore or hereafter authenticated
and delivered shall be bound hereby. The Trustee makes no representation or
warranty as to the validity or sufficiency of this Supplemental Indenture.
SECTION 3.10 Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
SECTION 3.11 Headings. The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NAME OF GUARANTOR],
By:
-----------------------------------
Name:
Title:
Address:
NBC ACQUISITION CORP.
By:
-----------------------------------
Name:
Title:
[Add signature block for any other existing
Subsidiary Guarantors]
[TRUSTEE]
By:
-----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.2
Execution Copy
REGISTRATION RIGHTS AGREEMENT
NBC Acquisition Corp.
$76,000,000
10 3/4% Senior Discount Debentures due 2009
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
February 13, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
NBC Acquisition Corp., a Delaware corporation (the "Company"),
proposes to issue and sell to Chase Securities Inc. ("CSI" or the "Initial
Purchaser"), upon the terms and subject to the conditions set forth in a
purchase agreement dated February 10, 1998 (the "Purchase Agreement"),
$76,000,000 aggregate principal amount of its 10 3/4% Senior Discount Debentures
due 2009 (the "Securities"). Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchaser thereunder, the Company agrees with the Initial Purchaser, for the
benefit of the holders (including the Initial Purchaser) of the Securities, the
Exchange Securities (as defined herein) and the Private Exchange Securities (as
defined herein) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall (i) prepare and, not
later than 45 days following the date of original issuance of the Securities
(the "Issue Date"), file with the Commission a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "Registered Exchange Offer") to issue and deliver to such Holders, in
exchange for the Securities, a like aggregate principal amount of debt
securities of the Company (the "Exchange Securities") that are identical in all
material respects to the Securities, except for the transfer restrictions
relating to the Securities, (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to become
<PAGE> 2
2
effective under the Securities Act no later than 150 days after the Issue Date
and the Registered Exchange Offer to be consummated no later than 180 days after
the Issue Date and (iii) keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date on which notice of the Registered Exchange Offer is mailed to the
Holders (such period being called the "Exchange Offer Registration Period"). The
Exchange Securities will be issued under the Indenture or an indenture (the
"Exchange Securities Indenture") between the Company and the Trustee or such
other bank or trust company that is reasonably satisfactory to the Initial
Purchaser, as trustee (the "Exchange Securities Trustee"), such indenture to be
identical in all material respects to the Indenture, except for the transfer
restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) acquires the Exchange
Securities in the ordinary course of such Holder's business and (c) has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Company, the Initial Purchaser and
each Exchanging Dealer acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, each Holder that is a
broker-dealer electing to exchange Securities, acquired for its own account as a
result of market-making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing substantially the information set forth in Annex A hereto on the
cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such
<PAGE> 3
3
Holder (the "Private Exchange"), a like aggregate principal amount of debt
securities of the Company (the "Private Exchange Securities") that are identical
in all material respects to the Exchange Securities, except for the transfer
restrictions relating to such Private Exchange Securities. The Private Exchange
Securities will be issued under the same indenture as the Exchange Securities,
and the Company shall use its reasonable best efforts to cause the Private
Exchange Securities to bear the same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer, and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for
exchange.
<PAGE> 4
4
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 90 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or
<PAGE> 5
5
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not, as of the consummation of the Registered Exchange
Offer, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) for any other reason the Registered Exchange Offer is not
consummated within 180 days after the Issue Date, or (iii) any Initial Purchaser
so requests with respect to Securities or Private Exchange Securities not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following the consummation of the Registered Exchange
Offer, or (iv) any applicable law or interpretations do not permit any Holder to
participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in exchange for tendered Securities, or (vi)
the Company so elects, then the following provisions shall apply:
(a) The Company shall use its reasonable best efforts to file as
promptly as practicable (but in no event more than 45 days after so required or
requested pursuant to this Section 2) with the Commission, and thereafter shall
use its reasonable best efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Securities (as defined herein)
by the Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a "Shelf
Registration Statement" and, together with any Exchange Offer Registration
Statement, a "Registration Statement").
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders of Transfer Restricted
Securities for a period of two years from the Issue Date or such shorter period
that will terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto (in any such case,
such period being called the "Shelf Registration Period"). The Company shall be
deemed not to have used its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Transfer Restricted Securities
covered thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless such action is required by applicable law.
<PAGE> 6
6
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect to
Holders' Information), does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders
of Transfer Restricted Securities will suffer damages if the Company fails to
fulfill its obligations under Section 1 or Section 2, as applicable, and that it
would not be feasible to ascertain the extent of such damages. Accordingly, if
(i) the applicable Registration Statement is not filed with the Commission on or
prior to 45 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is not
declared effective within 150 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in law
or the applicable interpretations of Commission's staff, if later, within 30
days after publication of the change in law or interpretation), (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of Commission's staff, if later, within 30 days
after publication of the change in law or interpretation) but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each Holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $ 0.192 per week per $1,000 principal amount (or Accreted Value,
as the case may be) of Transfer Restricted Securities held by such Holder until
(i) the applicable Registration Statement is filed, (ii) the Exchange Offer
<PAGE> 7
7
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Company shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Securities if such Holder failed to
comply with its obligations to make the representations set forth in the second
to last paragraph of Section 1 or failed to provide the information required to
be provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the liquidated damages due on the Transfer
Restricted Securities by depositing with the Paying Agent (which may not be the
Company for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided
for in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
<PAGE> 8
8
(a) The Company shall (i) furnish to the Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchaser may reasonably propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and (iii) if requested by the Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Company shall advise the Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements
to any Registration Statement or the prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities, the Exchange
Securities or the Private Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus included therein
in order that the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
<PAGE> 9
9
(c) The Company will use reasonable best efforts to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules and, if any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference).
(e) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of such prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Company will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge, at
least one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser or Exchanging Dealer or any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).
(g) The Company will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement or the Shelf Registration Statement and any
amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or
other persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in connection
with the
<PAGE> 10
10
registration or qualification of, such Securities, Exchange Securities or
Private Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Securities, Exchange Securities or Private
Exchange Securities covered by such Registration Statement; provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(i) The Company will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company is required to maintain an effective
Registration Statement, the Company will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities, Exchange
Securities or Private Exchange Securities from a Holder, the prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may be, and
provide the applicable trustee with printed certificates for the Securities, the
Exchange Securities or the Private Exchange Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of Section
11(a) of the Securities Act; provided that in no event shall such earning
statement be delivered later than 45 days after the end of a 12-month period (or
90 days, if such period is a fiscal year)
<PAGE> 11
11
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Company may from time
to time reasonably require for inclusion in such Shelf Registration Statement,
and the Company may exclude from such registration the Transfer Restricted
Securities of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder
will discontinue disposition of such Transfer Restricted Securities until such
Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the Company
shall give any notice under Section 4(b)(ii) through (v) during the period that
the Company is required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving of
such notice to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemental or amended prospectus contemplated by Section 4(j)
(if an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
<PAGE> 12
12
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private Exchange
Securities being sold and any underwriter participating in any disposition of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
and (ii) use its reasonable best efforts to have its officers, directors,
employees, accountants and counsel supply all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter (an
"Inspector") in connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company
shall, if requested by Holders of a majority in aggregate principal amount of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use its reasonable best efforts to cause (i)
its counsel to deliver an opinion relating to the Shelf Registration Statement
and the Securities, Exchange Securities or Private Exchange Securities, as
applicable, in customary form, (ii) its officers to execute and deliver all
customary documents and certificates requested by Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) and (iii) its independent public accountants to provide a
comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities to be sold pursuant to each Registration Statement (the "Special
Counsel") acting for the Initial Purchaser or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any,
<PAGE> 13
13
who controls such Holder within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6 and
Section 7 as a Holder) from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to purchases
and sales of Securities, Exchange Securities or Private Exchange Securities), to
which that Holder may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand for
any legal or other expenses reasonably incurred by that Holder in connection
with investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further, that with respect to any such untrue statement in or omission
from any related preliminary prospectus, the indemnity agreement contained in
this Section 6(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (A) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder
shall indemnify and hold harmless the Company, its affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Company), from and against any
<PAGE> 14
14
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Holders' Information
furnished to the Company by such Holder, and shall reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ
<PAGE> 15
15
its own counsel in any such action, but the fees, expenses and other charges of
such counsel for the indemnified party will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based upon advice of counsel to the indemnified
party) that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to the
indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), 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 loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received
<PAGE> 16
16
by the Company from the offering and sale of the Securities, on the one hand,
and a Holder with respect to the sale by such Holder of Securities, Exchange
Securities or Private Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and such Holder on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and a Holder on the
other with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by or on behalf of the Company as set forth
in the table on the cover of the Offering Memorandum, on the one hand, bear to
the total proceeds received by such Holder with respect to its sale of
Securities, Exchange Securities or Private Exchange Securities, on the other.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to the Company or
information supplied by the Company on the one hand or to any Holders'
Information supplied by such Holder on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 7 were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section 7 shall be deemed to include, for purposes of this Section 7, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to any
purchaser exceeds the amount of any damages which such indemnifying party has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed
<PAGE> 17
17
by it under the Securities Act and the Exchange Act in a timely manner and, if
at any time the Company is not required to file such reports, it will, upon the
written request of any Holder of Transfer Restricted Securities, make publicly
available other information so long as necessary to permit sales of such
Holder's securities pursuant to Rules 144 and 144A. The Company covenants that
it will take such further action as any Holder of Transfer Restricted Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Transfer Restricted Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rules 144
and 144A (including, without limitation, the requirements of Rule 144A(d)(4)).
Upon the written request of any Holder of Transfer Restricted Securities, the
Company shall deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 8 shall be deemed to require the Company to register any of its
securities pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably 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.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement 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 Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the
<PAGE> 18
18
Securities, the Exchange Securities and the Private Exchange Securities being
sold by such Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to Chase Securities Inc.;
(2) if to the Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one business day
after being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) 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.
(e) Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
<PAGE> 19
19
(h) Remedies. In the event of a breach by the Company or by any
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents, warrants and
agrees that (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity) shall have the right to include any securities of the Company
in any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions,
<PAGE> 20
20
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
<PAGE> 21
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchaser.
Very truly yours,
NBC Acquisition Corp.
By: /s/ Mark W. Oppegard
-------------------------------------------
Name: Mark W. Oppegard
Title: President and Chief Executive Officer
Accepted:
CHASE SECURITIES INC.
By:/s/ Jeffrey Blumin
---------------------------
Authorized Signatory
<PAGE> 22
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE> 23
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE> 24
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident
- ----------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer prospectus.
- 2 -
<PAGE> 25
to the Registered Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- 3 -
<PAGE> 26
ANNEX D
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:____________________________________
Address:_________________________________
____________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
- 4 -
<PAGE> 1
Exhibit 4.5
EXECUTION COPY
===============================================
NEBRASKA BOOK COMPANY, INC.
8 3/4% Senior Subordinated Notes due 2008
===================
INDENTURE
Dated as of February 13, 1998
===================
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
===============================================
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1) ...................................... 6.10
(a)(2) ...................................... 6.10
(a)(3) ...................................... N.A.
(a)(4) ...................................... N.A.
(b) ...................................... 6.8; 6.10
(c) ...................................... N.A.
311(a) ...................................... 6.11
(b) ...................................... 6.11
(c) ...................................... N.A.
312(a) ...................................... 2.5
(b) ...................................... 10.3
(c) ...................................... 10.3
313(a) ...................................... 6.6
(b)(1) ...................................... N.A.
(b)(2) ...................................... 6.6
(c) ...................................... 6.6
(d) ...................................... 6.6
314(a) ...................................... 3.2; 3.10; 11.2
(b) ...................................... N.A.
(c)(1) ...................................... 11.4
(c)(2) ...................................... 11.4
(c)(3) ...................................... N.A.
(d) ...................................... N.A.
(e) ...................................... 11.5
(f) ...................................... 3.9
315(a) ...................................... 6.1
(b) ...................................... 6.5; 11.2
(c) ...................................... 6.1
(d) ...................................... 6.1
(e) ...................................... 5.11
316(a)(last sentence) ...................................... 11.6
(a)(1)(A) ...................................... 5.5
(a)(1)(B) ...................................... 5.4
(a)(2) ...................................... N.A.
(b) ...................................... 5.7
317(a)(1) ...................................... 5.8
(a)(2) ...................................... 5.9
(b) ...................................... 2.4
318(a) ...................................... 11.1
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
-i-
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Incorporation by Reference................ 1
SECTION 1.1. Definitions................................................. 1
SECTION 1.2. Other Definitions........................................... 18
SECTION 1.3. Incorporation by Reference of Trust Indenture Act........... 19
SECTION 1.4. Rules of Construction....................................... 19
ARTICLE II
The Securities.............................. 20
SECTION 2.1. Form, Dating............................................... 20
SECTION 2.2. Execution and Authentication............................... 27
SECTION 2.3. Registrar and Paying Agent................................. 28
SECTION 2.4. Paying Agent To Hold Money in Trust........................ 28
SECTION 2.5. Securityholder Lists....................................... 29
SECTION 2.6. Transfer and Exchange...................................... 29
SECTION 2.7. Form of Certificate to be Delivered in Connection
with Transfers to Institutional Accredited Investors..... 32
SECTION 2.8. Form of Certificate to be Delivered in Connection
with Transfers Pursuant to Regulation S.................. 34
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities............ 35
SECTION 2.10. Outstanding Securities..................................... 36
SECTION 2.11. Temporary Securities....................................... 36
SECTION 2.12. Cancellation............................................... 36
SECTION 2.13. Payment of Interest; Defaulted Interest.................... 36
SECTION 2.14. Computation of Interest.................................... 38
SECTION 2.15. CUSIP Numbers.............................................. 38
ARTICLE III
Covenants................................ 38
SECTION 3.1. Payment of Securities...................................... 38
SECTION 3.2. SEC Reports and Available Information...................... 38
SECTION 3.3. Limitation on Indebtedness................................. 39
SECTION 3.4. Limitation on Layering..................................... 40
SECTION 3.5. Limitation on Restricted Payments.......................... 40
SECTION 3.6. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.................................. 43
SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock......... 44
SECTION 3.8. Limitation on Affiliate Transactions....................... 46
-ii-
<PAGE> 4
SECTION 3.9. Change of Control.......................................... 47
SECTION 3.10. Limitation on Capital Stock of Restricted Subsidiaries..... 49
SECTION 3.11. Limitation on Liens........................................ 50
SECTION 3.12. Future Subsidiary Guarantors............................... 50
SECTION 3.13. Limitation on Lines of Business............................ 51
SECTION 3.14. Limitation on Sale/Leaseback Transactions.................. 51
SECTION 3.15. Maintenance of Office or Agency............................ 51
SECTION 3.16. Corporate Existence........................................ 52
SECTION 3.17. Payment of Taxes and Other Claims.......................... 52
SECTION 3.18. Compliance Certificate..................................... 52
SECTION 3.19. Further Instruments and Acts............................... 52
ARTICLE IV
Successor Company............................ 53
SECTION 4.1. Merger and Consolidation.................................... 53
ARTICLE V
Redemption of Securities......................... 54
SECTION 5.1. Optional Redemption......................................... 54
SECTION 5.2. Applicability of Article.................................... 54
SECTION 5.3. Election to Redeem; Notice to Trustee....................... 54
SECTION 5.4. Selection by Trustee of Securities to Be Redeemed........... 54
SECTION 5.5. Notice of Redemption........................................ 55
SECTION 5.6. Deposit of Redemption Price................................. 56
SECTION 5.7. Notes Payable on Redemption Date............................ 56
SECTION 5.8. Securities Redeemed in Part................................. 56
ARTICLE VI
Defaults and Remedies.......................... 57
SECTION 6.1. Events of Default.......................................... 57
SECTION 6.2. Acceleration............................................... 59
SECTION 6.3. Other Remedies............................................. 59
SECTION 6.4. Waiver of Past Defaults.................................... 59
SECTION 6.5. Control by Majority........................................ 60
SECTION 6.6. Limitation on Suits........................................ 60
SECTION 6.7. Rights of Holders to Receive Payment....................... 60
SECTION 6.8. Collection Suit by Trustee................................. 61
SECTION 6.9. Trustee May File Proofs of Claim........................... 61
SECTION 6.10. Priorities................................................. 61
SECTION 6.11. Undertaking for Costs...................................... 61
-iii-
<PAGE> 5
ARTICLE VII
Trustee................................. 62
SECTION 7.1. Duties of Trustee.......................................... 62
SECTION 7.2. Rights of Trustee.......................................... 63
SECTION 7.3. Individual Rights of Trustee............................... 64
SECTION 7.4. Trustee's Disclaimer....................................... 64
SECTION 7.5. Notice of Defaults......................................... 64
SECTION 7.6. Reports by Trustee to Holders.............................. 64
SECTION 7.7. Compensation and Indemnity................................. 64
SECTION 7.8. Replacement of Trustee..................................... 65
SECTION 7.9. Successor Trustee by Merger................................ 66
SECTION 7.10. Eligibility; Disqualification.............................. 66
SECTION 7.11. Preferential Collection of Claims Against Company.......... 67
ARTICLE VIII
Discharge of Indenture; Defeasance.................... 67
SECTION 8.1. Discharge of Liability on Securities; Defeasance........... 67
SECTION 8.2. Conditions to Defeasance................................... 68
SECTION 8.3. Application of Trust Money................................. 69
SECTION 8.4. Repayment to Company....................................... 69
SECTION 8.5. Indemnity for U.S. Government Obligations.................. 69
SECTION 8.6. Reinstatement.............................................. 70
ARTICLE IX
Amendments................................ 70
SECTION 9.1. Without Consent of Holders................................. 70
SECTION 9.2. With Consent of Holders.................................... 71
SECTION 9.3. Compliance with Trust Indenture Act........................ 72
SECTION 9.4. Revocation and Effect of Consents and Waivers.............. 72
SECTION 9.5. Notation on or Exchange of Securities...................... 72
SECTION 9.6. Trustee To Sign Amendments................................. 72
ARTICLE X
Subordination.............................. 73
SECTION 10.1. Agreement To Subordinate.................................. 73
SECTION 10.2. Liquidation, Dissolution, Bankruptcy...................... 73
SECTION 10.3. Default on Senior Indebtedness............................ 73
SECTION 10.4. Acceleration of Payment of Securities..................... 74
SECTION 10.5. When Distribution Must Be Paid Over....................... 74
SECTION 10.6. Subrogation............................................... 74
-iv-
<PAGE> 6
SECTION 10.7. Relative Rights........................................... 75
SECTION 10.8. Subordination May Not Be Impaired by Company.............. 75
SECTION 10.9. Rights of Trustee and Paying Agent........................ 75
SECTION 10.10. Distribution or Notice to Representative.................. 75
SECTION 10.11. Article X Not To Prevent Events of Default or Limit
Right To Accelerate...................................... 76
SECTION 10.12. Trust Moneys Not Subordinated............................. 76
SECTION 10.13. Trustee Entitled To Rely.................................. 76
SECTION 10.14. Trustee To Effectuate Subordination....................... 76
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness.. 76
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. .............................. 77
ARTICLE XI
Miscellaneous.............................. 77
SECTION 11.1. Trust Indenture Act Controls.............................. 77
SECTION 11.2. Notices................................................... 77
SECTION 11.3. Communication by Holders with other Holders............... 78
SECTION 11.4. Certificate and Opinion as to Conditions Precedent........ 78
SECTION 11.5. Statements Required in Certificate or Opinion............. 78
SECTION 11.6. When Securities Disregarded............................... 79
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar.............. 79
SECTION 11.8. Legal Holidays............................................ 79
SECTION 11.9. GOVERNING LAW............................................. 79
SECTION 11.10. No Recourse Against Others................................ 79
SECTION 11.11. Successors................................................ 79
SECTION 11.12. Multiple Originals........................................ 79
SECTION 11.13. Variable Provisions....................................... 80
SECTION 11.14. Qualification of Indenture................................ 80
SECTION 11.15. Table of Contents; Headings............................... 80
EXHIBIT A Form of the Initial Security
EXHIBIT B Form of the Exchange Security
EXHIBIT C Form of Subsidiary Guarantee
-v-
<PAGE> 7
INDENTURE dated as of February 13, 1998, between NEBRASKA BOOK COMPANY, INC., a
Kansas corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK,
a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 8 3/4%
Senior Subordinated Notes due 2008 (the "Initial Securities") and, if and when
issued in exchange for Initial Securities as provided in the Registration Rights
Agreement (as hereinafter defined), the Company's 8 3/4% Senior Subordinated
Notes due 2008 (the "Exchange Securities" and, together with the Initial
Securities, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Company; provided, however, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Subsidiary Guarantor, (ii) the
disposition of Cash Equivalents in the ordinary course of business, (iii) a
disposition of inventory or other property in the ordinary course of business,
(iv) a disposition of obsolete, damaged or worn out equipment or equipment that
is no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries and that is disposed of in each case in the ordinary
course of business, (v) transactions permitted under Section 4.1 of this
Indenture, (vi) for purposes of
<PAGE> 8
2
Section 3.7 of this Indenture only, a disposition subject to Section 3.5 of this
Indenture, (vii) transactions permitted by paragraph (b) of Section 3.8 of this
Indenture, (viii) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind and (ix)
pursuant to foreclosure or other exercise of remedies.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded
semi-annually) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding
on the Issue Date or thereafter incurred, payable by the Company under or in
respect of the Credit Agreement and any related notes, collateral documents,
letters of credit and guarantees, and any interest protection agreements entered
into with a Lender (as defined in the Credit Agreement) in connection with the
Credit Agreement including principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company at the rate specified therein whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banking institutions are authorized or required by law
to close in New York City.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the
<PAGE> 9
3
Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date such lease may be
terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Rating Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof 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 investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Nebraska Book Company, Inc. or a successor.
"Consolidated Coverage Ratio": as of any date of determination
means, with respect to any Person, the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) If the Company or any Restricted Subsidiary (x) has Incurred
any Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period (except that
in making such computation, the amount of Indebtedness under any revolving
credit facility outstanding on the date of such calculation shall be computed
based on (A) the average daily balance of such Indebtedness during such four
fiscal quarters or such shorter period for which such facility was outstanding
or (B) if such facility was created after the end of such four fiscal quarters,
the average daily balance of such Indebtedness during the period from the date
of creation of such facility to the date of such calculation)
<PAGE> 10
4
and the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case
other than Indebtedness incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period, (2) if since the beginning of such period the Company
or any Restricted Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, the Consolidated EBITDA for such period shall be
reduced by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is
merged with or into the Company) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such period, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition or Investment occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall
<PAGE> 11
5
be calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months). Notwithstanding anything herein to the
contrary, if at the time the calculation of the Consolidated Coverage Ratio is
to be made, the Company does not have available consolidated financial
statements reflecting the ownership by the Company of CSC and Specialty Books
for a period of at least four full fiscal quarters, all calculations required by
the Consolidated Coverage Ratio shall be prepared on a pro forma basis, as
though each such transaction (to the extent not otherwise reflected in the
consolidated financial statements of the Company) had occurred on the first day
of the four fiscal quarter period for which such calculation is being made.
"Consolidated EBITDA" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA of such
Person only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense attributable
to Capitalized Lease Obligations and the interest portion of rent expense
associated with Attributable Indebtedness in respect of the relevant lease
giving rise thereto, determined as if such lease were a capitalized lease in
accordance with GAAP, (ii) amortization of debt discount and debt issuance cost
(other than such discounts and costs incurred in connection with the
Recapitalization), (iii) capitalized interest and accrued interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (vii) net costs
associated with Hedging Obligations (including amortization of fees), (viii)
dividends in respect of all Disqualified Stock of the Company and all Preferred
Stock of Subsidiaries, in each case, held by Persons other than the Company or a
Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary; less
interest income. For purposes of the foregoing, total interest expense shall be
determined after giving effect to any net payments made or received
<PAGE> 12
6
by the Company and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its Consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the limitations contained in (iv) below, the Company's equity in
the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income to the extent such loss has been funded
with cash from the Company or a Restricted Subsidiary; (ii) any net income
(loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or indirectly,
to the Company (other than restrictions permitted by Section 3.6), except that
(A) subject to the limitations contained in (iv) below the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained in
this clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (loss) realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (loss)
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Tangible Assets" means, as of any date of
determination, the total assets, less goodwill, deferred financing costs and
other intangibles less accumulated amortization, shown on the balance sheet of
the Company and its Restricted Subsidiaries as of the most recent date for which
such balance sheet is available, determined on a consolidated basis in
accordance with GAAP.
"Credit Agreement" means (i) the Credit Agreement dated as of
February 13, 1998 among Holdings, the Company, The Chase Manhattan Bank, as
Administrative Agent, and the lenders parties thereto from time to time, as the
same may be amended,
<PAGE> 13
7
supplemented or otherwise modified from time to time and any guarantees issued
thereunder and (ii) any renewal, extension, refunding, restructuring,
replacement or refinancing thereof (whether with the original Administrative
Agent and lenders or another administrative agent or agents or other lenders and
whether provided under the original Credit Agreement or any other credit or
other agreement or indenture).
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning set forth in Section
2.13.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and
(ii) any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25.0
million and is specifically designated in the instrument evidencing or governing
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of
this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of the Company or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Securities, provided, that only
the portion of Capital Stock which so matures or is mandatorily redeemable, is
so convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering or issuance for cash by either
of the Company or Holdings of its respective common stock, or options, warrants
or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Securities" means, if and when issued in exchange for the
Initial Securities as provided in the Registration Rights Agreement, the
Company's 8 3/4% Senior Subordinated Notes due 2008.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in the
<PAGE> 14
8
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, the following obligations, whether outstanding on the date of this
Indenture or thereafter issued, without duplication: (i) any Guarantee of the
Bank Indebtedness by such Subsidiary Guarantor and all other Guarantees by such
Subsidiary Guarantor of Senior Indebtedness of the Company or Guarantor Senior
Indebtedness for any other Subsidiary Guarantor; and (ii) all obligations
consisting of the principal of and premium, if any, and accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Subsidiary Guarantor regardless
of whether postfiling interest is allowed in such proceeding) on, and fees and
other amount owing in respect of, all Indebtedness of the Subsidiary Guarantor,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that the obligations in
respect of such Indebtedness are not senior in right of payment to the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee;
provided, however, that Guarantor Senior Indebtedness shall not include (1) any
obligations of such Subsidiary Guarantor to the Subsidiary Guarantor or any
other Subsidiary of the Subsidiary Guarantor, (2) any liability for Federal,
state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Subsidiary Guarantor
that is expressly subordinate in right of payment to any of the Indebtedness of
such Subsidiary Guarantor, including any Guarantor Senior Subordinated
Indebtedness and Guarantor Subordinated Obligations of such Subsidiary Guarantor
or (5) any Capital Stock.
"Guarantor Senior Subordinated Indebtedness" means with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor
that specifically provides that such Indebtedness is to rank pari passu in right
of payment with the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and is not expressly subordinated by its
<PAGE> 15
9
terms in right of payment to any Indebtedness of such Subsidiary Guarantor which
is not Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate in right of payment to the obligations of such Subsidiary Guarantor
under its Subsidiary Guarantee pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered in the Note Register.
"Holdings" means NBC Acquisition Corp., a Delaware corporation.
"Holdings Senior Discount Debentures" means the 10 3/4% Senior
Discount Debentures due 2009 issued by Holdings on the Issue Date.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary,
any Preferred Stock (but excluding, in each case, any accrued dividends); (vii)
all Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided, however,
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to
the extent Guaranteed by such Person; and (ix) to the extent not otherwise
included in this definition, net obligations of such Person under Interest Rate
Agreements (the amount of any such obligations to be equal at any time to the
termination
<PAGE> 16
10
value of such agreement or arrangement giving rise to such obligation that would
be payable by such Person at such time). The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Independent Appraiser" means, with respect to any transaction or
series of related transactions, an independent, nationally recognized appraisal
or investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Initial Securities" means the Company's 8 3/4% Senior Subordinated
Notes due 2008 issued under this Indenture.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business) or
other extension of credit (including by way of Guarantee or similar arrangement,
but excluding any debt or extension of credit represented by a bank deposit
other than a time deposit) or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the Company
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors of
the Company.
"Issue Date" means the date on which the Initial Securities are
originally issued.
<PAGE> 17
11
"Legal Holiday" has the meaning ascribed to it in Section 11.8.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) the deduction of appropriate amounts to be provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Note Register" means the register of Securities, maintained by the
Trustee, pursuant to Section 2.3.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
<PAGE> 18
12
"Permitted Holders" means each of (i) HWH Capital Partners, L.P.
(the "Partnership") or Haas Wheat & Partners Incorporated and any of their
respective Affiliates; (ii) any officer or other member of management employed
by Holdings or any Subsidiary as of the date of this Indenture; (iii) Robert B.
Haas and Douglas D. Wheat; (iv) family members or relatives of the persons
described in clauses (ii) and (iii); (v) any trusts created for the benefit of
the persons described in clause (ii), (iii) or (iv); (vi) in the event of the
incompetence or death of any of the persons described in clauses (ii), (iii) and
(iv), such person's estate, executor, administrator, committee or other personal
representatives or beneficiaries; and (vii) upon a distribution by the
Partnership of all or any of the stock of Holdings, the affiliated partners of
the Partnership and any Affiliate thereof.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) cash and Cash Equivalents; (iv) receivables owing to the Company or any
Restricted Subsidiary created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary; and
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
including carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for taxes, assessments or other governmental
charges not yet subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings provided appropriate reserves
have been taken on the books of the Company; (d) Liens in favor of issuers of
surety bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary
<PAGE> 19
13
course of its business; provided, however, that such letters of credit do not
constitute Indebtedness; (e) encumbrances, easements or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties which do not in
the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of such Person; (f)
Liens securing an Interest Rate Agreement so long as the related Indebtedness
is, and is permitted to be under this Indenture, secured by a Lien on the same
property securing the Interest Rate Agreement; (g) leases and subleases of real
property which do not materially interfere with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries; (h) judgment
Liens not giving rise to an Event of Default so long as such Lien is adequately
bonded and any appropriate legal proceedings which may have been duly initiated
for the review of such judgment shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;
(i) Liens for the purpose of securing the payment (or the refinancing of the
payment) of all or a part of Purchase Money Indebtedness relating to assets or
property acquired or constructed in the ordinary course of business provided
that (x) the aggregate principal amount of Indebtedness secured by such Liens
shall not exceed the cost of the assets or property so acquired or constructed
and (y) such Liens shall not encumber any other assets or property of the
Company or any Restricted Subsidiary other than such Assets or property and
assets affixed or appurtenant thereto; (j) Liens arising solely by virtue of any
statutory or common law provision relating to banker's Liens, rights of set-off
or similar rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided that (x) such deposit account
is not a dedicated cash collateral account and is not subject to restrictions
against access by the Company in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (y) such deposit account is not
intended by the Company or any Restricted Subsidiary to provide collateral to
the depository institution; (k) Liens arising from Uniform Commercial Code
financing statement filings regarding operating leases entered into by the
Company and its Restricted Subsidiaries in the ordinary course of business (l)
Liens existing on the Issue Date; (m) Liens on property or shares of stock of a
Person at the time such Person becomes a Subsidiary; provided, however, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming a Subsidiary; provided further,
however, that any such Lien may not extend to any other property owned by the
Company or any Restricted Subsidiary; (n) Liens on property at the time the
Company or a Subsidiary acquired the property, including any acquisition by
means of a merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition; provided
further, however, that such Liens may not extend to any other property owned by
the Company or any Restricted Subsidiary; (o) Liens securing Indebtedness or
other obligations of a Subsidiary owing to the Company or a Wholly-Owned
Subsidiary; and (p) Liens securing Refinancing Indebtedness incurred to
Refinance Indebtedness that was previously so secured, provided that any such
Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose, could secure) the obligations to which such Liens relate.
<PAGE> 20
14
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Exchange Securities" shall have the meaning set forth in
the Registration Rights Agreement.
A "Public Market" exists at any time with respect to the common
stock of the Company or Holdings, as the case may be, if (i) the common stock of
the Company or Holdings, as the case may be, is then registered with the
Securities Exchange Commission pursuant to Section 12(b) or 12(g) of Exchange
Act and traded either on a national securities exchange or in the National
Association of Securities Dealers Automated Quotation System and (ii) at least
15% of the total issued and outstanding common stock of the Company or Holdings,
as the case may be, has been distributed prior to such time by means of an
effective registration statement under the Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness
of such person to any seller or other person incurred to finance the acquisition
or construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company is
related to a Related Business of the Company and which is incurred concurrently
with, or within 180 days of, such acquisition or the completion of such
construction and, if secured, is secured only by the assets so financed.
"QIB" means any "qualified institutional buyer" (as defined in Rule
144A under the Securities Act).
"Recapitalization" shall have the meaning set forth in the Offering
Memorandum, dated February 10, 1998, relating to the Initial Securities.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of this Indenture or Incurred in compliance with this Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced,
<PAGE> 21
15
(ii) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced, and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding (plus fees and
expenses, including any premium and defeasance costs) of the Indebtedness being
refinanced.
"Registered Exchange Offer" shall have the meaning set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement, dated February 13, 1998, between the Company and Chase
Securities Inc.
"Related Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date of this Indenture.
"Representative" means any trustee, agent or representative (if any)
of an issue of Senior Indebtedness.
"Restricted Period" means the 40 consecutive days beginning on and
including the later of (A) the day on which the Initial Securities are offered
to persons other than distributors (as defined in Regulation S under the
Securities Act) and (B) the Issue Date.
"Restricted Securities Legend" means the Private Placement Legend
set forth in clause (A) of Section 2.1(c) or the Regulation S Legend set forth
in clause (B) of Section 2.1(c), as applicable.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE> 22
16
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Senior Indebtedness" means, whether outstanding on the Issue Date
or thereafter issued, created, incurred or assumed, the Bank Indebtedness and
all other Indebtedness of the Company, including accrued and unpaid interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company at the rate specified
in the documentation with respect thereto whether or not a claim for post filing
interest is allowed in such proceeding) and fees relating thereto, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such Indebtedness
are not superior in right of, or are subordinate to, payment of the Securities;
provided, however, that Senior Indebtedness will not include (i) any obligation
of the Company to any Subsidiary, (ii) any liability for Federal, state,
foreign, local or other taxes owed or owing by the Company, (iii) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness, Guarantee or obligation of the Company that
is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital
Stock.
"Senior Subordinated Indebtedness" means the Securities and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Indebtedness" means any Indebtedness of the Company
(whether outstanding on the date of this Indenture or thereafter Incurred) which
is subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital
<PAGE> 23
17
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment
of the Securities by a Subsidiary Guarantor pursuant to the terms of this
Indenture, and, collectively, all such Guarantees. Each such Subsidiary
Guarantee will be in the form set forth in Exhibit C of this Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary created or
acquired by the Company after the Issue Date.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb), as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness
pursuant to paragraph (a) under "Limitation on Indebtedness" and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
<PAGE> 24
18
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, all of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
SECTION 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction"......................................... 3.8
"Agent Member".................................................. 2.1(d)
"Authenticating Agent".......................................... 2.2
"Bankruptcy Law"................................................ 6.1
"Blockage Notice"............................................... 10.3
"Change of Control"............................................. 3.9
"Change of Control Offer"....................................... 3.9
"Change of Control Payment"..................................... 3.9
"Change of Control Payment Date"................................ 3.9
"Company Order"................................................. 2.2
"covenant defeasance option".................................... 8.1(b)
"Custodian"..................................................... 6.1
"Definitive Securities"......................................... 2.1(e)
"Event of Default".............................................. 6.1
"Exchange Global Note".......................................... 2.1
"Global Securities"............................................. 2.1(a)
"Institutional Accredited Investor Global Note"................. 2.1
"Institutional Accredited Investor Note"........................ 2.1
"legal defeasance option"....................................... 8.1(b)
"Offer" ....................................................... 3.7
"Offer Amount".................................................. 3.7
"Offer Period".................................................. 3.7
"Offer Proceeds"................................................ 3.7
"pay the Securities"............................................ 10.3
"Paying Agent".................................................. 2.3
"Payment Blockage Period"....................................... 10.3
</TABLE>
<PAGE> 25
19
<TABLE>
<S> <C>
"Private Placement Legend"...................................... 2.1(c)
"Purchase Date"................................................. 3.7
"Registrar"..................................................... 2.3
"Regulation S".................................................. 2.1(a)
"Regulation S Certificate"...................................... 2.1
"Regulation S Global Note"...................................... 2.1
"Regulation S Legend"........................................... 2.1
"Regulation S Note"............................................. 2.1
"Regulation S Permanent Global Note"............................ 2.1
"Regulation S Temporary Global Note"............................ 2.1
"Release Date".................................................. 2.1
"Resale Restriction Termination Date"........................... 2.6
"Restricted Payment"............................................ 3.5
"Rule 144A"..................................................... 2.1(b)
"Rule 144A Global Note"......................................... 2.1
"Rule 144A Note"................................................ 2.1
"Special Interest Payment Date"................................. 2.13
"Special Record Date"........................................... 2.13
"Successor Company"............................................. 4.1
</TABLE>
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by the TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
<PAGE> 26
20
SECTION 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE II
The Securities
SECTION 2.1. Form, Dating and Terms. (a) The Initial Securities are
being offered and sold by the Company pursuant to a Purchase Agreement, dated
February 11, 1998, between the Company and Chase Securities Inc.
Initial Securities offered and sold to the qualified institutional
buyers (as defined in Rule 144A under the Securities Act ("Rule 144A") in the
United States of America (the "Rule 144A Note") will be issued on the Issue Date
in the form of a permanent global Security substantially in the form of Exhibit
A, which is hereby incorporated by reference and made a part of this Indenture,
together with appropriate legends as set forth in Section 2.1 (the "Rule 144A
Global Note"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The Rule 144A Global Note may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate. The aggregate
principal amount of the Rule 144A Global
<PAGE> 27
21
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Initial Securities offered and sold outside the United States of
America ("Regulation S Note") in reliance on Regulation S will be issued on the
Issue Date in the form of a temporary global Security, without interest coupons,
substantially in the form set forth in Exhibits A and B, which are hereby
incorporated by reference and made a part of this Indenture, together with
appropriate legends as set forth in Section 2.1(c) (a "Regulation S Temporary
Global Note"). Beneficial interests in a Regulation S Temporary Global Note will
be exchangeable for beneficial interests in a single permanent global security
(the "Regulation S Permanent Global Note", together with the Regulation S
Temporary Global Note, the "Regulation S Global Note") on or after the
expiration of the Restricted Period (the "Release Date") upon the receipt by the
Trustee or its agent of a certificate certifying that the Holder of the
beneficial interest in the Regulation S Temporary Global Note is a non-United
States Person within the meaning of Regulation S (a "Regulation S Certificate"),
substantially in the form set forth in Section 2.8. Upon receipt by the Trustee
or Paying Agent of a Regulation S Certificate, (i) with respect to the first
such Regulation S Certificate, the Company shall execute and upon receipt of a
Company Order for authentication, the Authenticating Agent (as defined in
Section 2.2) shall authenticate and deliver to the custodian, the applicable
Regulation S Permanent Global Note and (ii) with respect to the first and all
subsequent Regulation S Certificates, the custodian shall exchange on behalf of
the applicable beneficial owners the portion of the applicable Regulation S
Temporary Global Note covered by such Regulation S Certificates for a comparable
portion of the applicable Regulation S Permanent Global Note. Upon any exchange
of a portion of a Regulation S Temporary Global Note for a comparable portion of
a Regulation S Permanent Global Note, the custodian shall endorse on the
schedules affixed to each of such Regulation S Global Note (or on continuations
of such schedules affixed to each of such Regulation S Global Note and made
parts thereof) appropriate notations evidencing the date of transfer and (x)
with respect to the applicable Regulation S Temporary Global Note, a decrease in
the principal amount thereof equal to the amount covered by the applicable
certification and (y) with respect to the applicable Regulation S Permanent
Global Note, an increase in the principal amount thereof equal to the principal
amount of the decrease in the applicable Regulation S Temporary Global Note
pursuant to clause (x) above. The Regulation S Global Note will be deposited
with the Trustee, as custodian for the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The Regulation S
Global Note may be represented by more than one certificate, if so required by
the Depositary's rules regarding the maximum principal amount to be represented
by a single certificate. The aggregate principal amount of the Regulation S
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary or its nominee,
as hereinafter provided.
Initial Securities resold to institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) in the
United States of America (the "Institutional Accredited Investor Note") will be
issued in the form of a permanent global Security substantially in the form set
forth in Exhibit A hereto, which is hereby incorporated by reference and made a
part of this Indenture, together with appropriate legends as set forth
<PAGE> 28
22
in Section 2.1(c) (the "Institutional Accredited Investor Global Note")
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
Institutional Accredited Investor Global Note may be represented by more than
one certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate. The aggregate
principal amount of the Institutional Accredited Investor Global Note may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Exchange Securities exchanged for interests in the Rule 144A Note,
the Regulation S Note and the Institutional Accredited Investor Note will be
issued in the form of a permanent global Security substantially in the form set
forth in Exhibit B hereto, which is hereby incorporated by reference and made a
part of this Indenture, deposited with the Trustee as hereinafter provided, with
the appropriate legend set forth in Section 2.1(c) hereof (the "Exchange Global
Note"). The Exchange Global Note may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate.
The Rule 144A Global Note, the Regulation S Global Note, the
Exchange Global Note and the Institutional Accredited Investor Global Note are
sometimes collectively herein referred to as the "Global Securities."
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose pursuant to Section 2.3;
provided, however, that, at the option of the Company, each installment of
interest may be paid by (i) check mailed to addresses of the Persons entitled
thereto as such addresses shall appear on the Note Register or (ii) wire
transfer to an account located in the United States maintained by the payee.
The Private Exchange Securities shall be in the form of Exhibit A
hereto. The Securities may have notations, legends or endorsements required by
law, stock exchange rule or usage, in addition to those set forth on Exhibits A
and B and Section 2.1(c). The Company and the Trustee shall approve the forms of
the Securities and any notation, endorsement or legend on them. Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in Exhibit A and Exhibit B are part of the terms of this Indenture and, to
the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to be bound by such terms.
(b) Denominations. The Securities shall be issuable only in fully
registered form, without coupons, and only in denominations of $1,000 and any
integral multiple thereof.
(c) Restrictive Legends. Unless and until (i) an Initial Security is
sold under an effective registration statement or (ii) an Initial Security is
exchanged for an Exchange Security in connection with an effective registration
statement, in each case pursuant to the
<PAGE> 29
23
Registration Rights Agreement, (A) such Rule 144A Global Note and the
Institutional Accredited Investor Global Note shall bear the following legend
(the "Private Placement Legend") on the face thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN
BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED
SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO
THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR,
IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF
$250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION
<PAGE> 30
24
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE."; and
(B) the Regulation S Global Note shall bear the following legend
(the "Regulation S Legend") on the face thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S.
PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE")
WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN TRANSACTION INVOLVING A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
<PAGE> 31
25
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND IN
THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE
LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER
THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE
CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT."
The Global Securities, whether or not an Initial Security, shall
bear the following legend on the face thereof:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF."
The Regulation S Temporary Global Note shall also bear the following
legend on the face thereof:
THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE
OFFERED, SOLD OR
<PAGE> 32
26
DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED
CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE.
(d) Book-Entry Provisions. (i) This Section 2.1(d) shall apply only
to Global Securities deposited with the Trustee, as custodian for the
Depositary.
(ii) Each Global Security initially shall (x) be registered in the
name of the Depositary for such Global Security or the nominee of such
Depositary, (y) be delivered to the Trustee as custodian for such Depositary and
(z) bear legends as set forth in Section 2.1(c).
(iii) Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of the Depositary governing the exercise of the
rights of a holder of a beneficial interest in any Global Security.
(iv) In connection with any transfer of a portion of the beneficial
interest in a Global Security pursuant to subsection (e) of this Section to
beneficial owners who are required to hold Definitive Securities, the Security
Trustee shall reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Definitive Securities of like tenor and amount.
(v) In connection with the transfer of an entire Global Security to
beneficial owners pursuant to subsection (e) of this Section, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in such Global Security, an equal aggregate principal amount
of Definitive Securities of authorized denominations.
(e) Definitive Securities. Except as provided below, owners of
beneficial interests in Global Securities will not be entitled to receive
certificated Securities ("Definitive Securities"). If required to do so pursuant
to any applicable law or regulation, beneficial
<PAGE> 33
27
owners may obtain Definitive Securities in exchange for their beneficial
interests in a Global Security upon written request in accordance with the
Depositary's and the Registrar's procedures. In addition, Definitive Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Security if (i) the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary for such Global Security or
the Depositary ceases to be a clearing agency registered under the Exchange Act,
at a time when the Depositary is required to be so registered in order to act as
Depositary, and in each case a successor depositary is not appointed by the
Company within 90 days of such notice or, (ii) the Company executes and delivers
to the Trustee and Registrar an Officers' Certificate stating that such Global
Security shall be so exchangeable or (iii) an Event of Default has occurred and
is continuing and the Registrar has received a request from the Depositary.
(f) Any Definitive Security delivered in exchange for an interest in
a Global Security pursuant to Section 2.1(d)(iv) and (v) shall, except as
otherwise provided by paragraph (c) of Section 2.6, bear the applicable legend
regarding transfer restrictions applicable to the Definitive Security set forth
in Section 2.1(c).
(g) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.2. Execution and Authentication. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. If an Officer
whose signature is on a Security no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually authenticates the Security. The signature of the Trustee on a
Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
At any time and from time to time after the execution and delivery
of this Indenture, the Trustee shall authenticate and make available for
delivery: (1) Initial Securities for original issue in an aggregate principal
amount of $110.0 million and (2) Exchange Securities for issue only in a
Registered Exchange Offer pursuant to the Registration Rights Agreement, and
only in exchange for Initial Securities of an equal principal amount, in each
case upon a written order of the Company signed by two Officers or by an Officer
and either an Assistant Treasurer or an Assistant Secretary of the Company (the
"Company Order"). Such Company Order shall specify the amount of the Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and whether the Securities are to be Initial Securities or
Exchange Securities. The aggregate principal amount of Securities outstanding at
any time may not exceed $110.0 million except as provided in Section 2.9.
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The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent.
In case the Company or any Subsidiary Guarantor (if any), pursuant
to Article IV, shall be consolidated or merged with or into any other Person or
shall convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company or
any Subsidiary Guarantor (if any) shall have been merged, or the Person which
shall have received a conveyance, transfer, lease or other disposition as
aforesaid, shall have executed an indenture supplemental hereto with the Trustee
pursuant to Article IV, any of the Securities authenticated or delivered prior
to such consolidation, merger, conveyance, transfer, lease or other disposition
may, from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Order of the successor Person, shall
authenticate and deliver Securities as specified in such order for the purpose
of such exchange. If Securities shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section 2.2 in exchange
or substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time outstanding for
Securities authenticated and delivered in such new name.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Company shall
cause each of the Registrar and the Paying Agent to maintain an office or agency
in the Borough of Manhattan, The City of New York. The Registrar shall keep a
register of the Securities and of their transfer and exchange (the "Note
Register"). The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly-Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
<PAGE> 35
29
The Company initially appoints the Trustee as Registrar and Paying
Agent for the Securities.
SECTION 2.4. Paying Agent To Hold Money in Trust. By at least 10:00
a.m (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying Agent
a sum sufficient to pay such principal or interest when due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that such
Paying Agent shall hold in trust for the benefit of Securityholders or the
Trustee all money held by such Paying Agent for the payment of principal of or
interest on the Securities and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
(other than the Trustee) to pay all money held by it to the Trustee and to
account for any funds disbursed by such Paying Agent. Upon complying with this
Section, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money delivered to the Trustee. Upon any
bankruptcy, reorganization or similar proceeding with respect to the Company,
the Trustee shall serve as Paying Agent for the Securities.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.6. Transfer and Exchange.
(a) The following provisions shall apply with respect to any
proposed transfer of a Rule 144A Note or an Institutional Accredited Investor
Note prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Securities (or any predecessor thereto) (the
"Resale Restriction Termination Date"):
(i) a transfer of a Rule 144A Note or an Institutional Accredited
Investor Note or a beneficial interest therein to a QIB shall be made upon
the representation of the transferee that it is purchasing the Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A;
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30
(ii) a transfer of a Rule 144A Note or an Institutional Accredited
Investor Note or a beneficial interest therein to an institutional
accredited investor shall be made upon receipt by the Trustee or its agent
of a certificate substantially in the form set forth in Section 2.7 hereof
from the proposed transferee and, if requested by the Company or the
Trustee, the delivery of an opinion of counsel, certification and/or other
information satisfactory to each of them; and
(iii) a transfer of a Rule 144A Note or an Institutional Accredited
Investor Note or a beneficial interest therein to a Non-U.S. Person shall
be made upon receipt by the Trustee or its agent of a certificate
substantially in the form set forth in Section 2.8 hereof from the
proposed transferee and, if requested by the Company or the Trustee, the
delivery of an opinion of counsel, certification and/or other information
satisfactory to each of them.
(b) The following provisions shall apply with respect to any
proposed transfer of a Regulation S Note prior to the expiration of the
Restricted Period:
(i) a transfer of a Regulation S Note or a beneficial interest
therein to a QIB shall be made upon the representation of the transferee
that it is purchasing the Security for its own account or an account with
respect to which it exercises sole investment discretion and that it and
any such account is a "qualified institutional buyer" within the meaning
of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations in
order to claim the exemption from registration provided by Rule 144A;
(ii) a transfer of a Regulation S Note or a beneficial interest
therein to an institutional accredited investor shall be made upon receipt
by the Trustee or its agent of a certificate substantially in the form set
forth in Section 2.7 hereof from the proposed transferee and, if requested
by the Company or the Trustee, the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them; and
(iii) a transfer of a Regulation S Note or a beneficial interest
therein to a Non-U.S. Person shall be made upon receipt by the Trustee or
its agent of a certificate substantially in the form set forth in Section
2.8 hereof from the proposed transferee and, if requested by the Company
or the Trustee, receipt by the Trustee or its agent of an opinion of
counsel, certification and/or other information satisfactory to each of
them.
After the expiration of the Restricted Period, interests in the
Regulation S Note may be transferred without requiring certification set forth
in Section 2.8 or any additional certification.
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(c) Restricted Securities Legend. Upon the transfer, exchange or
replacement of Securities not bearing a Restricted Securities Legend, the
Registrar shall deliver Securities that do not bear a Restricted Securities
Legend. Upon the transfer, exchange or replacement of Securities bearing a
Restricted Securities Legend, the Registrar shall deliver only Securities that
bear a Restricted Securities Legend unless there is delivered to the Registrar
an Opinion of Counsel to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) The Company shall deliver to the Trustee an Officer's
Certificate setting forth the Resale Restriction Termination Date and the
Restricted Period.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.1 or this Section 2.6. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
(e) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall, subject to the other terms and conditions of this Article II,
execute and the Trustee shall authenticate Definitive Securities and
Global Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments or similar governmental charges payable upon
exchange or transfer pursuant to Sections 3.7, 3.9 or 9.5).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of any Security for a period
beginning (1) 15 days before the mailing of a notice of an offer to
repurchase or redeem Securities and ending at the close of business on the
day of such mailing or (2) 15 days before an interest payment date and
ending on such interest payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for
all other purposes whatsoever, whether or not such Security is overdue,
and none of the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar shall be affected by notice to the contrary.
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(v) Any Definitive Security delivered in exchange for an interest in
a Global Security pursuant to Section 2.1(d) shall, except as otherwise
provided by Section 2.6(c), bear the applicable legend regarding transfer
restrictions applicable to the Definitive Security set forth in Section
2.1(c).
(vi) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(f) No Obligation of the Trustee. (i) The Trustee shall have no
responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in, the Depositary or other Person with respect to
the accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount or delivery of
any Securities (or other security or property) under or with respect to such
Securities. All notices and communications to be given to the Holders and all
payments to be made to Holders in respect of the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through the
Depositary subject to the applicable rules and procedures of the Depositary. The
Trustee may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants and any
beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Depositary
participants, members or beneficial owners in any Global Security) other than to
require delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
SECTION 2.7. Form of Certificate to be Delivered in Connection with
Transfers to Institutional Accredited Investors.
[Date]
United States Trust Company of New York
[ ]
[ ]
Attention: Corporate Trust Trustee Department
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33
Dear Sirs:
This certificate is delivered to request a transfer of $
principal amount of the 8 3/4% Senior Subordinated Notes due 2008 (the
"Securities") of Nebraska Book Company, Inc. (the "Company").
Upon transfer, the Securities would be registered in the name of the
new beneficial owner as follows:
Name: ___________________________________
Address: ________________________________
Taxpayer ID Number: _____________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Securities, and we are acquiring the Securities not with a view to, or for offer
or sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risk of our investment in the Securities
and we invest in or purchase securities similar to the Securities in the normal
course of our business. We and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
2. We understand that the Securities have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf of
any investor account for which we are purchasing Securities to offer, sell or
otherwise transfer such Securities prior to the date which is two years after
the later of the date of original issue and the last date on which the Company
or any affiliate of the Company was the owner of such Securities (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) in a transaction complying with the
requirements of Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is purchasing for its own account or for the account of such
an institutional "accredited investor," in each case in a minimum principal
amount of Securities of $250,000 or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing
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cases to any requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within our or
their control and in compliance with any applicable state securities laws. The
foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) and that it is acquiring such Securities
for investment purposes and not for distribution in violation of the Securities
Act. Each purchaser acknowledges that the Company and the Trustee reserve the
right prior to any offer, sale or other transfer prior to the Resale Termination
Date of the Securities pursuant to clauses (d), (e) or (f) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and the Trustee.
TRANSFEREE:_____________________
BY______________________________
SECTION 2.8. Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S.
[Date]
United States Trust Company of New York
[ ]
[ ]
Attention: Corporate Trust Trustee Department
Re: Nebraska Book Company, Inc.
8 3/4% Senior Subordinated Notes due 2008 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(a) the offer of the Securities was not made to a person in the
United States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States or (ii) the transaction was
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35
executed in, on or through the facilities of a designated off-shore
securities market and neither we nor any person acting on our behalf knows
that the transaction has been pre-arranged with a buyer in the United
States;
(c) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________
-------------------------------
Authorized Signature Signature Medallion Guaranteed
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities. If a
mutilated Security is surrendered to the Registrar or if the Holder of a
Security claims that the Security has been lost, destroyed or wrongfully taken,
the Company shall issue and the Trustee shall authenticate a replacement
Security if the requirements of Section 8-405 of the Uniform Commercial Code are
met and the Holder satisfies any other reasonable requirements of the Trustee.
If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a Security is
replaced, then, in the absence of notice to the Company, any Subsidiary
Guarantor or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
<PAGE> 42
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In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, any Subsidiary Guarantor (if
applicable) and any other obligor upon the Securities, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.10. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security ceases to be outstanding in the event the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.9, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.11. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
Definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Securities. After
the preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at any office or agency maintained by the Company for that purpose
and such exchange shall be
<PAGE> 43
37
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute, and the Trustee shall
authenticate and make available for delivery in exchange therefor, one or more
Definitive Securities representing an equal principal amount of Securities.
Until so exchanged, the Holder of temporary Securities shall in all respects be
entitled to the same benefits under this Indenture as a holder of Definitive
Securities.
SECTION 2.12. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
return to the Company all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such destruction
to the Company. The Company may not issue new Securities to replace Securities
it has paid or delivered to the Trustee for cancellation.
SECTION 2.13. Payment of Interest; Defaulted Interest. Interest on
any Security which is payable, and is punctually paid or duly provided for, on
any interest payment date shall be paid to the Person in whose name such
Security (or one or more predecessor Securities) is registered at the close of
business on the regular record date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 2.3.
Any interest on any Security which is payable, but is not paid when
the same becomes due and payable and such nonpayment continues for a period of
30 days shall forthwith cease to be payable to the Holder on the regular record
date by virtue of having been such Holder, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by the
Securities (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") shall be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date (as defined below) for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Interest Payment Date"), and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a record date (the "Special Record Date") for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the Special Interest Payment Date and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee
<PAGE> 44
38
shall promptly notify the Company of such Special Record Date, and in the
name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date and Special
Interest Payment Date therefor to be given in the manner provided for in
Section 11.2, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date and Special Interest Payment Date therefor having been so
given, such Defaulted Interest shall be paid on the Special Interest
Payment Date to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.14. Computation of Interest. Interest on the Securities
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2.15. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such CUSIP
numbers.
ARTICLE III
Covenants
SECTION 3.1. Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying
<PAGE> 45
39
Agent, as the case may be, is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 3.2. SEC Reports and Available Information. Notwithstanding
that the Company may not be subject to the reporting requirements of Section
13(a) or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act,
the Company will file with the SEC, and provide, within 15 days after the
Company is or would be required to file the same with the SEC, the Trustee and
the holders of Securities with the annual reports and the information, documents
and other reports (or copies of such portions of any of the foregoing as the SEC
may, by rules and regulations prescribe), that are specified in Sections 13 and
15(d) of the Exchange Act. In the event that the Company is not permitted to
file such reports, documents and information with the SEC pursuant to the
Exchange Act, the Company will nevertheless deliver such Exchange Act
information to the Trustee and the holders of the Securities as if the Company
were subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. In addition, for so long as any of the Securities remain
outstanding the Company shall make available to any prospective purchaser of the
Securities or beneficial owner of the Securities in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act.
The Company shall also comply with the other provisions of TIA ss. 314(a).
SECTION 3.3. Limitation on Indebtedness. (a) The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness; provided, however, that the Company and its Restricted
Subsidiaries may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.00
to 1.00, if such Indebtedness is Incurred on or prior to the second anniversary
of the Issue Date and (ii) 2.25 to 1.00, if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a) the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to the Credit Agreement; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $120 million at any time outstanding, less the aggregate principal
amount of all scheduled repayments of principal thereof and all mandatory
prepayments of principal thereof applied to permanently reduce the outstanding
Indebtedness and commitments thereunder; (ii) the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness
of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness
of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned
Subsidiary; provided,
<PAGE> 46
40
however, that any subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly-Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (x) the Securities, (y) any Indebtedness (other
than the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on
the Issue Date and (z) any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iv) or clause (v) or Incurred pursuant to
paragraph (a) above; (v) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred to provide all or any portion of the
funds utilized to consummate the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary or was
otherwise acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a) above
after giving effect to the Incurrence of such Indebtedness pursuant to this
clause (v); (vi) Indebtedness under (a) Interest Rate Agreements entered into in
connection with the Credit Agreement and (b) other Interest Rate Agreements;
provided, however, that such other Interest Rate Agreements are entered into for
bona fide hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors or senior management of the
Company) and correspond in terms of notional amount, duration, currencies and
interest rates, as applicable, to Indebtedness of the Company or its Restricted
Subsidiaries Incurred without violation of this Indenture; (vii) Purchase Money
Indebtedness of the Company or any Subsidiary Guarantor incurred on or after the
Issue Date, provided, that (i) the aggregate principal amount of such
Indebtedness incurred on or after the Issue Date and outstanding at any time
pursuant to this clause (vii) (including any Indebtedness issued to refinance,
replace, renew, repay, extend or refund such Indebtedness) shall not exceed $5
million, and (ii) in each case, such Indebtedness as originally incurred shall
not constitute more than 100% of the cost (determined in accordance with GAAP)
to the Company or such Subsidiary Guarantor, as applicable, of the property so
purchased or leased and (viii) Indebtedness (in addition to Indebtedness
described in clauses (i) - (vii)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness Incurred pursuant
to this clause (viii) and then outstanding, will not exceed $10 million (which
may be Indebtedness incurred under the Credit Agreement).
(c) Neither the Company nor any Restricted Subsidiary shall Incur
any Indebtedness under paragraph (b) of this Section 3.3 if the proceeds thereof
are used, directly or indirectly, to refinance any Subordinated Obligations of
the Company unless such Indebtedness shall be subordinated to the Securities to
at least the same extent as such Subordinated Obligations. No Subsidiary
Guarantor shall incur any Indebtedness under paragraph (b) of this Section 3.3
if the proceeds thereof are used, directly or indirectly to refinance any
Guarantor Subordinated Obligations of such Subsidiary Guarantor unless such
Indebtedness shall be subordinated to the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee to at least the same extent as such
Guarantor Subordinated Indebtedness.
<PAGE> 47
41
(d) In the event that Indebtedness meets the criteria of more than
one of the types of Indebtedness described in paragraph (b) of this Section 3.3,
the Company, in its sole discretion, shall classify such item of Indebtedness
and only be required to include the amount and type of such Indebtedness in one
of such clauses.
SECTION 3.4. Limitation on Layering. The Company shall not Incur any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to Senior Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any
Indebtedness if such Indebtedness is contractually subordinate or junior in
ranking in any respect to any Guarantor Senior Indebtedness of such Subsidiary
Guarantor unless such Indebtedness is Guarantor Senior Subordinated Indebtedness
of such Subsidiary Guarantor or is contractually subordinated in right of
payment to Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor.
SECTION 3.5. Limitation on Restricted Payments. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to (i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company or any of its Restricted
Subsidiaries) except (A) dividends or distributions payable in its Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock and (B) dividends or distributions payable to the
Company or a Restricted Subsidiary of the Company (and if such Restricted
Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital
Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company held by Persons other than a
Restricted Subsidiary of the Company or any Capital Stock of a Restricted
Subsidiary of the Company held by any Affiliate of the Company, other than
another Restricted Subsidiary (in either case, other than in exchange for its
Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to in clauses (i)
through (iv) as a "Restricted Payment"), if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) the Company shall
not be able to incur an additional $1.00 of Indebtedness pursuant to paragraph
(a) under Section 3.3 of this Indenture; or (3) the aggregate amount of such
Restricted Payments and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the first day of the quarter in which the Issue Date occurs to the
end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available (or, in case such
<PAGE> 48
42
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of the Company or an employee
stock ownership plan or similar trust to the extent such sale to an employee
stock ownership plan or similar trust is financed by loans from or guaranteed by
the Company or any Restricted Subsidiary unless such loans have been repaid with
cash on or prior to the date of determination); (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (D) the
amount equal to the net reduction in Investments made by the Company or any of
its Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the sale
of such Investment to an unaffiliated purchaser, repayments of loans or advances
or other transfers of assets (including by way of dividend or distribution) by
such Person to the Company or any Restricted Subsidiary of the Company or (ii)
the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included under
this clause (D) to the extent it is already included in Consolidated Net Income
and (E) until December 31, 1999, $1 million (reduced on a dollar for dollar
basis by the sum of the amounts described in (A), (B), (C) and (D)). For
purposes of this covenant, the amount of any Restricted Payments, if other than
in cash, shall be determined in good faith by the Board of Directors as
evidenced by a certificate filed with the Trustee, except that in the event the
value of any non-cash consideration shall be $5 million or more, the value shall
be as determined in writing by an Independent Appraiser.
(b) The provisions of paragraph (a) of this Section 3.5 shall not
prohibit: (i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or similar trust to the extent such sale to
an employee stock ownership plan or similar trust is financed by loans from or
guaranteed by the Company or any Restricted Subsidiary unless such loans have
been repaid with cash on or prior to the date of determination); provided,
however, that (A) such purchase or redemption shall be excluded in subsequent
calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any
purchase or redemption of Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company; provided, however, that such purchase
or redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available
<PAGE> 49
43
Cash to the extent permitted under Section 3.7 of this Indenture; provided,
however, that such purchase or redemption shall be excluded in subsequent
calculations of the amount of Restricted Payments; (iv) dividends paid within 60
days after the date of declaration if at such date of declaration such dividend
would have complied with this provision; provided, however, that such dividends
shall be included in subsequent calculations of the amount of Restricted
Payments; (v) cash dividends to Holdings for the purpose of, and in amounts
equal to, amounts required to permit Holdings (A) to redeem or repurchase
Capital Stock of Holdings from existing or former employees or management of the
Company or any Subsidiary or their assigns, estates or heirs, in each case in
connection with the repurchase provisions under employee stock option or stock
purchase agreements or other agreements to compensate management employees;
provided that such redemption or repurchases pursuant to this clause shall not
exceed $2 million in the aggregate; provided, however, that such dividends shall
be included in the calculation of the amount of Restricted Payments, and (B) to
make loans or advances to employees or directors of the Company or any
Subsidiary the proceeds of which are used to purchase Capital Stock of Holdings,
in an aggregate amount not in excess of $1 million at any one time outstanding;
provided, however, that such dividends shall be included in the calculation of
the amount of Restricted Payments; (vi) cash dividends to Holdings in amounts
equal to (A) the amounts required for Holdings to pay any Federal, state or
local income taxes to the extent that such income taxes are attributable to the
income of the Company and its Subsidiaries, (B) the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its legal
existence, (C) an amount not to exceed $500,000 in any fiscal year to permit
Holdings to pay its corporate overhead expenses incurred in the ordinary course
of business, and to pay salaries or other compensation of employees who perform
services for both Holdings and the Company, (D) so long as no Default or Event
of Default shall have occurred and be continuing, an amount not to exceed
$100,000 in the aggregate, to enable Holdings to make payments to holders of its
Capital Stock in lieu of issuance of fractional shares of its Capital Stock and
(E) the fees payable by Holdings in connection with the Recapitalization;
provided, however, that such dividends shall be excluded from the calculation of
the amount of Restricted Payments; (vii) repurchases of Capital Stock deemed to
occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof; provided, however, that such repurchases
shall be excluded from the calculation of the amount of Restricted Payments; and
(viii) so long as (A) no Default or Event of Default has occurred and is
continuing and (B) immediately before and immediately after giving effect
thereto, the Company would have been permitted to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) under Section 3.3 of this
Indenture, from and after February 15, 2003, payments of cash dividends to
Holdings in an amount sufficient to enable Holdings to make payments of interest
required to be made in respect of the Holdings Senior Discount Debentures in
accordance the terms thereof in effect on the date of this Indenture, provided
such interest payments are made with the proceeds of such dividends; provided,
however, that such payments shall be excluded from the calculation of the amount
of Restricted Payments.
SECTION 3.6. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or
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consensual restriction on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligations owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the date of this Indenture (including, without
limitation, the Credit Agreement); (b) any encumbrance or restriction imposed by
Indebtedness incurred under the Credit Agreement in accordance with this
Indenture, provided, however that such encumbrance or restriction is not
materially more restrictive than that imposed by the Credit Agreement as of the
Issue Date; (c) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date; (d) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (a), (b) or (c) of this covenant or this clause (d) or contained in any
amendment to an agreement referred to in clause (a) (b) or (c) of this covenant
or this clause (d); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such agreement or
amendment are not materially more restrictive than encumbrances and restrictions
contained in such agreements; (e) in the case of clause (iii) above, any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or the assignment or transfer of any such
lease, license or other contract, (B) by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by this
Indenture (including any Permitted Lien), (C) contained in mortgages, pledges or
other security agreements securing Indebtedness of a Restricted Subsidiary to
the extent such encumbrance or restrictions restrict the transfer of the
property subject to such mortgages, pledges or other security agreements or (D)
pursuant to customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Company or any
Restricted Subsidiary; (f) any restriction with respect to a Restricted
Subsidiary (or any of its property or assets) imposed pursuant to an agreement
entered into for the direct or indirect sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary (or
the property or assets that are subject to such restriction) pending the closing
of such sale or disposition; (g) encumbrances or restrictions arising or
existing by reason of applicable law; and (h) restrictions on transfer contained
in Purchase Money Indebtedness incurred pursuant to paragraph (b)(vii) of
Section 3.3 of this Indenture, provided such restrictions relate only to the
transfer of the property acquired with the proceeds of such Purchase Money
Indebtedness.
SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock. (a)
The Company shall not, and shall not permit any of its Restricted Subsidiaries
to, make any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in
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good faith by the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company or any Restricted Subsidiary, as the case may
be, elects (or is required by the terms of any Senior Indebtedness), to prepay,
repay or purchase Senior Indebtedness or Indebtedness (other than any Preferred
Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) within 180 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at the Company's election to the
investment in Additional Assets within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (C) third, to
the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase (an "Offer")
the Securities and other pari passu debt obligations subject to a similar
covenant (collectively, the "pari passu debt obligations" at par plus accrued
and unpaid interest, if any, thereon; and (D) fourth, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), for other general corporate purposes not prohibited by this
Indenture; provided, however, that, in connection with any prepayment, repayment
or purchase of Indebtedness pursuant to clause (A) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant exceed $500,000. The Company shall not
be required to make an Offer for the Securities and for the pari passu debt
obligations pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and (B))
are less than $5 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(b) If the aggregate principal amount (or accreted value, as
applicable) of Securities and pari passu debt obligations validly tendered and
not withdrawn in connection with an Offer pursuant to clause (C) above exceeds
the funds available therefor ("Offer Proceeds"), the Offer Proceeds will be
apportioned between the Securities and such pari passu debt obligations, with
the portion of the Offer Proceeds payable in respect of the Securities equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Securities and the
denominator of which is the sum of the outstanding principal amount of the
Securities and the outstanding principal amount (or accreted value, as
applicable) of the relevant pari passu debt obligations, and (ii) the aggregate
principal amount of Securities validly tendered and not withdrawn.
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(c) For the purposes of this Section 3.7, following will be deemed
to be cash: (x) the assumption by the transferee of Senior Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on such
Senior Indebtedness or Indebtedness in connection with such Asset Disposition
(in which case the Company shall, without further action, be deemed to have
applied such assumed Indebtedness in accordance with clause (A) of the preceding
paragraph) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(d) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (a)(iii)(C) of this Section 3.7, the Company
will be required to purchase Securities tendered pursuant to an Offer made by
the Company for the Securities promptly, and in any event within 10 days after
the Company is required to make an Offer, at a purchase price of 100% of their
principal amount plus accrued and unpaid interest, if any, to the purchase date
in accordance with the procedures (including prorating in the event of
oversubscription) set forth below. If the aggregate purchase price of the pari
passu debt obligations tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the pari passu debt obligations, the
Company will apply the remaining Net Available Cash in accordance with clause
(a)(iii)(D) above.
(e) (1) Promptly, and in any event within 10 days after the Company
is required to make an Offer, the Company will deliver to the Trustee and send,
by first-class mail to each Holder, a written notice stating that the Holder may
elect to have his Securities purchased by the Company either in whole or in part
(subject to prorating as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date").
(2) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, the Company will deliver to
the Trustee an Officers' Certificate setting forth (i) the amount of the Offer
(the "Offer Amount"), (ii) the allocation of the Net Available Cash from the
Asset Dispositions as a result of which such Offer is being made and (iii) the
compliance of such allocation with the provisions of Section 3.7(a). Upon the
expiration of the period (the "Offer Period") for which the Offer remains open,
the Company shall deliver to the Trustee for cancellation the Securities or
portions thereof which have been properly tendered to and are to be accepted by
the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to
each tendering Holder in the amount of the purchase price of the Securities
tendered by such Holder to the extent such funds are available to the Trustee.
(3) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice prior to the expiration of the
Offer Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one
<PAGE> 53
47
Business Day prior to the expiration of the Offer Period, a facsimile
transmission or overnight mail from such Holder setting forth the name of such
Holder, the principal amount of the Security or Securities which were delivered
for purchase by such Holder and a statement that such Holder is withdrawing his
election to have such Security or Securities purchased. If at the expiration of
the Offer Period the aggregate principal amount of Securities surrendered by
Holders exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(f) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 3.7, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 3.8. Limitation on Affiliate Transactions. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the members of such Board having no personal stake
in such transaction, if any (and such majority or majorities, as the case may
be, determines that such Affiliate Transaction satisfies the criteria in (i)
above); and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million, the Company has received a written opinion from
an independent investment banking firm of nationally recognized standing that
such Affiliate Transaction is not materially less favorable than those that
might reasonably have been obtained in a comparable transaction at such time on
an arms-length basis from a Person that is not an Affiliate.
(b) The foregoing paragraph (a) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to Section 3.5 of this
Indenture, (ii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors of the Company, (iii) loans or advances to employees in the ordinary
course of business of the Company or any of its Restricted Subsidiaries, (iv)
the fees payable by the Company in connection with the Recapitalization, or (v)
any transaction between the Company and a Wholly-Owned Subsidiary or between
Wholly-Owned Subsidiaries.
<PAGE> 54
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SECTION 3.9. Change of Control. Upon the occurrence of any of the
following events (each a "Change of Control"), each holder will have the right
to require the Company to repurchase all or any part of such holder's Securities
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date) (the "Change of Control Payment"):
(i) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company or Holdings (or its
successor by merger, consolidation or purchase of all or substantially all
of its assets) (for the purposes of this clause, such person shall be
deemed to beneficially own any Voting Stock of the Company or Holdings
held by a parent corporation, if such person "beneficially owns" (as
defined above), directly or indirectly, more than 35% of the voting power
of the Voting Stock of such parent corporation); and (B) the Permitted
Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
(or its successor by merger, consolidation or purchase of all or
substantially all of its assets) than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the Company
or such successor (for the purposes of this clause, such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person
"beneficially owns" (as defined in clause (A) above), directly or
indirectly, more than 35% of the voting power of the Voting Stock of such
parent corporation and the Permitted Holders "beneficially own" (as
defined in this clause (B)), directly or indirectly, in the aggregate a
lesser percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company or Holdings (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of the Company or Holdings, as the case may be, was approved
by a vote of at least a majority of the directors of the Company or
Holdings then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved or is a designee of the Permitted Holders or was nominated or
elected by such Permitted Holders or any of their designees) cease for any
reason to constitute a majority of the Board of Directors of the Company
or Holdings then in office; or
<PAGE> 55
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(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole to any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
other than a Permitted Holder; or
(iv) the adoption by the stockholders of a plan for the liquidation
or dissolution of the Company.
Within 30 days following any Change of Control, unless the Company
has mailed a redemption notice with respect to all the outstanding Securities,
the Company shall mail a notice to each holder with a copy to the Trustee
stating: (i) that a Change of Control has occurred and that such holder has the
right to require the Company pursuant to this Section 3.9 to purchase such
holder's Securities (the "Change of Control Offer") at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on a
record date to receive interest on the relevant interest payment date); (ii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); (iii) that any Security not tendered shall
continue to accrue interest, if any; (iv) that, unless the Company defaults in
the payment of principal or interest, all Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest, if any,
after the Change of Control Payment Date; (v) that holders electing to have any
Securities purchased pursuant to a Change of Control Offer shall be required to
surrender the Securities to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day preceding the
date of purchase for the Change of Control Payment Date; (vi) that holders shall
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of Securities
delivered for purchase, and a statement that such holder is withdrawing his
election to have the Securities purchased; and (vii) that holders whose
Securities are being purchased only in part shall be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
On a Business Day that is no earlier than 30 days nor later than 60
days from the date that the Company mails or causes to be mailed notice of the
Change of Control to the holders (the "Change of Control Payment Date"), the
Company shall, to the extent lawful, (i) accept for payment all Securities or
portions thereof properly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all the Securities or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount of
such Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to each Holder of the Securities so tendered the
Change of Control Payment for such Securities, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book
<PAGE> 56
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entry) to each Holder a new Security equal in principal amount to any
unpurchased portion of the Securities surrendered, if any; provided that each
such new Security shall be in a principal amount of $1,000 or an integral
multiple thereof. The Company shall publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Company will not be required to make a Change of Control Offer
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in this Section 3.9
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 3.9. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in this Indenture by virtue thereof.
SECTION 3.10. Limitation on Capital Stock of Restricted
Subsidiaries. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (other than in
connection with foreclosure or the exercise of remedies) except: (i) to the
Company or a Wholly-Owned Subsidiary; or (ii) in compliance with Section 3.7 of
this Indenture if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would continue to constitute a Restricted Subsidiary.
Notwithstanding the foregoing, the Company is permitted to sell all the Capital
Stock of a Subsidiary as long as the Company is in compliance with the terms of
Section 3.7 of this Indenture.
SECTION 3.11. Limitation on Liens. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur or suffer to exist any Lien (other than Permitted Liens and Liens
securing Senior Indebtedness and Guarantees of Senior Indebtedness) upon any of
its property or assets (including Capital Stock), whether owned on the date of
this Indenture or thereafter acquired, securing any Indebtedness, unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under this Indenture and the Securities or, in respect of Liens
on any Restricted Subsidiary's property or assets, any Subsidiary Guarantee of
such Restricted Subsidiary, equally and ratably with (or prior to in the case of
Liens with respect to Subordinated Obligations) the Indebtedness secured by such
Lien for so long as such Indebtedness is so secured; provided that, in the case
of Indebtedness of a Subsidiary Guarantor, if such Subsidiary Guarantor shall
cease to be a Subsidiary Guarantor in accordance with the provisions of this
Indenture, such equal and ratable lien to secure the Securities shall, without
any further action, cease to exist.
SECTION 3.12. Future Subsidiary Guarantors. After the Issue Date,
the Company will cause each Restricted Subsidiary created or acquired by the
Company to
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51
execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such
Subsidiary Guarantor will unconditionally Guarantee, on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on the Securities on a senior subordinated basis. The obligations of
each Restricted Subsidiary under its Subsidiary Guarantee will be subordinated
to the Guarantor Senior Indebtedness of such Restricted Subsidiary on
substantially the same terms as the Securities are subordinated to the Senior
Indebtedness.
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
Guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under this
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell its assets to the Company or another Subsidiary Guarantor
without limitation. Each Subsidiary Guarantor will be permitted to consolidate
with or merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than the Company or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale
or disposition is otherwise in compliance with this Indenture (including Section
3.7), such Subsidiary Guarantor shall be deemed released from all its
obligations under this Indenture and its Subsidiary Guarantee and such
Subsidiary Guarantee shall terminate; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any other
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
SECTION 3.13. Limitation on Lines of Business. The Company will not,
and will not permit any Restricted Subsidiary to, engage in any business other
than a Related Business.
SECTION 3.14. Limitation on Sale/Leaseback Transactions. The Company
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any Sale/Leaseback Transaction unless (i) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Sale/Leaseback Transaction at least equal to the fair market value (as evidenced
by a resolution of the Board of Directors delivered to the Trustee) of the
property subject to such transaction; (ii) the Company or such Restricted
Subsidiary with respect thereto could have Incurred Indebtedness in an amount
equal to the Attributable Indebtedness in respect of such Sale/Leaseback
Transaction pursuant to
<PAGE> 58
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Section 3.3 of this Indenture; (iii) the Company or such Restricted Subsidiary
would be permitted to create a Lien on the property subject to such
Sale/Leaseback Transaction without securing the Securities by the covenant
described under Section 3.11 of this Indenture; and (iv) the Sale/Leaseback
Transaction is treated as an Asset Disposition and all of the conditions of this
Indenture described under Section 3.7 of this Indenture (including the
provisions concerning the application of Net Available Cash) are satisfied with
respect to such Sale/Leaseback Transaction, treating all of the consideration
received in such Sale/Leaseback Transaction as Net Available Cash for purposes
of such covenant.
SECTION 3.15. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or
agency where the Securities may be presented or surrendered for payment, where,
if applicable, the Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The corporate trust office of the
Trustee shall be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 3.16. Corporate Existence.
Subject to Article IV, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence (except the Company), right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, disadvantageous in any material respect to the Holders.
SECTION 3.17. Payment of Taxes and Other Claims.
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53
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (ii)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material liability or lien upon the property of the Company or any
Restricted Subsidiary; provided, however, that the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which appropriate reserves, if
necessary (in the good faith judgment of management of the Company), are being
maintained in accordance with GAAP or where the failure to effect such payment
will not be disadvantageous to the Holders.
SECTION 3.18. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default or Event of Default and whether or not the signers know
of any Default or Event of Default that occurred during such period. If they do,
the certificate shall describe the Default or Event of Default, its status and
what action the Company is taking or proposes to take with respect thereto. The
Company also shall comply with TIA ss. 314(a)(4).
SECTION 3.19. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE IV
Successor Company
SECTION 4.1. Merger and Consolidation. The Company shall not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited liability
company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Company under the Securities and
this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary
<PAGE> 60
54
of the Successor Company as a result of such transaction as having been
incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default or Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of Section 3.3 of this Indenture;
and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture, but, in
the case of a lease of all or substantially all its assets, the Company will not
be released from the obligation to pay the principal of and interest on the
Securities. Solely for the purpose of computing amounts described in clause 3(A)
of Section 3.5(a), the Successor Company shall only be deemed to have succeeded
and be substituted for the Company with respect to periods subsequent to the
effective time of such merger, consolidation, combination or transfer of assets.
Notwithstanding clauses (ii) and (iii) of the first sentence of this
Section 4.1: (i) any Restricted Subsidiary of the Company may consolidate with,
merge into or transfer all or part of its properties and assets to the Company
and (ii) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction to realize tax or
other benefits.
ARTICLE V
Redemption of Securities
SECTION 5.1. Optional Redemption. The Securities may or shall, as
the case may be, be redeemed, as a whole or from time to time in part, subject
to the conditions and at the Redemption Prices specified in the form of
Securities set forth in Exhibits A and B hereto, which are hereby incorporated
by reference and made a part of this Indenture, together with accrued and unpaid
interest to the redemption date.
SECTION 5.2. Applicability of Article. Redemption of Securities at
the election of the Company or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision and
this Article.
SECTION 5.3. Election to Redeem; Notice to Trustee. The election of
the Company to redeem any Securities pursuant to Section 5.1 shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company,
the Company shall, upon not less than 30 and not more than 60 days prior to the
Redemption Date fixed by the
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Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 5.4.
SECTION 5.4. Selection by Trustee of Securities to Be Redeemed. If
less than all the Securities are to be redeemed at any time pursuant to an
optional redemption, the particular Securities to be redeemed shall be selected
not more than 90 days prior to the Redemption Date by the Trustee, from the
outstanding Securities not previously called for redemption, in compliance with
the requirements of the principal securities exchange, if any, on which such
Securities are listed, or, if such Securities are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee shall deem fair and
appropriate (and in such manner as complies with applicable legal requirements)
and which may provide for the selection for redemption of portions of the
principal of the Securities; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of a Security not redeemed to
less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 5.5. Notice of Redemption. Notice of redemption shall be
given in the manner provided for in Section 11.2 not less than 30 nor more than
60 days prior to the Redemption Date, to each Holder of Notes to be redeemed.
The Trustee shall give notice of redemption in the Company's name and at the
Company's expense; provided, however, that the Company shall deliver to the
Trustee, at least 45 days prior to the Redemption Date, an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 5.7, if any,
(3) if less than all outstanding Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
Outstanding after such partial redemption,
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(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will receive,
without charge, a new Security or Securities of authorized denominations
for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
5.7) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Securities called for redemption (or
the portion thereof) will cease to accrue on and after said date,
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any,
(7) the name and address of the Paying Agent,
(8) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price,
(9) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Securities, and
(10) the paragraph of the Securities pursuant to which the
Securities are to be redeemed.
SECTION 5.6. Deposit of Redemption Price. Prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 2.4) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 5.7. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified (together with accrued interest, if any, to the Redemption Date), and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Company at the Redemption Price,
together with accrued interest, if any, to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Regular Record Date or
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Special Record Date, as the case may be, according to their terms and the
provisions of Section 2.13.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 5.8. Securities Redeemed in Part.
Any Security which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 3.15 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Security at the expense of the Company, a new Security or
Securities, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered, provided, that each such new
Security will be in a principal amount of $1,000 or integral multiple thereof.
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall
be prohibited by Article X of this Indenture, and such default continues
for a period of 30 days;
(2) the Company defaults in the payment of the principal or premium,
if any, of any Security when the same becomes due and payable at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment shall be prohibited
by Article X of this Indenture;
(3) the Company fails to comply with Article IV of this Indenture;
(4) the Company fails to comply with Section 3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, and 3.17 (in
each case other than a failure to repurchase Securities when required
pursuant to Sections 3.7 or 3.9 of this Indenture, which failure shall
constitute an Event of Default under Section 6.1(2)) of this Indenture and
such failure continues for 30 days after the notice specified below;
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(5) the Company defaults in the performance of or a breach by the
Company of any other covenant or agreement in this Indenture or under the
Securities (other than those referred to in (1), (2), (3) or (4) above)
and such default continues for 60 days after the notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof and the total amount of such unpaid or
accelerated Indebtedness exceeds $10.0 million or its foreign currency
equivalent at the time;
(7) the Company or a Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law (as defined below):
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian (as defined
below) of it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10.0 million or its foreign currency equivalent at the time is rendered
against the Company or a Significant Subsidiary if such judgment or decree
remains undischarged or unstayed for a period of 60 days following such
judgment or decree becomes final and non-appealable; or
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(10) the failure of any Subsidiary Guarantee by a Subsidiary
Guarantor (if any) to be in full force and effect (except as contemplated
by the terms thereof) or the denial or disaffirmation by any such
Subsidiary Guarantor of its obligations under any Subsidiary Guarantee.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under clause (4) or (5) of
this Section 6.1 will not constitute an Event of Default until the Trustee or
the Holders of more than 25% in principal amount of the outstanding Securities
notify the Company of the Default and the Company does not cure such Default
within the time specified in said clause (4) or (5) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Default or Event of Default under clauses (3), (4), (5), (6), (9) or (10) of
this Section 6.1.
SECTION 6.2. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.1(7) or (8) with respect to the Company
or a Significant Subsidiary) occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in outstanding principal amount of
the Securities by notice to the Company and the Trustee, may, and the Trustee at
the request of such Holders shall, declare the principal of, premium, if any,
and accrued but unpaid interest on all the Securities to be due and payable.
Upon such a declaration, such principal, premium and interest shall, subject to
Section 10.4 of this Indenture, be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in Section
6.1(6) above has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of default or payment
default triggering such Event of Default pursuant to Section 6.1(6) shall be
remedied or cured by the Company and/or the relevant Significant Subsidiaries or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in Section 6.1(7) or (8) with respect to the Company occurs, the
principal of, premium and accrued and unpaid interest on all the Securities will
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive all past
defaults (except with respect to nonpayment of principal, premium or interest)
and rescind an acceleration with respect to the Securities and its consequences
if (i) the rescission would not
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conflict with any judgment or decree of a court of competent jurisdiction and
(ii) all existing Events of Default, other than the nonpayment of principal or
interest that has become due solely because of such acceleration, have been
cured or waived. No such rescission shall affect any subsequent Default or Event
of Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default or Event of Default and its consequences except (i) a Default
or Event of Default in the payment of the principal of or interest on a Security
or (ii) a Default or Event of Default in respect of a provision that under
Section 9.2 cannot be amended without the consent of each Securityholder
affected. When a Default or Event of Default is waived, it is deemed cured, but
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Sections 7.1 and 7.2, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in outstanding principal amount of
the Securities make a request to the Trustee to pursue the remedy;
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(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Securities are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of, premium (if any) or interest on the Securities held by
such Holder, on or after the respective due dates expressed in the Securities,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its Subsidiaries or
their respective creditors or properties and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
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FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to holders of Senior Indebtedness to the extent required by
Article X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by the Company, a suit by a Holder pursuant to Section 6.7 or a
suit by Holders of more than 10% in outstanding principal amount of the
Securities.
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the
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requirements of this Indenture. However, in the case of any such
certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(i) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(j) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
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SECTION 7.2. Rights of Trustee. Subject to Section 7.1, (a) The
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on an
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if a Trust Officer has actual knowledge thereof,
the Trustee shall mail to each Securityholder notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or Event
of Default in payment of principal of, premium (if any), or interest on any
Security (including payments pursuant to the optional redemption or required
repurchase provisions of such Security, if any), the Trustee may withhold the
notice if and so long as its board of directors, a committee of its board of
directors or a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders.
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SECTION 7.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall also transmit by mail all reports required by TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, costs of
preparing and reviewing reports, certificates and other documents, costs of
preparation and mailing of notices to Securityholders and reasonable costs of
counsel retained by the Trustee in connection with the delivery of an Opinion of
Counsel or otherwise, in addition to the compensation for its services. Such
expenses shall include the reasonable compensation and expenses, disbursements
and advances of the Trustee's agents, counsel, accountants and experts. The
Company shall indemnify the Trustee against any and all loss, liability or
expense (including reasonable attorneys' fees and expenses) incurred by it
without negligence or bad faith on its part in connection with the
administration of this trust and the performance of its duties hereunder,
including the costs and expenses of enforcing this Indenture (including this
Section 7.7) and of defending itself against any claims (whether asserted by any
Securityholder, the Company or otherwise). The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel provided
that the Company shall not be required to pay such fees and expenses if it
assumes the Trustee's defense, and, in the reasonable judgement of outside
counsel to the Trustee, there is no conflict of interest between the Company and
the Trustee in connection with such defense. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities. The Trustee's right to
receive payment of any amounts due under this Section 7.7 shall not be
subordinate to any other liability or indebtedness of the Company.
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The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of the Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
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SECTION 7.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.9) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.9), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
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(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 3.2, 3.3,
3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17,
and 4.1(iii) and the Company may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.1(3) and
6.1(4) ("covenant defeasance option"), but except as specified above, the
remainder of this Indenture and the Securities shall be unaffected thereby. The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its
covenant defeasance option, the Company may, by written notice to the Trustee
prior to the delivery of the Opinion of Counsel referred to in Section 8.2(8),
elect to have any Subsidiary Guarantees in effect at such time terminate.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default and the
Subsidiary Guarantees in effect at such time shall terminate. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.1(4), 6.1(6),
6.1(7) (but only with respect to a Significant Subsidiary), 6.1(9) (but only
with respect to a Significant Subsidiary), 6.1(9) and 6.1(10) or because of the
failure of the Company to comply with Sections 4.1(iii).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 8.1(a) and (b), the
Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 7.7, 7.8, 8.4,
8.5 and 8.6 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5 shall
survive.
SECTION 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee for
the benefit of the Holders money in U.S. dollars or U.S. Government
Obligations or a combination thereof for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide
<PAGE> 75
69
cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Securities to maturity;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default with respect to the Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the
Securities concurrently with such incurrence);
(4) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a Default under this Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (A) the Securities and (B) assuming no
intervening bankruptcy of the Company between the date of deposit and the
91st day following the deposit and that no Holder of the Securities is an
insider of the Company, after 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' right
generally;
(6) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(7) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(8) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such legal defeasance had
not occurred;
(9) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
to the effect that the Securityholders will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and
(10) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and
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discharge of the Securities and this Indenture as contemplated by this
Article VIII have been complied with.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article X.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal of or interest on the Securities that remains
unclaimed for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors.
SECTION 8.5. Indemnity for U.S. Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the obligations of the Company under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article VIII until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article VIII; provided, however, that, if
the Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article IV in respect of the assumption by a
Successor Company of an obligation of the Company under this Indenture;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities or to secure
the Securities;
(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to provide for the issuance of the Exchange Securities, which
will have terms substantially identical in all material respects to the
Initial Securities (except that the transfer restrictions contained in the
Initial Securities will be modified or eliminated, as appropriate), and
which will be treated, together with any outstanding Initial Securities,
as a single issue of securities.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
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72
SECTION 9.2. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may or shall be
redeemed or repurchased in accordance with this Indenture;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Securities on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Securities;
(7) make any change to the amendment provisions which require each
Holder's consent or to the waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article X or any Subsidiary Guarantee of any
holder of Senior Indebtedness or Guarantor Senior Indebtedness then outstanding
unless the holders of such Senior Indebtedness or Guarantor Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
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73
SECTION 9.4. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder. An
amendment or waiver shall become effective upon receipt by the Trustee of the
requisite number of written consents under Section 9.1 or 9.2 as applicable.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall become
valid or effective more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Sections 7.1 and 7.2) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such amendment is authorized or permitted by this Indenture.
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ARTICLE X
Subordination
SECTION 10.1. Agreement To Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities and other obligations relating to the Securities are
subordinated in right of payment, to the extent and in the manner provided in
this Article X, to the prior payment when due in cash or Cash Equivalents of all
Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness. The Securities shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of the
Company and only Indebtedness of the Company which is Senior Indebtedness will
rank senior to the Securities in accordance with the provisions set forth
herein. All provisions of this Article X shall be subject to Section 10.12.
SECTION 10.2. Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets or securities of the Company upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its respective properties:
(1) holders of Senior Indebtedness of the Company shall be entitled
to receive payment in full in cash or Cash Equivalents of the Senior
Indebtedness (including interest accruing after, or which would accrue but
for, the commencement of any proceeding at the rate specified in the
applicable Senior Indebtedness, whether or not a claim for such interest
would be allowed) before Securityholders shall be entitled to receive any
payment of principal of or interest on or other amounts with respect to
the Securities; and
(2) until the Senior Indebtedness is paid in full in cash or Cash
Equivalents, any payment or distribution to which Securityholders would be
entitled but for this Article X shall be made to holders of Senior
Indebtedness as their respective interests may appear.
SECTION 10.3. Default on Senior Indebtedness. The Company shall not
pay the principal of, premium (if any) or interest on or other amounts with
respect to the Securities or make any deposit pursuant to Section 8.1 or
repurchase, redeem or otherwise retire any Securities ("pay the Securities") if
(i) any Senior Indebtedness of the Company is not paid when due in cash or Cash
Equivalents or (ii) any other default on Senior Indebtedness of the Company
occurs and the maturity of such Senior Indebtedness of the Company is
accelerated in accordance with its terms unless, in either case, (x) the default
has been cured or waived and any such acceleration has been rescinded in writing
or (y) such Senior Indebtedness of the Company has been paid in full in cash or
Cash Equivalents; provided, however, that the Company may pay the Securities
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Senior Indebtedness
of the Company with respect to which either of the events set forth in clause
(i) or (ii) of this sentence has occurred or is continuing. During the
<PAGE> 81
75
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company may
not pay the Securities for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
the default giving rise to such Blockage Notice is no longer continuing or (iii)
because such Designated Senior Indebtedness has been repaid in full in cash or
Cash Equivalents). Notwithstanding the provisions of the immediately preceding
sentence, unless the holders of such Designated Senior Indebtedness or the
Representative of such holders shall have accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the
Securities after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period.
SECTION 10.4. Acceleration of Payment of Securities. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration; provided, however, that the
Company and the Trustee shall be obligated to notify such a Representative only
if such Representative has delivered or caused to be delivered to the Company
and the Trustee an address for service of such a notice (and the Company and the
Trustee shall only be obligated to deliver the notice to the address so
specified). If any Designated Senior Indebtedness is outstanding, the Company
shall not pay the Securities until five Business Days after the holders or
Representative of such Designated Senior Indebtedness receives notice of such
acceleration and, thereafter, may pay the Securities only if this Article X
otherwise permits payments at that time.
SECTION 10.5. When Distribution Must Be Paid Over. If a payment or
distribution is made to the Trustee or Securityholders that because of this
Article X should not have been made to them, the Trustee or the Securityholders
who receive the payment or distribution shall hold it in trust for holders of
Senior Indebtedness and promptly pay it over to them as their respective
interests may appear.
SECTION 10.6. Subrogation. After all Senior Indebtedness is paid in
full in cash or Cash Equivalents and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
payment or distribution made under this Article X to holders of Senior
Indebtedness which otherwise would have been made to Securityholders is not, as
between the Company and Securityholders, a payment by the Company of Senior
Indebtedness.
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SECTION 10.7. Relative Rights. This Article X defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive payments and
distributions otherwise payable to Securityholders.
SECTION 10.8. Subordination May Not Be Impaired by Company. No right
of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by the failure of any of them to comply with this
Indenture.
SECTION 10.9. Rights of Trustee and Paying Agent. Notwithstanding
Section 10.3, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than one
Business Day prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article X. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; provided,
however, that, if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article VII shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.7. Each Paying Agent shall have the same
rights and obligations under this Article X as does the Trustee.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
payment or distribution is to be made or a notice given to holders of Senior
Indebtedness, the payment or distribution may be made and the notice given to
their Representative (if any).
SECTION 10.11. Article X Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment in respect of the Securities
by reason of any provision in this Article X shall not be construed as
preventing the occurrence of a Default or Event of Default. Nothing in this
Article X shall have any effect on the right of the Secu rityholders or the
Trustee to accelerate the maturity of the Securities.
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SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article X, and none of the Securityholders shall
be obligated to pay over any such amount to the Company, any holder of Senior
Indebtedness of the Company, or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article X. In the event that the Trustee determines, in good faith, that
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article X, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and other facts pertinent to the rights of such
Person under this Article X, and, if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment. The provisions of Sections 7.1 and
7.2 shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article X.
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article X and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and, subject to Section 10.9, shall not be liable
to any such holders if it shall mistakenly pay over or distribute to
Securityholders or the Company or any other Person, money or assets to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article X or
otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior
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Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness.
ARTICLE XI
Miscellaneous
SECTION 11.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control.
SECTION 11.2. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, NE 68501
Attention: Mark W. Oppegard
With a copy to:
Paul Weiss Rifkind Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attention: Mitchell S. Fishman
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
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79
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.3. Communication by Holders with other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
In giving such Opinion of Counsel, counsel may rely as to factual
matters on an Officer's Certificate or on certificates of public officials.
SECTION 11.6. When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction,
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waiver or consent, Securities owned by the Company or by any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company shall be disregarded and deemed not to be outstanding,
except that, for the purpose of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
which the Trustee knows are so owned shall be so disregarded. Also, subject to
the foregoing, only Securities outstanding at the time shall be considered in
any such determination.
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by, or a meeting of,
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.8. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or other day on which commercial banking institutions are authorized or
required to be closed in New York City. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
SECTION 11.9. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.10. No Recourse Against Others. An incorporator,
director, officer, employee, stockholder or controlling person, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder shall waive and release all such liability. The waiver and
release shall be part of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Variable Provisions. The Company initially appoints
the Trustee as Paying Agent and Registrar and custodian with respect to any
Global Securities.
SECTION 11.14. Qualification of Indenture. The Company shall qualify
this Indenture under the TIA in accordance with the terms and conditions of the
Registration
<PAGE> 87
81
Rights Agreement and shall pay all reasonable costs and expenses (including
attorneys' fees and expenses for the Company, the Trustee and the Holders)
incurred in connection therewith, including, but not limited to, costs and
expenses of qualification of this Indenture and the Securities and printing this
Indenture and the Securities. The Trustee shall be entitled to receive from the
Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 11.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE> 88
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
NEBRASKA BOOK COMPANY, INC.
By: /s/ Mark W. Oppegard
-------------------------------
Name: Mark W. Oppegard
Title: President
Attest:
/s/ Pamela L. Sewell
- --------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Gerard F. Ganey
-------------------------------
Name: Gerard F. Ganey
Title: Senior Vice President
Attest:
/s/ Sirojni Dindial
- --------------------------
<PAGE> 89
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
No. [___] Principal Amount $[______________]
CUSIP NO. ____________
8 3/4% Senior Subordinated Notes due 2008
Nebraska Book Company, Inc., a Kansas corporation, promises to pay
to [___________], or registered assigns, the principal sum of
[__________________] Dollars on February 15, 2008.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated: NEBRASKA BOOK COMPANY, INC.
By:
----------------------------
By:
----------------------------
<PAGE> 90
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
United States Trust Company of New York,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By ________________________________
Authorized Signatory February 13, 1998
<PAGE> 91
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
8 3/4% Senior Subordinated Note due 2008
1. Interest
Nebraska Book Company, Inc., a Kansas corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on February 15 and August
15 of each year commencing August 15, 1998. Interest on the Securities will
accrue from the most recent date to which interest has been paid on the
Securities or, if no interest has been paid, from February 15, 1998. The Company
shall pay interest on overdue principal or premium, if any (plus interest on
such interest to the extent lawful), at the rate borne by the Securities to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except Defaulted Interest) to the Persons who are registered Holders of
Securities at the close of business on the February 1 or August 1 next preceding
the interest payment date even if Securities are cancelled, repurchased or
redeemed after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a banking
corporation duly organized and existing under the laws of the State of New York
(the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
<PAGE> 92
2
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior subordinated obligations
of the Company limited to $110.0 million aggregate principal amount (subject to
Section 2.9 of the Indenture). This Security is one of the Initial Securities
referred to in the Indenture. The Securities include the Initial Securities and
any Exchange Securities issued in exchange for the Initial Securities pursuant
to the Indenture and the Registration Rights Agreement. The Initial Securities
and the Exchange Securities are treated as a single class of securities under
the Indenture. The Indenture imposes certain limitations on: the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the Incurrence of
Indebtedness by the Company and its Subsidiary Guarantors if subordinate or
junior in any respect to any Senior Indebtedness or Guarantor Senior
Indebtedness, respectively, the payment of dividends and other distributions on
the Capital Stock of the Company and its Restricted Subsidiaries, the purchase
or redemption of Capital Stock of the Company and Capital Stock of such
Restricted Subsidiaries, certain purchases or redemptions of Subordinated
Indebtedness, the Incurrence of Liens by the Company or its Restricted
Subsidiaries, the entering into Sale/Leaseback transactions by the Company or
its Restricted Subsidiaries, the sale or transfer of assets and Capital Stock of
Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the business activities and investments of the Company and its
Restricted Subsidiaries and, transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and its Restricted Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
5. Redemption
Except as set forth below, the Securities will not be redeemable at
the option of the Company prior to February 15, 2003. On and after such date,
the Securities will be redeemable, at the Company's option, in whole or in part,
at any time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<PAGE> 93
3
If redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
2003 104.375%
2004 102.917%
2005 101.458%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15,
2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the net proceeds of one or more Equity
Offerings received by, or invested in, the Company so long as there is a Public
Market at the time of such redemption, at a redemption price (expressed as a
percentage of principal amount) of 108.75% plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 65% of the original principal amount of
the Securities must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Securities for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Securities of $1,000 in original principal amount or
less will be redeemed in part. If any Security is to be redeemed in part only,
the notice of redemption relating to such Security shall state the portion of
the principal amount thereof to be redeemed. A new Security in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Security.
6. Repurchase Provisions
(a) Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, when the aggregate amount of Offer Proceeds
equals or exceeds $5.0 million, the Company shall make an Offer for all
outstanding Securities pro rata up to a maximum principal amount (expressed as a
multiple of $1,000) of Securities equal to such Offer Proceeds, at a purchase
price in cash equal to 100% of the principal
<PAGE> 94
4
amount thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase in accordance with the procedures set forth in Section 3.7 of the
Indenture.
7. Subordination
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give them effect and
appoints the Trustee as attorney-in-fact for such purpose. The Securities will
in all respects rank pari passu with all other Senior Subordinated Indebtedness.
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange (i) any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
for a period beginning 15 days before a selection of Securities to be redeemed
and ending on the date of such selection or (ii) any Securities for a period
beginning 15 days before an interest payment date and ending on such interest
payment date.
9. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
<PAGE> 95
5
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities and (ii) any default (other than with respect to nonpayment) or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the then outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article IV of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Company, or
to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Securityholder, or to provide for the issuance of Exchange
Securities.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest when due on the Securities; (ii) default in payment
of principal on the Securities at maturity, upon required repurchase, upon
required repurchase or upon redemption pursuant to paragraphs 5 and 6 of the
Securities, upon declaration or otherwise; (iii) the failure by the Company to
comply with its obligations under Article IV of the Indenture, (iv) failure by
the Company to comply for 30 days after notice with any of its obligations under
the covenants described under Section 3.9 of the Indenture or under other
covenants specified in the Indenture (in each case, other than a failure to
purchase Securities which shall constitute an Event of Default under clause (ii)
above), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture, (vi) Indebtedness of the
Company or any Restricted Subsidiary not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10 million (the "cross acceleration provision"), (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the
payment of money in excess of $10 million is rendered against the Company or a
Significant Subsidiary and such judgment or decree shall remain undischarged or
unstayed for a period of 60 days after such judgment becomes final and
non-appealable (the "judgment default provision") or (ix) any Subsidiary
Guarantee ceases to be in full force and effect (except as contemplated by the
terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its
obligations under the Indenture or its Subsidiary Guarantee. However, a default
under clauses (iv) and (v) will not constitute an Event of Default until the
Trustee or the holders of more than 25% in principal amount of the outstanding
Securities notify the Company of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
<PAGE> 96
6
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
14. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
An incorporator, director, officer, employee, stockholder or
controlling person, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
16. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
17. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
<PAGE> 97
7
18. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy of
the Indenture which has in it the text of this Security in larger
type. Requests may be made to:
Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, NE 68501
Attention of: Ardean A. Arndt
<PAGE> 98
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the books of
the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date:____________________ Your Signature:___________________
Signature Guarantee:______________________________
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 |_| acquired for the undersigned's own account, without transfer;
or
2 |_| transferred to the Company; or
3 |_| transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act");
or
4 |_| transferred pursuant to an effective registration statement
under the Securities Act; or
<PAGE> 99
2
5 |_| transferred pursuant to and in compliance with Regulation S
under the Securities Act; or
6 |_| transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act), that has furnished to the Trustee a signed
letter containing certain representations and agreements (the
form of which letter appears as Section 2.7 of the Indenture);
or
7 |_| transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
(Signature must be guaranteed) Signature
- ------------------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying
<PAGE> 100
3
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
- -------------------
Dated:
<PAGE> 101
4
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
[TO BE ATTACHED TO GLOBAL SECURITIES]
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or
Exchange Global Security Global Security such decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
- ---------- ------------------------ ------------------------ ------------------------- -----------------------
</TABLE>
<PAGE> 102
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.7 or 3.9 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ____________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 103
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
No. [_____] Principal Amount $[____________]
CUSIP NO. _____________
8 3/4% Senior Subordinated Notes due 2008
Nebraska Book Company, Inc., a Kansas corporation, promises to pay
to [______________], or registered assigns, the principal sum of
[_______________] Dollars on February 15, 2008.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other
side of this Security.
NEBRASKA BOOK COMPANY, INC.
By:________________________________
By:________________________________
<PAGE> 104
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
United States Trust Company of New York,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By: __________________________________
Authorized Signatory Date:
<PAGE> 105
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
8 3/4% Senior Subordinated Note due 2008
1. Interest
Nebraska Book Company, Inc., a Kansas corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on February 15 and August
15 of each year commencing August 15, 1998. Interest on the Securities will
accrue from the most recent date to which interest has been paid on the
Securities or, if no interest has been paid, from February 15, 1998. The Company
shall pay interest on overdue principal or premium, if any (plus interest on
such interest to the extent lawful), at the rate borne by the Securities to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except Defaulted Interest) to the Persons who are registered Holders of the
Securities at the close of business on the February 1 or August 1 next preceding
the interest payment date even if Securities are cancelled, repurchased or
redeemed after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a banking
corporation duly organized and existing under the laws of the State of New York
(the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice to any Securityholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
<PAGE> 106
2
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior subordinated obligations
of the Company limited to $110.0 million aggregate principal amount (subject to
Section 2.9 of the Indenture). This Security is one of the Exchange Securities
referred to in the Indenture. The Securities include the Initial Securities and
any Exchange Securities issued in exchange for the Initial Securities pursuant
to the Indenture and the Registration Rights Agreement. The Initial Securities
and the Exchange Securities are treated as a single class of securities under
the Indenture. The Indenture imposes certain limitations on: the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the Incurrence of
Indebtedness by the Company and its Subsidiary Guarantors if subordinate or
junior in any respect to any Senior Indebtedness or Guarantor Senior
Indebtedness respectively, the payment of dividends and other distributions on
the Capital Stock of the Company and its Restricted Subsidiaries, the purchase
or redemption of Capital Stock of the Company and Capital Stock of such
Restricted Subsidiaries, certain purchases or redemptions of Subordinated
Indebtedness, the Incurrence of Liens by the Company or its Restricted
Subsidiaries, the entering into Sale/Leaseback transactions by the Company or
its Restricted Subsidiaries, the sale or transfer of assets and Capital Stock of
Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the business activities and investments of the Company and its
Restricted Subsidiaries, and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and its Subsidiaries to restrict
distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth below, the Securities will not be redeemable at the
option of the Company prior to February 15, 2003. On and after such date, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<PAGE> 107
3
If redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
2003 104.375%
2004 102.917%
2005 101.485%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001,
the Company may redeem in the aggregate up to 35% of the original principal
amount of the Securities with the net proceeds of one or more Equity Offerings
received by, or invested in, the Company so long as there is a Public Market at
the time of such redemption, at a redemption price (expressed as a percentage of
principal amount) of 108.75% plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65% of the original principal amount of the
Securities must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Securities for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Securities of $1,000 in original principal amount or
less will be redeemed in part. If any Security is to be redeemed in part only,
the notice of redemption relating to such Security shall state the portion of
the principal amount thereof to be redeemed. A new Security in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Security.
6. Repurchase Provisions
(a) Upon a Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, when the aggregate amount of Offer Proceeds
equals or exceeds $5.0 million, the Company shall make an Offer for all
outstanding Securities pro rata up to a maximum principal amount (expressed as a
multiple of $1,000) of Securities equal to such Offer Proceeds, at a purchase
price in cash equal to 100% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of purchase in accordance with the
procedures set forth in Section 3.7 of the Indenture.
<PAGE> 108
4
7. Subordination
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give them effect and
appoints the Trustee as attorney-in-fact for such purpose. The Securities will
in all respects rank pari passu with all other Senior Subordinated Indebtedness.
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange (i) any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or for a period beginning 15 days before a selection of Securities to be
redeemed and ending on the date of selection or (ii) any Securities for a period
beginning 15 days before an interest payment date and ending on such interest
payment date.
9. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
<PAGE> 109
5
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities and (ii) any default (other than with respect to nonpayment) or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the then outstanding Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article IV of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Company or
Communications or to comply with any request of the SEC in connection with
qualifying the Indenture under the Act, or to make any change that does not
adversely affect the rights of any Securityholder, or to provide for the
issuance of Exchange Securities.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest when due on the Securities; (ii) default in payment
of principal on the Securities at maturity, upon required repurchase, upon
required repurchase or upon redemption pursuant to paragraphs 5 and 6 of the
Securities, upon declaration or otherwise; (iii) the failure by the Company to
comply with its obligations under Article IV of the Indenture (iv) failure by
the Company to comply for 30 days after notice with any of its obligations under
the covenants described under Section 3.9 of the Indenture or under other
covenants specified in the Indenture (in each case, other than a failure to
purchase Securities which shall constitute an Event of Default under clause (ii)
above), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture, (vi) Indebtedness of the
Company or any Restricted Subsidiary not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10 million (the "cross acceleration provision"), (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the
payment of money in excess of $10 million is rendered against the Company or a
Significant Subsidiary and such judgment or decree shall remain undischarged or
unstayed for a period of 60 days after such judgment becomes final and
non-appealable (the "judgment default provision") or (ix) any Subsidiary
Guarantee ceases to be in full force and effect (except as contemplated by the
terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its
obligations under the Indenture or its Subsidiary Guarantee. However, a default
under clauses (iv) and (v) will not constitute an Event of Default until the
Trustee or the holders of more than 25% in principal amount of the outstanding
Securities notify the Company of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
<PAGE> 110
6
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
14. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
An incorporator, director, officer, employee, stockholder or
controlling person, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
16. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
17. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
<PAGE> 111
7
18. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
The Company will furnish to any Securityholder upon request
and without charge to the Securityholder a copy of the Indenture
which has in it the text of this Security in larger type. Requests
may be made to:
Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, NE 68501
Attention of: Ardean A. Arndt
<PAGE> 112
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: _______________ Your Signature ____________________
Signature Guarantee: ____________________________________
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 113
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.7 or 3.9 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: _______________ Your Signature: _________________________
(Sign exactly as your name appears on the other side
of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 114
EXHIBIT C
FORM OF SUBSIDIARY GUARANTEE
This Supplemental Indenture, dated as of [__________] (this
"Supplemental Indenture" or "Guarantee"), among [name of Subsidiary Guarantor]
(the "Guarantor"), Nebraska Book Company, Inc. (together with its successors and
assigns, the "Company"), [each other then existing Subsidiary Guarantor under
the Indenture referred to below,] and [Trustee], as Trustee under the Indenture
referred to below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture, dated as of February 13, 1998 (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of an
aggregate principal amount of $110.0 million of 8 3/4% Senior Subordinated Notes
due 2008 of the Company (the "Securities");
WHEREAS, Section 3.12 of the Indenture provides that the Company is
required to cause each Restricted Subsidiary created or acquired by the Company
to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which
such Subsidiary Guarantor will unconditionally Guarantee, on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on the Securities on a senior subordinated basis; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and
the Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Securityholder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the Company[, the other Subsidiary Guarantors] and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders of
the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1 Defined Terms. As used in this Subsidiary Guarantee,
terms defined in the Indenture or in the preamble or recital hereto are used
herein as therein defined, except that the term "Holders" in this Guarantee
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
<PAGE> 115
2
ARTICLE II
Guarantee
SECTION 2.1 Guarantee. The Guarantor hereby fully, unconditionally
and irrevocably guarantees, as primary obligor and not merely as surety, jointly
and severally with each other Subsidiary Guarantor, to each Holder of the
Securities the full and punctual payment when due, whether at maturity, by
acceleration, by redemption or otherwise, of the principal of, premium, if any,
and interest on the Securities (all the foregoing being hereinafter collectively
called the "Obligations"). The Guarantor further agrees (to the extent permitted
by law) that the Obligations may be extended or renewed, in whole or in part,
without notice or further assent from it, and that it will remain bound under
this Article II notwithstanding any extension or renewal of any Obligation.
The Guarantor waives presentation to, demand of payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The Guarantor waives notice of any default under the
Securities or the Obligations. The obligations of the Guarantor hereunder shall
not be affected by (a) the failure of any Holder to assert any claim or demand
or to enforce any right or remedy against the Company or any other person under
the Indenture, the Securities or any other agreement or otherwise; (b) any
extension or renewal of any thereof; (c) any rescission, waiver, amendment or
modification of any of the terms or provisions of the Indenture, the Securities
or any other agreement; (d) the release of any security held by any Holder or
the Trustee for the Obligations or any of them; (e) the failure of any Holder to
exercise any right or remedy against any other Subsidiary Guarantor; or (f) any
change in the ownership of the Company.
The Guarantor further agrees that its Guarantee herein constitutes a
guarantee of payment when due (and not a guarantee of collection) and waives any
right to require that any resort be had by any Holder to any security held for
payment of the Obligations.
The Guarantee of the Guarantor is, to the extent and in the manner
set forth in Article III, subordinated and subject in right of payment to the
prior payment in full of all Guarantor Senior Indebtedness of the Guarantor and
this Guarantee is made subject to such provisions of this Guarantee.
The obligations of the Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason (other than
payment of the Obligations in full), including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense of
setoff, counterclaim, recoupment or termination whatsoever or by reason of the
invalidity, illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Guarantor herein shall not be discharged or impaired or otherwise affected by
the failure of any Holder to assert any claim or demand or to enforce any remedy
under the Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might
<PAGE> 116
3
in any manner or to any extent vary the risk of the Guarantor or would otherwise
operate as a discharge of the Guarantor as a matter of law or equity.
The Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any of the
Obligations is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder has at law or in equity against the Guarantor by virtue
hereof, upon the failure of the Company to pay any of the Obligations when and
as the same shall become due, whether at maturity, by acceleration, by
redemption or otherwise, the Guarantor hereby promises to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders an amount equal to the sum of (i) the unpaid amount of such
Obligations then due and owing and (ii) accrued and unpaid interest on such
Obligations then due and owing (but only to the extent not prohibited by law).
The Guarantor further agrees that, as between the Guarantor, on the
one hand, and the Holders, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in the Indenture
for the purposes of the Guarantee herein, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby and (y) in the event of any such declaration of acceleration
of such Obligations, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantor for the purposes of this
Guarantee.
The Guarantor also agrees to pay any and all reasonable costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or the
Holders in enforcing any rights under this Section.
SECTION 2.2 Limitation on Liability; Termination, Release and
Discharge. The obligations of the Guarantor hereunder will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of the Guarantor (including, without limitation, any guarantees
under the Credit Agreement) and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture or as
set forth below, result in the obligations of the Guarantor under this Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
The Guarantor may consolidate with or merge into or sell its assets
to the Company or another Subsidiary Guarantor without limitation. The Guarantor
may consolidate with or merge into or sell all or substantially all its assets
to a corporation, partnership or trust other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor).
Upon the sale or disposition of the Guarantor (by merger, consolidation, the
sale of all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company,
which sale
<PAGE> 117
4
or disposition is otherwise in compliance with the Indenture (including Section
3.7), the Guarantor shall be deemed released from all its obligations under the
Indenture and this Subsidiary Guarantee and this Subsidiary Guarantee shall
terminate; provided, however, that any such termination shall occur only to the
extent that all obligations of the Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
other Indebtedness of the Company shall also terminate upon such release, sale
or transfer.
SECTION 2.3 Right of Contribution. The Guarantor hereby agrees that
to the extent that any Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made on the obligations under the Subsidiary
Guarantees, such Subsidiary Guarantor shall be entitled to seek and receive
contribution from and against the Company or any other Subsidiary Guarantor
(including the Guarantor) who has not paid its proportionate share of such
payment. Each Subsidiary Guarantor's right of contribution shall be subject to
the terms and conditions of Section 3.6. The provisions of this Section 2.3
shall in no respect limit the obligations and liabilities of the Guarantor to
the Trustee and the Holders and the Guarantor shall remain liable to the Trustee
and the Holders for the full amount guaranteed by the Guarantor hereunder.
SECTION 2.4 No Subrogation. Notwithstanding any payment or payments
made by the Guarantor hereunder, the Guarantor shall not be entitled to be
subrogated to any of the rights of the Trustee or any Holder against the Company
or any other Subsidiary Guarantor or any collateral security or guarantee or
right of offset held by the Trustee or any Holder for the payment of the
Obligations, nor shall the Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Subsidiary Guarantor
in respect of payments made by the Guarantor hereunder, until all amounts owing
to the Trustee and the Holders by the Company on account of the Obligations are
paid in full. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Guarantor in trust for the
Trustee and the Holders, segregated from other funds of the Guarantor, and
shall, forthwith upon receipt by the Guarantor, be turned over to the Trustee in
the exact form received by the Guarantor (duly indorsed by the Guarantor to the
Trustee, if required), to be applied against the Obligations.
ARTICLE III
Subordination
SECTION 3.1 Agreement To Subordinate. The Guarantor agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by this Guarantee and other obligations relating to the Securities are
subordinated in right of payment, to the extent and in the manner provided in
this Article III, to the prior payment when due in cash or Cash Equivalents of
all Guarantor Senior Indebtedness and that the subordination is for the benefit
of and enforceable by the holders of Guarantor Senior Indebtedness. This
Guarantee shall in all respects rank pari passu with all other Guarantor Senior
Subordinated Indebtedness of the Guarantor and only Indebtedness of the
Guarantor
<PAGE> 118
5
which is Guarantor Senior Indebtedness will rank senior to this Guarantee in
accordance with the provisions set forth herein. All provisions of this Article
III shall be subject to Section 3.12.
SECTION 3.2 Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets or securities of the Guarantor upon a total or
partial liquidation or a total or partial dissolution of the Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Guarantor or its respective properties:
(1) holders of Guarantor Senior Indebtedness shall be entitled to
receive payment in full in cash or Cash Equivalents of the Guarantor
Senior Indebtedness (including interest accruing after, or which would
accrue but for, the commencement of any proceeding at the rate specified
in the applicable Guarantor Senior Indebtedness, whether or not a claim
for such interest would be allowed) before Securityholders shall be
entitled to receive any payment of principal of, premium, if any, or
interest on or other amounts with respect to the Securities; and
(2) until the Guarantor Senior Indebtedness is paid in full in cash
or Cash Equivalents, any payment or distribution to which Securityholders
would be entitled but for this Article III shall be made to holders of
Guarantor Senior Indebtedness as their respective interests may appear.
SECTION 3.3 Default on Senior Indebtedness. The Guarantor shall not
pay the principal of, premium (if any) or interest on or other amounts with
respect to the Securities or make any deposit pursuant to Section 8.1 or
repurchase, redeem or otherwise retire any Securities ("pay the Securities") if
(i) any Guarantor Senior Indebtedness or Senior Indebtedness of the Company is
not paid when due in cash or Cash Equivalents or (ii) any other default on
Guarantor Senior Indebtedness or Senior Indebtedness of the Company occurs and
the maturity of such Guarantor Senior Indebtedness or Senior Indebtedness of the
Company is accelerated in accordance with its terms unless, in either case, (x)
the default has been cured or waived and any such acceleration has been
rescinded in writing or (y) such Guarantor Senior Indebtedness or Senior
Indebtedness of the Company has been paid in full in cash or Cash Equivalents;
provided, however, that the Guarantor may pay the Securities without regard to
the foregoing if the Company and the Trustee receive written notice approving
such payment from the Representative of the Guarantor Senior Indebtedness or the
Senior Indebtedness of the Company with respect to which either of the events
set forth in clause (i) or (ii) of this sentence has occurred or is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Guarantor may not pay the Securities for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to
<PAGE> 119
6
the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full in cash or Cash Equivalents). Notwithstanding the provisions of
the immediately preceding sentence, unless the holders of such Designated Senior
Indebtedness or the Representative of such holders shall have accelerated the
maturity of such Designated Senior Indebtedness, the Guarantor may resume
payments on the Securities after the end of such Payment Blockage Period. Not
more than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
SECTION 3.4 Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default and if any Designated
Senior Indebtedness is outstanding, the Guarantor shall not pay the Securities
until five Business Days after the holders or Representative of the Designated
Senior Indebtedness receives notice of such acceleration as provided in the
Indenture and, thereafter, may pay the Securities only if this Article III
otherwise permits payments at that time.
SECTION 3.5 When Distribution Must Be Paid Over. If a payment or
distribution is made to the Trustee or Securityholders that because of this
Article III should not have been made to them, the Trustee or the
Securityholders who receive the payment or distribution shall hold it in trust
for holders of Guarantor Senior Indebtedness and promptly pay it over to them as
their respective interests may appear.
SECTION 3.6 Subrogation. After all Guarantor Senior Indebtedness is
paid in full in cash or Cash Equivalents and until the Securities are paid in
full, Securityholders shall be subrogated to the rights of holders of Guarantor
Senior Indebtedness to receive distributions applicable to Guarantor Senior
Indebtedness. A payment or distribution made under this Article III to holders
of Guarantor Senior Indebtedness which otherwise would have been made to
Securityholders is not, as between the Guarantor and Securityholders, a payment
by the Guarantor of Guarantor Senior Indebtedness.
SECTION 3.7 Relative Rights. This Article III defines the relative
rights of Holders and holders of Guarantor Senior Indebtedness. Nothing in this
Guarantee shall:
(1) impair, as between the Guarantor and Holders, the obligation of
the Guarantor which is absolute and unconditional, to pay the Obligations
in accordance with the terms of this Guarantee; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Guarantor Senior Indebtedness to receive payments and
distributions otherwise payable to Securityholders.
SECTION 3.8 Subordination May Not Be Impaired by Guarantor. No right
of any holder of Guarantor Senior Indebtedness to enforce the subordination of
the Indebtedness evidenced by this Guarantee shall be impaired by any act or
failure to act by
<PAGE> 120
7
the Guarantor or by the failure of any of them to comply with this Guarantee or
the Indenture.
SECTION 3.9 Rights of Trustee and Paying Agent. Notwithstanding
Section 3.3, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than one
Business Day prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article III. The Guarantor, the Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness of the Company
or Guarantor Senior Indebtedness may give the notice; provided, however, that,
if an issue of Senior Indebtedness of the Company or Guarantor Senior
Indebtedness has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Indebtedness with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article III with respect to any Guarantor Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Guarantor
Senior Indebtedness; and nothing in Article VII of the Indenture shall deprive
the Trustee of any of its rights as such holder. Nothing in this Article III
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.7 of the Indenture. Each Paying Agent shall have the same rights and
obligations under this Article III as does the Trustee.
SECTION 3.10 Distribution or Notice to Representative. Whenever a
payment or distribution is to be made or a notice given to holders of Guarantor
Senior Indebtedness, the payment or distribution may be made and the notice
given to their Representative (if any).
SECTION 3.11 Article III Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment in respect of the Securities
by reason of any provision in this Article III shall not be construed as
preventing the occurrence of a Default or Event of Default. Nothing in this
Article III shall have any effect on the right of the Secu rityholders or the
Trustee to accelerate the maturity of the Securities.
SECTION 3.12 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article VIII of the Indenture by the
Trustee for the payment of principal of and interest on the Securities shall not
be subordinated to the prior payment of any Guarantor Senior Indebtedness or
subject to the restrictions set forth in this Article III, and none of the
Securityholders shall be obligated to pay over any such amount to the Guarantor,
any holder of Guarantor Senior Indebtedness or Senior Indebtedness of the
Company, or any other creditor of the Guarantor or the Company.
<PAGE> 121
8
SECTION 3.13 Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article III, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 3.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Guarantor
Senior Indebtedness or Senior Indebtedness of the Company for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Guarantor Senior Indebtedness or Senior
Indebtedness and other Indebtedness of the Company or the Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article III. In the event that
the Trustee determines, in good faith, that evidence is required with respect to
the right of any Person as a holder of Guarantor Senior Indebtedness to
participate in any payment or distribution pursuant to this Article III, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Guarantor Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and other facts pertinent to the rights of such
Person under this Article III, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment. The provisions of Sections
7.1 and 7.2 of the Indenture shall be applicable to all actions or omissions of
actions by the Trustee pursuant to this Article III.
SECTION 3.14 Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Guarantor Senior Indebtedness and Senior Indebtedness of the Company as provided
in this Article III and appoints the Trustee as attorney-in-fact for any and all
such purposes.
SECTION 3.15 Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness or Senior Indebtedness of the Company
and, subject to Section 3.9, shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Securityholders or the Company or any other
Person, money or assets to which any holders of Guarantor Senior Indebtedness
shall be entitled by virtue of this Article III or otherwise.
SECTION 3.16 Reliance on Subordination Provisions. Each
Securityholder by accepting a Security acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Guarantor Senior Indebtedness, whether
such Guarantor Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Guarantor Senior Indebtedness and such holder of Guarantor Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Guarantor Senior Indebtedness.
<PAGE> 122
9
ARTICLE IV
Miscellaneous
SECTION 4.1 Notices. All notices and other communications pertaining
to this Guarantee or any Security shall be in writing and shall be deemed to
have been duly given upon the receipt thereof. Such notices shall be delivered
by hand, or mailed, certified or registered mail with postage prepaid (a) if to
the Guarantor, at its address set forth below, with a copy to the Company as
provided in the Indenture for notices to the Company, and (b) if to the Holders
or the Trustee, as provided in the Indenture. The Guarantor by notice to the
Trustee may designate additional or different addresses for subsequent notices
to or communications with the Guarantor.
SECTION 4.2 Parties. Nothing expressed or mentioned in this
Guarantee is intended or shall be construed to give any Person, firm or
corporation, other than the Holders and the Trustee and the holders of any
Guarantor Senior Indebtedness, any legal or equitable right, remedy or claim
under or in respect of this Guarantee or any provision herein contained.
SECTION 4.3 Governing Law. This Agreement shall be governed by the
laws of the State of New York.
SECTION 4.4 Severability Clause. In case any provision in this
Guarantee shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and such provision shall be ineffective only to the extent of
such invalidity, illegality or unenforceability.
SECTION 4.5 Waivers and Remedies. Neither a failure nor a delay on
the part of the Holders or the Trustee in exercising any right, power or
privilege under this Guarantee shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Holders and
the Trustee herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Guarantee or
at law, in equity, by statute or otherwise.
SECTION 4.6 Successors and Assigns. Subject to Section 2.2 hereof,
(a) this Guarantee shall be binding upon and inure to the benefit of the
Guarantor, the Trustee, any other parties hereto, the Holders and their
respective successors and assigns and (b) in the event of any transfer or
assignment of rights by any Holder, the rights and privileges conferred upon
that party in this Guarantee and in the Securities shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions of this Guarantee and the Indenture.
SECTION 4.7 Modification, etc. Subject to the provisions of, and
except as otherwise provided in, Article IX of the Indenture (including without
limitation Sections 9.1 and 9.2 thereof), no modification, amendment or waiver
of any provision of this Guarantee,
<PAGE> 123
10
nor the consent to any departure by the Guarantor therefrom, shall in any event
be effective unless the same shall be in writing and consented to by the Trustee
(with the consent of the Holders of at least a majority of the Securities if
required by Section 9.2 of the Indenture) and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which it was
given. No notice to or demand on the Guarantor in any case shall entitle such
Guarantor or any other guarantor to any other or further notice or demand in the
same, similar or other circumstances.
SECTION 4.8 Entire Agreement. This Guarantee is intended by the
parties to be a final expression of their agreement in respect of the subject
matter contained herein and, together with the Indenture, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
SECTION 4.9 Ratification of Indenture; Supplemental Indentures Part
of Indenture. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Supplemental Indenture shall
form a part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby. The
Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture.
SECTION 4.10 Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
SECTION 4.11 Headings. The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NAME OF GUARANTOR],
By:
-----------------------------
Name:
Title:
Address:
<PAGE> 124
11
NEBRASKA BOOK COMPANY, INC.
By:
-----------------------------
Name:
Title:
[Add signature block for any other
existing Subsidiary Guarantors]
[TRUSTEE]
By:
-----------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.6
Execution Copy
REGISTRATION RIGHTS AGREEMENT
Nebraska Book Company, Inc.
$110,000,000
8 3/4% Senior Subordinated Notes due 2008
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
February 13, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Nebraska Book Company, Inc., a Kansas corporation (the "Company"),
proposes to issue and sell to Chase Securities Inc. ("CSI" or the "Initial
Purchaser"), upon the terms and subject to the conditions set forth in a
purchase agreement dated February 10, 1998 (the "Purchase Agreement"),
$110,000,000 aggregate principal amount of its 8 3/4% Senior Subordinated Notes
due 2008 (the "Securities"). Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchaser thereunder, the Company agrees with the Initial Purchaser, for the
benefit of the holders (including the Initial Purchaser) of the Securities, the
Exchange Securities (as defined herein) and the Private Exchange Securities (as
defined herein) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall (i) prepare and, not
later than 45 days following the date of original issuance of the Securities
(the "Issue Date"), file with the Commission a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "Registered Exchange Offer") to issue and deliver to such Holders, in
exchange for the Securities, a like aggregate principal amount of debt
securities of the Company (the "Exchange Securities") that are identical in all
material respects to the Securities, except for the transfer restrictions
relating to the Securities, (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to become
<PAGE> 2
2
effective under the Securities Act no later than 150 days after the Issue Date
and the Registered Exchange Offer to be consummated no later than 180 days after
the Issue Date and (iii) keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date on which notice of the Registered Exchange Offer is mailed to the
Holders (such period being called the "Exchange Offer Registration Period"). The
Exchange Securities will be issued under the Indenture or an indenture (the
"Exchange Securities Indenture") between the Company and the Trustee or such
other bank or trust company that is reasonably satisfactory to the Initial
Purchaser, as trustee (the "Exchange Securities Trustee"), such indenture to be
identical in all material respects to the Indenture, except for the transfer
restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) acquires the Exchange
Securities in the ordinary course of such Holder's business and (c) has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Company, the Initial Purchaser and
each Exchanging Dealer acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, each Holder that is a
broker-dealer electing to exchange Securities, acquired for its own account as a
result of market-making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing substantially the information set forth in Annex A hereto on the
cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such
<PAGE> 3
3
Holder (the "Private Exchange"), a like aggregate principal amount of debt
securities of the Company (the "Private Exchange Securities") that are identical
in all material respects to the Exchange Securities, except for the transfer
restrictions relating to such Private Exchange Securities. The Private Exchange
Securities will be issued under the same indenture as the Exchange Securities,
and the Company shall use its reasonable best efforts to cause the Private
Exchange Securities to bear the same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer, and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for
exchange.
<PAGE> 4
4
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 90 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or
<PAGE> 5
5
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not, as of the consummation of the Registered Exchange
Offer, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) for any other reason the Registered Exchange Offer is not
consummated within 180 days after the Issue Date, or (iii) any Initial Purchaser
so requests with respect to Securities or Private Exchange Securities not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following the consummation of the Registered Exchange
Offer, or (iv) any applicable law or interpretations do not permit any Holder to
participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in exchange for tendered Securities, or (vi)
the Company so elects, then the following provisions shall apply:
(a) The Company shall use its reasonable best efforts to file as
promptly as practicable (but in no event more than 45 days after so required or
requested pursuant to this Section 2) with the Commission, and thereafter shall
use its reasonable best efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Securities (as defined herein)
by the Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a "Shelf
Registration Statement" and, together with any Exchange Offer Registration
Statement, a "Registration Statement").
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders of Transfer Restricted
Securities for a period of two years from the Issue Date or such shorter period
that will terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto (in any such case,
such period being called the "Shelf Registration Period"). The Company shall be
deemed not to have used its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Transfer Restricted Securities
covered thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless such action is required by applicable law.
<PAGE> 6
6
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect to
Holders' Information), does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders
of Transfer Restricted Securities will suffer damages if the Company fails to
fulfill its obligations under Section 1 or Section 2, as applicable, and that it
would not be feasible to ascertain the extent of such damages. Accordingly, if
(i) the applicable Registration Statement is not filed with the Commission on or
prior to 45 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is not
declared effective within 150 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in law
or the applicable interpretations of Commission's staff, if later, within 30
days after publication of the change in law or interpretation), (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of Commission's staff, if later, within 30 days
after publication of the change in law or interpretation) but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each Holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $ 0.192 per week per $1,000 principal amount (or Accreted Value,
as the case may be) of Transfer Restricted Securities held by such Holder until
(i) the applicable Registration Statement is filed, (ii) the Exchange Offer
<PAGE> 7
7
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Company shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Securities if such Holder failed to
comply with its obligations to make the representations set forth in the second
to last paragraph of Section 1 or failed to provide the information required to
be provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the liquidated damages due on the Transfer
Restricted Securities by depositing with the Paying Agent (which may not be the
Company for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided
for in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
<PAGE> 8
8
(a) The Company shall (i) furnish to the Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchaser may reasonably propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and (iii) if requested by the Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Company shall advise the Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements
to any Registration Statement or the prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities, the Exchange
Securities or the Private Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus included therein
in order that the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
<PAGE> 9
9
(c) The Company will use reasonable best efforts to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules and, if any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference).
(e) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of such prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Company will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge, at
least one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser or Exchanging Dealer or any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).
(g) The Company will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement or the Shelf Registration Statement and any
amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or
other persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in connection
with the
<PAGE> 10
10
registration or qualification of, such Securities, Exchange Securities or
Private Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Securities, Exchange Securities or Private
Exchange Securities covered by such Registration Statement; provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(i) The Company will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company is required to maintain an effective
Registration Statement, the Company will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities, Exchange
Securities or Private Exchange Securities from a Holder, the prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may be, and
provide the applicable trustee with printed certificates for the Securities, the
Exchange Securities or the Private Exchange Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of Section
11(a) of the Securities Act; provided that in no event shall such earning
statement be delivered later than 45 days after the end of a 12- month period
(or 90 days, if such period is a fiscal year)
<PAGE> 11
11
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Company may from time
to time reasonably require for inclusion in such Shelf Registration Statement,
and the Company may exclude from such registration the Transfer Restricted
Securities of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder
will discontinue disposition of such Transfer Restricted Securities until such
Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the Company
shall give any notice under Section 4(b)(ii) through (v) during the period that
the Company is required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving of
such notice to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemental or amended prospectus contemplated by Section 4(j)
(if an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
<PAGE> 12
12
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private Exchange
Securities being sold and any underwriter participating in any disposition of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
and (ii) use its reasonable best efforts to have its officers, directors,
employees, accountants and counsel supply all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter (an
"Inspector") in connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company
shall, if requested by Holders of a majority in aggregate principal amount of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use its reasonable best efforts to cause (i)
its counsel to deliver an opinion relating to the Shelf Registration Statement
and the Securities, Exchange Securities or Private Exchange Securities, as
applicable, in customary form, (ii) its officers to execute and deliver all
customary documents and certificates requested by Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) and (iii) its independent public accountants to provide a
comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities to be sold pursuant to each Registration Statement (the "Special
Counsel") acting for the Initial Purchaser or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any,
<PAGE> 13
13
who controls such Holder within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6 and
Section 7 as a Holder) from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to purchases
and sales of Securities, Exchange Securities or Private Exchange Securities), to
which that Holder may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand for
any legal or other expenses reasonably incurred by that Holder in connection
with investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further, that with respect to any such untrue statement in or omission
from any related preliminary prospectus, the indemnity agreement contained in
this Section 6(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (A) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder
shall indemnify and hold harmless the Company, its affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Company), from and against any
<PAGE> 14
14
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Holders' Information
furnished to the Company by such Holder, and shall reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ
<PAGE> 15
15
its own counsel in any such action, but the fees, expenses and other charges of
such counsel for the indemnified party will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based upon advice of counsel to the indemnified
party) that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to the
indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), 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 loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received
<PAGE> 16
16
by the Company from the offering and sale of the Securities, on the one hand,
and a Holder with respect to the sale by such Holder of Securities, Exchange
Securities or Private Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and such Holder on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and a Holder on the
other with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by or on behalf of the Company as set forth
in the table on the cover of the Offering Memorandum, on the one hand, bear to
the total proceeds received by such Holder with respect to its sale of
Securities, Exchange Securities or Private Exchange Securities, on the other.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to the Company or
information supplied by the Company on the one hand or to any Holders'
Information supplied by such Holder on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 7 were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section 7 shall be deemed to include, for purposes of this Section 7, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to any
purchaser exceeds the amount of any damages which such indemnifying party has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed
<PAGE> 17
17
by it under the Securities Act and the Exchange Act in a timely manner and, if
at any time the Company is not required to file such reports, it will, upon the
written request of any Holder of Transfer Restricted Securities, make publicly
available other information so long as necessary to permit sales of such
Holder's securities pursuant to Rules 144 and 144A. The Company covenants that
it will take such further action as any Holder of Transfer Restricted Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Transfer Restricted Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rules 144
and 144A (including, without limitation, the requirements of Rule 144A(d)(4)).
Upon the written request of any Holder of Transfer Restricted Securities, the
Company shall deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 8 shall be deemed to require the Company to register any of its
securities pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably 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.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement 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 Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the
<PAGE> 18
18
Securities, the Exchange Securities and the Private Exchange Securities being
sold by such Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to Chase Securities Inc.;
(2) if to the Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one business day
after being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) 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.
(e) Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
<PAGE> 19
19
(h) Remedies. In the event of a breach by the Company or by any
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents, warrants and
agrees that (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity) shall have the right to include any securities of the Company
in any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions,
<PAGE> 20
20
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
<PAGE> 21
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchaser.
Very truly yours,
NEBRASKA BOOK COMPANY, INC.
By: /s/ Mark W. Oppegard
-------------------------------------
Name: Mark W. Oppegard
Title: President
Accepted:
CHASE SECURITIES INC.
By: /s/ Jeffrey Blumin
-----------------------------
Authorized Signatory
<PAGE> 22
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE> 23
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE> 24
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident
- ----------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer prospectus.
- 2 -
<PAGE> 25
to the Registered Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- 3 -
<PAGE> 26
ANNEX D
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:______________________________________________
Address:___________________________________________
________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
- 4 -
<PAGE> 1
Exhibit 8
March 19, 1998
NBC Acquisition Corp.
4700 South 19th Street
Lincoln, NE 68501-0529
Registration Statement on Form S-4
Dear Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by NBC Acquisition Corp. ("Holdings"), with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations thereunder (the "Rules"), we
have been requested to render our opinion as to the matters hereinafter set
forth. Capitalized terms used and not otherwise defined herein shall have the
meanings attributed thereto in the Registration Statement.
In this regard, we have reviewed copies of the Registration
Statement (including the exhibits and amendments thereto) with respect to
Holdings' offer to exchange up to $76,000,000 aggregate principal amount of its
10 3/4% Senior Discount Debentures due 2009 for a like principal amount of its
10 3/4% Senior Discount Debentures due 2009 outstanding on the date hereof. We
have also made such other investigations of fact and law and have examined the
originals, or copies authenticated to our satisfaction, of such other documents,
record, certificates or other instruments as in our judgment are necessary or
appropriate to render the opinion expressed below.
The opinion set forth below is limited to the Internal Revenue Code
of 1986, as amended (the "Code"), administrative rulings, judicial decisions,
Treasury regulations and other applicable authorities, all as in effect on the
date hereof. The statutory provisions, regulations, and interpretations upon
which our opinion is based are subject to change, and such changes could apply
retroactively. Any such change could affect the continuing validity of the
opinion set forth below. We assume no responsibility to advise you of any
subsequent changes in existing law or facts, nor do
<PAGE> 2
we assume any responsibility to update this opinion with respect to any matters
expressly set forth herein, and no opinions are to be implied or may be inferred
beyond the matters expressly so stated.
Based upon and subject to the foregoing, we are of the opinion that
the discussion of the principal federal income tax consequences to United States
Holders of ownerships of the Debentures set forth in the Registration Statement
under the heading "Certain United States Tax Considerations" is an accurate
general description of such federal income tax consequences.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, or any amendment pursuant to Rule 462 under the Act, and
to the reference to us under the heading "Legal Matters" in the Prospectus
included in the Registration Statement, or any amendment pursuant to Rule 462
under the Act. In giving this consent, we do not hereby agree that we come
within the category of persons whose consent is required by the Act or the
Rules.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
2
<PAGE> 1
Exhibit 10.1
EXECUTION COPY
================================================================================
$110,000,000
CREDIT AGREEMENT
among
NBC ACQUISITION CORP.,
NEBRASKA BOOK COMPANY, INC.,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Syndication Agent,
Documentation Agent and
Collateral Agent
Dated as of February 13, 1998
CHASE SECURITIES INC.,
as Arranger
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.................................................... 2
1.1 Defined Terms................................................... 2
1.2 Other Definitional Provisions................................... 33
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................ 33
2.1 Term Loan Commitments........................................... 34
2.2 Procedure for Term Loan Borrowing............................... 34
2.3 Repayment of Term Loans......................................... 34
2.4 Revolving Credit Commitments.................................... 36
2.5 Procedure for Revolving Credit Borrowing........................ 36
2.6 Swing Line Commitment........................................... 37
2.7 Procedure for Swing Line Borrowing; Refunding of
Swing Line Loans ............................................. 37
2.8 Repayment of Loans; Evidence of Debt............................ 39
2.9 Commitment Fees, etc. .......................................... 40
2.10 Termination or Reduction of Revolving Credit Commitments....... 40
2.11 Optional Prepayments........................................... 40
2.12 Mandatory Prepayments and Commitment Reductions................ 41
2.13 Conversion and Continuation Options............................ 42
2.14 Minimum Amounts and Maximum Number of Eurodollar Tranches...... 43
2.15 Interest Rates and Payment Dates............................... 43
2.16 Computation of Interest and Fees............................... 44
2.17 Inability to Determine Interest Rate........................... 44
2.18 Pro Rata Treatment and Payments................................ 44
2.19 Requirements of Law............................................ 47
2.20 Taxes.......................................................... 48
2.21 Indemnity...................................................... 49
2.22 Illegality..................................................... 50
2.23 Change of Lending Office....................................... 50
2.24 Replacement of Lenders under Certain Circumstances............. 50
SECTION 3. LETTERS OF CREDIT.............................................. 51
3.1 L/C Commitment.................................................. 51
3.2 Procedure for Issuance of Letter of Credit...................... 51
3.3 Commissions, Fees and Other Charges............................. 52
3.4 L/C Participations.............................................. 52
3.5 Reimbursement Obligation of the Borrower........................ 53
3.6 Obligations Absolute............................................ 53
3.7 Letter of Credit Payments....................................... 54
3.8 Applications.................................................... 54
SECTION 4. REPRESENTATIONS AND WARRANTIES................................. 54
4.1 Financial Condition............................................. 54
-i-
<PAGE> 3
Page
----
4.2 No Change....................................................... 57
4.3 Corporate Existence; Compliance with Law........................ 57
4.4 Corporate Power; Authorization; Enforceable Obligations......... 57
4.5 No Legal Bar.................................................... 57
4.6 No Material Litigation.......................................... 58
4.7 No Default...................................................... 58
4.8 Ownership of Property; Liens.................................... 58
4.9 Intellectual Property........................................... 58
4.10 Taxes.......................................................... 58
4.11 Federal Regulations............................................ 58
4.12 Labor Matters.................................................. 59
4.13 ERISA.......................................................... 59
4.14 Investment Company Act; Other Regulations...................... 59
4.15 Subsidiaries................................................... 59
4.16 Use of Proceeds................................................ 60
4.17 Environmental Matters.......................................... 60
4.18 Accuracy of Information, etc................................... 61
4.19 Security Documents............................................. 61
4.20 Solvency....................................................... 62
4.21 Senior Indebtedness............................................ 62
4.22 Regulation H................................................... 62
SECTION 5. CONDITIONS PRECEDENT........................................... 62
5.1 Conditions to Initial Extension of Credit....................... 62
5.2 Conditions to Each Extension of Credit.......................... 66
SECTION 6. AFFIRMATIVE COVENANTS.......................................... 67
6.1 Financial Statements............................................ 67
6.2 Certificates; Other Information................................. 68
6.3 Payment of Obligations.......................................... 70
6.4 Conduct of Business and Maintenance of Existence, etc. ......... 70
6.5 Maintenance of Property; Insurance.............................. 70
6.6 Inspection of Property; Books and Records; Discussions.......... 71
6.7 Notices......................................................... 71
6.8 Environmental Laws.............................................. 72
6.9 Interest Rate Protection........................................ 72
6.10 Additional Collateral, etc..................................... 73
6.11 Post-Closing Matters........................................... 74
SECTION 7. NEGATIVE COVENANTS............................................. 75
7.1 Financial Covenants............................................. 75
7.2 Limitation on Indebtedness...................................... 78
7.3 Limitation on Liens............................................. 79
7.4 Limitation on Fundamental Changes............................... 81
7.5 Limitation on Sale of Assets.................................... 81
7.6 Limitation on Dividends......................................... 81
-ii-
<PAGE> 4
Page
----
7.7 Limitation on Capital Expenditures.............................. 82
7.8 Limitation on Investments, Loans and Advances................... 83
7.9 Limitation on Optional Payments and Modifications of
Debt Instruments, etc. ....................................... 84
7.10 Limitation on Transactions with Affiliates..................... 84
7.11 Limitation on Sales and Leasebacks............................. 84
7.12 Limitation on Changes in Fiscal Periods........................ 84
7.13 Limitation on Negative Pledge Clauses.......................... 84
7.14 Limitation on Restrictions on Subsidiary Distributions......... 85
7.15 Limitation on Lines of Business................................ 85
7.16 Limitation on Amendments to Merger Agreement................... 85
7.17 Limitation on Activities of Holdings........................... 85
SECTION 8. EVENTS OF DEFAULT.............................................. 86
SECTION 9. THE ADMINISTRATIVE AGENT....................................... 89
9.1 Appointment..................................................... 89
9.2 Delegation of Duties............................................ 90
9.3 Exculpatory Provisions.......................................... 90
9.4 Reliance by Administrative Agent................................ 90
9.5 Notice of Default............................................... 91
9.6 Non-Reliance on Administrative Agent and Other Lenders.......... 91
9.7 Indemnification................................................. 91
9.8 Administrative Agent in Its Individual Capacity................. 92
9.9 Successor Administrative Agent.................................. 92
9.10 Authorization to Release Liens................................. 93
SECTION 10. MISCELLANEOUS................................................. 93
10.1 Amendments and Waivers......................................... 93
10.2 Notices........................................................ 94
10.3 No Waiver; Cumulative Remedies................................. 94
10.4 Survival of Representations and Warranties..................... 95
10.5 Payment of Expenses............................................ 95
10.6 Successors and Assigns; Participations and Assignments......... 96
10.7 Adjustments; Set-off........................................... 98
10.8 Counterparts................................................... 99
10.9 Severability................................................... 99
10.10 Integration................................................... 99
10.11 GOVERNING LAW................................................. 99
10.12 Submission To Jurisdiction; Waivers........................... 99
10.13 Acknowledgements..............................................100
10.14 WAIVERS OF JURY TRIAL.........................................100
10.15 Confidentiality...............................................100
-iii-
<PAGE> 5
ANNEXES:
A Pricing Grid
SCHEDULES:
1.1A Commitments; Addresses for Notices
1.1B Mortgaged Property
4.4 Consents, Authorizations, Filings and Notices
4.9 Intellectual Property
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
7.2(e) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B-1 Form of Borrower Compliance Certificate
B-2 Form of Holdings Compliance Certificate
C-1 Form of Borrower Closing Certificate
C-1 Form of Holdings Closing Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F Form of Legal Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
G-1 Form of Term Note
G-2 Form of Revolving Credit Note
G-3 Form of Swing Line Note
H Form of Prepayment Option Notice
I Form of Exemption Certificate
J-1 Form of Weekly Borrowing Base Certificate
J-2 Form of Monthly Borrowing Base Certificate
J-3 Supporting Documentation and Additional Reports for Borrowing Base
Certificates
-iv-
<PAGE> 6
CREDIT AGREEMENT, dated as of February 13, 1998, among NBC
Acquisition Corp., a Delaware corporation ("Holdings"), Nebraska Book Company,
Inc., a Kansas corporation (the "Borrower"), the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the "Lenders") and THE CHASE MANHATTAN BANK, as administrative agent,
syndication agent, documentation agent and collateral agent (in such capacities,
the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, (i) NBC Merger Corp., a Delaware corporation ("Merger
Sub"), is an indirect wholly-owned subsidiary of HWH Capital Partners, L.P., a
Delaware limited partnership ("HWH Capital Partners"), and (ii) Haas Wheat &
Partners Incorporated, a Delaware corporation (the "Sponsor"), is the advisor of
HWH Capital Partners;
WHEREAS, the Borrower is a direct wholly-owned subsidiary of
Holdings;
WHEREAS, pursuant to the Merger Agreement, dated as of January 6,
1998, among Merger Sub, Holdings and each executing shareholder named therein
(together with all the exhibits, schedules, annexes and amendments thereto and
all other documents delivered in connection therewith, the "Merger Agreement"),
on the Closing Date (as defined below) (i) Merger Sub will merge (the "Merger")
with and into Holdings with Holdings being the surviving corporation and (ii)
substantially all of the existing indebtedness of Holdings and its subsidiaries
will be repaid (the foregoing transactions, the financings described herein and
all other transactions related thereto being referred to herein collectively as
the "Transactions");
WHEREAS, in connection with the Transactions, Holdings will be
capitalized with at least $95,000,000 in cash which shall consist of (i) an
aggregate of at least $50,002,680 of common equity from HWH Capital Partners and
certain senior executive officers of the Borrower (the "Management Investors")
and (ii) $44,997,320 in gross cash proceeds from the issuance by Holdings of an
aggregate principal amount of $76,000,000 of 10 3/4% senior discount debentures
due 2009 in a Rule 144A private placement (the "Holdings Discount Debentures");
WHEREAS, in connection with the Transactions, the Borrower will
receive $110,000,000 in gross cash proceeds from the issuance by the Borrower of
8 3/4% senior subordinated unsecured notes due 2008 (the "Senior Subordinated
Notes") in a Rule 144A private placement and Holdings will contribute all of the
net cash proceeds it receives from the Holdings Discount Debentures to the
Borrower as common equity;
WHEREAS, in connection with the Transactions, the Borrower has
requested the Lenders to establish senior credit facilities aggregating
$110,000,000 and the Lenders are willing to make such credit facilities
available upon and subject to the terms and conditions hereinafter set forth;
and
<PAGE> 7
2
WHEREAS, in connection with the Transactions, the Borrower will pay
a dividend to Holdings in an amount equal to the aggregate principal amount of
the Loans (as defined below) made on the Closing Date;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"Account": any right to payment for goods sold or leased or for
services rendered, whether or not earned by performance.
"Acquisition Advance Amount": $10,000,000; provided any Revolving
Extensions of Credit made under the Acquisition Advance Amount may be used
only to finance acquisitions permitted pursuant to subsection 7.8(h)
hereof or to replace cash used to make any such acquisition. For purposes
of calculating usage of the Acquisition Advance Amount, the purchase price
with respect to an acquisition shall be deemed to be the amount reported
by the Borrower to the Administrative Agent as the excess of the actual
purchase price paid in cash over the amount added to the Borrowing Base as
a result of and after giving effect to such acquisition.
"Adjustment Date": as defined in the Pricing Grid.
"Administrative Agent": The Chase Manhattan Bank, in its capacity as
administrative agent.
"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
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
"Aggregate Exposure": with respect to any Lender, an amount equal to
(a) until the Closing Date, the aggregate amount of such Lender's
Commitments and (b) thereafter, the sum of (i) the aggregate unpaid
principal amount of such Lender's Term Loans and (ii) the amount of such
Lender's Revolving Credit Commitment or, if the Revolving Credit
Commitments have been terminated, the amount of such Lender's Revolving
Extensions of Credit.
"Aggregate Exposure Percentage" with respect to any Lender, the
ratio (expressed as a percentage) of such Lender's Aggregate Exposure to
the Aggregate Exposure of all Lenders.
<PAGE> 8
3
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
<TABLE>
<CAPTION>
Base Rate Eurodollar
Loans Loans
--------- ----------
<S> <C> <C>
Revolving Credit Loans 1.25% 2.25%
Swing Line Loans 1.25% N/A
Tranche A Term Loans 1.25% 2.25%
Tranche B Term Loans 1.50% 2.50%
</TABLE>
provided, that on and after the first Adjustment Date occurring after the
completion of four full fiscal quarters of the Borrower after the Closing
Date, the Applicable Margin with respect to Revolving Credit Loans, Swing
Line Loans and Tranche A Term Loans will be determined pursuant to the
Pricing Grid, and provided further, in the event that on the last day of
any fiscal quarter the Consolidated Senior Debt to EBITDA Ratio exceeds
3.0 to 1.0, then for the period from the Adjustment Date for such fiscal
quarter to the next succeeding Adjustment Date, all of the foregoing
Applicable Margins shall be increased by .25% per annum.
"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": Chase Securities Inc.
"Asset Sale": any Disposition of Property or series of related
Dispositions of Property (excluding any such Disposition permitted by
clause (a), (b), (c) or (d) of Section 7.5).
"Assignee": as defined in Section 10.6(c).
"Assignor": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Revolving Credit
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 Revolving
Extensions of Credit; provided, that in calculating any Lender's Revolving
Extensions of Credit for the purpose of determining such Lender's
Available Revolving Credit Commitment pursuant to Section 2.9(a), the
aggregate 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 greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds
<PAGE> 9
4
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 Chase as its prime or base rate in effect at its
principal office in New York City (the Prime Rate not being intended to be
the lowest rate of interest charged by the Reference Lender in connection
with extensions of credit to debtors); "Base CD Rate" shall mean the sum
of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a
fraction, the numerator of which is one and the denominator of which is
one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Reference Lender from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it. Any change in the Base Rate due to a change in the Prime Rate, the
Three-Month Secondary CD 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, the Three-Month Secondary CD 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).
"Bookstore": any business establishment that has as its primary
business the sale of textbooks.
"Borrower": as defined in the recitals hereto.
"Borrower Pro Forma Financial Statements": as defined in Section
4.1(a)(ii).
"Borrower Projections": as defined in Section 6.2(c)(ii).
"Borrowing Base": at the time of any determination an amount equal
to the sum, without duplication, of (a) the sum of (i) 60% of Eligible
Accounts Receivable in respect of Standard Sales Invoices at such time and
(ii) 85% of Eligible Accounts Receivable in respect of Buy-Fund Invoices
at such time, (b) 55% of Wholesale Inventory that constitutes Eligible
Inventory at such time, (c) 55% of Retail Inventory that constitutes
Eligible Inventory at such time, (d) 55% of Information Systems
<PAGE> 10
5
Inventory that constitutes Eligible Inventory at such time (provided,
however, that the amount added to the Borrowing Base in respect of such
Information Systems Inventory shall not at any time exceed $500,000) and,
(e) if the time of such determination is (i) during the Peak Period, the
sum of (A) the Over Advance Amount then in effect and (B) an amount equal
to 55% of Buy-Funds at such time and (ii) during the Non-Peak Period, the
lesser of (A) $1,000,000 and (B) an amount equal to 55% of Buy-Funds at
such time. The Borrowing Base at any time shall be determined by reference
to the most recent Borrowing Base Certificate delivered to the
Administrative Agent pursuant to Section 6.2(g), absent any error in such
Borrowing Base Certificate. In the event that at any time after the date
hereof (a) the Borrower materially alters any of its accounting policies
or procedures, (b) there occurs a material change in the Borrower's
customer base or (c) there occurs a material change in the nature of the
Borrower's Inventory, then the Administrative Agent will be entitled,
after notice to and agreement with the Borrower and upon the approval of
the Majority Revolving Credit Lenders, to adjust the eligibility criteria
and reserves in respect of Eligible Accounts Receivable and Eligible
Inventory.
"Borrowing Base Certificate": the collective reference to the Weekly
Borrowing Base Certificate and the Monthly Borrowing Base Certificate.
"Borrowing Date": any Business Day specified by the Borrower as a
date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"Business": as defined in Section 4.17.
"Business Day": (i) for all purposes other than as covered by clause
(ii) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar
Loans, any day which is a Business Day described in clause (i) and which
is also a day for trading by and between banks in Dollar deposits in the
interbank eurodollar market.
"Buy-Funds": the aggregate amount of cash in the possession of the
Borrower's buyers conducting book-buys during any buy-back period at an
educational institution or commercial Bookstore, less the aggregate amount
represented by outstanding drafts issued by the Borrower in respect of
purchases of used books during such buy-back period.
"Buy-Fund Invoice": an invoice resulting from the sale or advance by
the Borrower to, or the agreement by the Borrower with, an educational
institution or commercial Bookstore in respect of used books that (a) have
been purchased by the Borrower during any buy-back period at such
educational institution or commercial Bookstore and (b) are designated to
remain on the campus of such educational institution or on the premises of
such commercial Bookstore, in each case net of any commission owed by the
Borrower to such educational institution or commercial Bookstore in
respect of such sale.
<PAGE> 11
6
"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 consolidated 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.
"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 of America
or any state thereof having combined capital and surplus of not less than
$500,000,000; (c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's"), 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,
and maturing within six months from the date of acquisition; (d)
repurchase obligations of any Lender or of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not
more than 30 days with respect to securities issued or fully guaranteed or
insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed
by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth
or territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's; (f) securities with maturities of six months or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of
this definition; or (g) shares of money market mutual or similar funds
which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
<PAGE> 12
7
"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. ss. 327.4 (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.
"Chase": The Chase Manhattan Bank.
"Closing Date": February 13, 1998 or such later date not beyond
March 1, 1998 on which the conditions precedent set forth in Section 5.1
shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all Property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"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.
"Commitment Fee Rate": 1/2 of 1% per annum; provided, that on and
after the first Adjustment Date occurring after the completion of four
full fiscal quarters of the Borrower after the Closing Date, the
Commitment Fee Rate will be determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of
the Code.
"Compliance Certificate": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated January 1998 and furnished to the Lenders.
<PAGE> 13
8
"Consolidated Current Assets": at any date, all amounts (other than
cash and Cash Equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on
a consolidated balance sheet of the Borrower and its Subsidiaries at such
date.
"Consolidated Current Liabilities": at any date, all amounts which
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of the Borrower and its Subsidiaries at such date, but excluding (a) the
current portion of any Funded Debt of the Borrower and its Subsidiaries
and (b) without duplication of clause (a) above, all Indebtedness
consisting of Revolving Extensions of Credit to the extent otherwise
included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) 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, unusual or non-recurring
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of
business) and (f) any other non-cash charges, and minus, to the extent
included in the statement of such Consolidated Net Income for such period,
the sum of (i) interest income, (ii) any extraordinary, unusual or
non-recurring income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net
Income for such period, gains on the sales of assets outside of the
ordinary course of business) and (iii) any other non-cash income, all as
determined on a consolidated basis.
"Consolidated Fixed Charge Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period less the aggregate amount
actually paid by the Borrower and its Subsidiaries in cash during such
period on account of Capital Expenditures to (b) Consolidated Fixed
Charges for such period; provided that for purposes of calculating
Consolidated EBITDA of the Borrower and its Subsidiaries for any period,
the Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries during such period shall be included on a pro forma basis,
including the effect of identified business synergies, for such period
(assuming the consummation of each such acquisition and the incurrence or
assumption of any Indebtedness in connection therewith occurred on the
first day of such period) if the consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end of the
period preceding the acquisition of such Person and the related
consolidated statements of income and stockholders' equity and of cash
flows for the period in respect of which Consolidated EBITDA is to be
calculated (i) have been previously provided to the Administrative Agent
and the Lenders and (ii) either (A) have been reported on without a
qualification arising out of the scope of the audit by
<PAGE> 14
9
independent certified public accountants of nationally recognized standing
or (B) have been found reasonably acceptable by the Administrative Agent.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b)
provision for cash income taxes made by the Borrower or any of its
Subsidiaries on a consolidated basis in respect of such period and (c)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including
scheduled principal payments in respect of the Term Loans).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA for such period to (b) Consolidated Interest
Expense for such period; provided that for purposes of calculating
Consolidated EBITDA of the Borrower and its Subsidiaries for any period,
the Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries during such period shall be included on a pro forma basis,
including the effect of identified business synergies, for such period
(assuming the consummation of each such acquisition and the incurrence or
assumption of any Indebtedness in connection therewith occurred on the
first day of such period) if the consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end of the
period preceding the acquisition of such Person and the related
consolidated statements of income and stockholders' equity and of cash
flows for the period in respect of which Consolidated EBITDA is to be
calculated (i) have been previously provided to the Administrative Agent
and the Lenders and (ii) either (A) have been reported on without a
qualification arising out of the scope of the audit by independent
certified public accountants of nationally recognized standing or (B) have
been found reasonably acceptable by the Administrative Agent.
"Consolidated Interest Expense": for any period, total cash interest
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its 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) net of
cash interest income received during such period.
"Consolidated Leverage Ratio": as at the last day of any period of
four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt
on such day to (b) Consolidated EBITDA for such period; provided that for
purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period, the Consolidated EBITDA of any Person
acquired by the Borrower or its Subsidiaries during such period shall be
included on a pro forma basis, including the effect of identified business
synergies, for such period (assuming the consummation of each such
acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period) if the
consolidated balance sheet of such acquired Person and its consolidated
Subsidiaries as at the end of the period
<PAGE> 15
10
preceding the acquisition of such Person and the related consolidated
statements of income and stockholders' equity and of cash flows for the
period in respect of which Consolidated EBITDA is to be calculated (i)
have been previously provided to the Administrative Agent and the Lenders
and (ii) either (A) have been reported on without a qualification arising
out of the scope of the audit by independent certified public accountants
of nationally recognized standing or (B) have been found reasonably
acceptable by the Administrative Agent.
"Consolidated Net Income": for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated 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 Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries, (b) the income
(or deficit) of any Person (other than a Subsidiary of the Borrower) in
which the Borrower or any of its Subsidiaries has an ownership interest,
except to the extent that any such income is actually received by the
Borrower or such Subsidiary in the form of dividends or similar
distributions and (c) the undistributed earnings of any Subsidiary of the
Borrower 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.
"Consolidated Senior Debt": at any date, the aggregate principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP (other
than Revolving Extensions of Credit made under the Borrowing Base and the
Senior Subordinated Notes).
"Consolidated Senior Debt to EBITDA Ratio": as at the last day of
any period of four consecutive fiscal quarters, the ratio of (a)
Consolidated Senior Debt on such day to (b) Consolidated EBITDA for such
period; provided that for purposes of calculating Consolidated EBITDA of
the Borrower and its Subsidiaries for any period, the Consolidated EBITDA
of any Person acquired by the Borrower or its Subsidiaries during such
period shall be included on a pro forma basis, including the effect of
identified business synergies, for such period (assuming the consummation
of each such acquisition and the incurrence or assumption of any
Indebtedness in connection therewith occurred on the first day of such
period) if the consolidated balance sheet of such acquired Person and its
consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements of
income and stockholders' equity and of cash flows for the period in
respect of which Consolidated EBITDA is to be calculated (i) have been
previously provided to the Administrative Agent and the Lenders and (ii)
either (A) have been reported on without a qualification arising out of
the scope of the audit by independent certified public accountants of
nationally recognized standing or (B) have been found reasonably
acceptable by the Administrative Agent.
"Consolidated Total Debt": at any date, the aggregate principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such
date, determined on a
<PAGE> 16
11
consolidated basis in accordance with GAAP (other than Revolving
Extensions of Credit made under the Borrowing Base).
"Consolidated Working Capital": at any date, the excess of
Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"Continuing Directors": as defined in Section 8(j) hereof.
"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.
"Defaulted Account": as defined in the definition of the "Eligible
Accounts Receivable".
"Disposition": with respect to any Property, any sale, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof;
and the terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized
under the laws of any jurisdiction within the United States of America.
"ECF Percentage": 75%; provided, that, with respect to each fiscal
year of the Borrower ending on or after March 31, 2000, the ECF Percentage
shall be reduced to 50% if the Consolidated Leverage Ratio as of the last
day of such fiscal year is not greater than 4.0 to 1.0.
"Eligible Accounts Receivable": at the time of any determination,
the gross outstanding balance at such time, determined in accordance with
GAAP and stated on a basis consistent with the historical practices of the
Borrower as of the date hereof, of Accounts of the Borrower, including the
aggregate amount of all Past-due Addbacks less, as applicable and without
duplication, the aggregate amount of (i) all charge-backs for returns,
(ii) all finance agreements, (iii) all trade discounts, (iv) all finance
charges, late fees and other fees that are unearned, (v) the aggregate
amount of all reserves for service fees and such other fees or commissions
or similar amounts that the Borrower has agreed to pay and (vi) at the
discretion of the Administrative Agent, a dilution reserve, reasonably
determined by the Administrative Agent based upon the calculations set
forth in the most recent Borrowing Base Certificate delivered by the
Borrower, in an amount equal to the product of (A) the amount, expressed
as a percentage, by which dilution of Eligible Accounts Receivable in
respect of Standard Sales Invoices exceeds 25% and (B) the amount that
would constitute Eligible
<PAGE> 17
12
Accounts Receivable prior to the implementation of the reserve
contemplated by this clause (vi). Notwithstanding the foregoing, an
Account shall not be included in this definition of Eligible Accounts
Receivable if, at the time of any determination, without duplication:
(a) the Borrower has not complied with all material
requirements of applicable Federal, state and local and laws, rules,
regulations and orders (including all laws, rules, regulations and
orders of any governmental or judicial authority relating to truth
in lending, billing practices, fair credit reporting, equal credit
opportunity, debt collection practices and consumer debtor
protection) applicable to such Account (or any related contracts) or
affecting the collectibility of such Account:
(b)(i) such Account is not assignable or requires consent of
the Account debtor and such a requirement of consent is enforceable
law or (ii) a first priority security interest in such Account in
favor of the Administrative Agent for the ratable benefit of the
Lenders has not been obtained and fully perfected by filing Uniform
Commercial Code financing statements against the Borrower;
(c) such Account is subject to any Lien whatsoever, other than
Liens expressly permitted by Section 7.3;
(d) the Borrower, in order to be entitled to collect such
Account, is required to perform any additional service for, or
perform or incur any additional obligation to, the Account debtor,
except the portion of such Account that has arisen in respect of the
sale of any Information Systems Inventory;
(e) such Account does not constitute a legal, valid and
binding irrevocable payment obligation of the Account debtor to pay
the balance thereof in accordance with its terms or is subject to
any defense, setoff, recoupment or counterclaim;
(f) the Account debtor is an Affiliate, division or employee
of the Borrower;
(g)(i) if such Account (A) is an account of the United States
Government or any of its agencies or instrumentalities, (B) is
subject to any Lien pursuant to the Federal Assignment of Claims Act
and (C) the Administrative Agent has not received an assignment of
claims in form and substance satisfactory to it within 45 days of
the creation of such Account or (ii) such Account is (A) an account
of the government of any state of the United States or any political
subdivision thereof or any agency or instrumentality of any of the
foregoing and (B) a first priority security interest in such account
in favor of the Administrative Agent for the ratable benefit of
<PAGE> 18
13
the Lenders has not been obtained and fully perfected by filing
Uniform Commercial Code financing statements against the Borrower;
(h) an estimated or accrual loss has been recognized in
respect of such Account, as determined in accordance with the
Borrower's usual business practice (each such Account, a "Defaulted
Account");
(i) 20% or more of the aggregate outstanding amount of all
Accounts from the Account debtor in respect of such Account and its
Affiliates constitute Defaulted Accounts;
(j) any representation or warranty contained in this Agreement
or in any other Loan Documents applicable either to Accounts in
general or to any such specific Account shall prove to have been
false or misleading in any material respect when made or deemed made
with respect to such Account;
(k) 50% or more of the outstanding amount of all Accounts from
the Account debtor have become, or have been determined by the
Administrative Agent to be, ineligible pursuant to subparagraph (m)
below;
(l) the Account debtor (i) has filed a petition for relief
under the United States Bankruptcy Code (or similar action under any
successor law or under any comparable law), (ii) has made a general
assignment for the benefit of creditors, (iii) has filed against it
any petition or other application for relief under the United States
Bankruptcy Code (or similar action under any successor law or under
any comparable law), (iv) has failed, suspended business operations,
become insolvent, called a meeting of its creditors for the purpose
of obtaining any financial concession or accommodation or (v) had or
suffered a receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs;
(m)(i) any portion of such Account has remained unpaid 120 or
more days past the original invoice date thereof or (ii) the
Borrower has reason to believe that all or a material portion of
such Account is uncollectible (in the reasonable discretion of the
Administrative Agent);
(n) in respect of Buy-Fund Invoices, any portion of such
Account has remained unpaid 31 or more days past the original
invoice date therefor;
(o) the sale represented by such Account is to an Account
debtor organized or located outside the states of the United States,
the District of Columbia or Canada unless, in the case of any
Account debtor controlled by an entity organized or located outside
one of the states of the United States or the District of Columbia,
the Administrative Agent has, for the benefit of the Lenders, a
valid, legal and perfected first-priority security interest in such
Account;
<PAGE> 19
14
(p) the Account debtor is a supplier or creditor of the
Borrower (but only to the extent of the lesser of (i) the amount
owing from such Account debtor to the Borrower pursuant to Accounts
that are otherwise eligible and (ii) the amount owing to such
Account debtor by the Borrower);
(q) such Account is not denominated in dollars or is payable
outside the United States;
(r) if applicable, the sale represented by such Account is on
a bill-and- hold, undelivered sale, guaranteed sale, sale-or-return,
consignment or sale-on- approval basis or is subject to any right of
return (other than (i) in the ordinary course of business or (ii) a
standard right of claim for defective goods for which neither the
related Account debtor has made a claim nor the Borrower has any
basis to believe that such Account debtor is entitled to such a
claim), charge-back or setoff;
(s) the Administrative Agent believes, in its reasonable
discretion, that the collection of such Account may not be paid and
the Administrative Agent shall so notify the Borrower;
(t) the Borrower is in default, in any material respect, in
the performance or observance of any of the terms of any agreement
giving rise to such Account;
(u) the Borrower does not have good and marketable title to
such Account as sole owner of such Account;
(v) such Account does not arise from the sale and delivery of
goods or provision of services in the ordinary course of business of
the Borrower to the Account debtor;
(w) such Account is on terms other than those normal or
customary in the business or the Borrower;
(x) if such Account were to constitute an Eligible Accounts
Receivable, 15% or more of all Eligible Accounts Receivables would
be owing from the Account debtor in respect of such Account debtor
or any of its Affiliates;
(y) any amounts payable under or in connection with such
Account are evidenced by chattel paper, promissory notes, agreements
to repay cash advances or other instruments, unless such chattel
paper, promissory notes, agreements or instruments have been
endorsed and delivered to the Administrative Agent;
(z) such Account has been paid by a check that has been
returned for insufficient funds;
<PAGE> 20
15
(aa) the Account debtor is a third party credit card company
or a debit card company;
(bb) such Account is not subject to the standard credit and
collection policies of the Borrower;
(cc) such Account has been placed with an attorney or other
third party for collection; or
(dd) the aggregate credit balances of the Borrower on an
Account debtor by Account debtor basis of all Accounts have remained
unpaid for the past due amounts referenced in subparagraphs (m) and
(n) above.
"Eligible Inventory": at any date of determination thereof, the
value (determined at the lowest of cost or market or the written-down
value in accordance with the Borrower's historical practice in accordance
with GAAP) at such date of all inventories ("Inventory") of the Borrower
owned by the Borrower and in the possession of the Borrower or any
warehouseman, bailee, agent or processor of the Borrower, including any
educational institution or commercial Bookstore, net of (i) any
interdivisional profit, (ii) any amounts payable by the Borrower in
respect of commissions, processing fees or other charges, (iii) any
advance payments and unliquidated progress billings in respect of such
Inventory, (iv) the Obsolescence Reserve and (v) the RTV Reserve.
Notwithstanding the foregoing, Inventory shall not constitute Eligible
Inventory if, without duplication:
(a) such item of Inventory is not assignable or a first
priority security interest in such item of Inventory in favor of the
Administrative Agent for the ratable benefit of the Lenders has not
been obtained and fully perfected by filing Uniform Commercial Code
financing statements against the Borrower;
(b) such item of Inventory is subject to any Lien whatsoever,
other than Liens expressly permitted by Section 7.3 of this
Agreement;
(c) there shall have occurred any event that, or any condition
with respect to such item of Inventory, would substantially impede
the ability of the Borrower to continue to use or sell such item of
Inventory in the normal course of business;
(d) any claim disputing the title of the Borrower to, or right
to possession of or dominion over, such item of Inventory shall have
been asserted;
(e) any representation or warranty contained in this Agreement
or in any other Loan Document applicable to either Inventory in
general or to such specific item of Inventory has been breached with
respect to such item of Inventory;
<PAGE> 21
16
(f) the Borrower does not have good and marketable title as
sole owner of such item of Inventory;
(g) such item of Inventory is located outside of the United
States;
(h) such item of Inventory is evidenced by an Account;
(i) such item of Inventory consists of packing, packaging
and/or shipping supplies or materials;
(j) such item of Inventory has been shipped to a customer,
even if on a consignment or "sale or return" basis;
(k) such item of Inventory consists of obsolete Information
Systems Inventory or Retail Inventory, including books and related
materials with titles classified as slow-moving;
(l) such item of Inventory consists of any unsaleable
Inventory;
(m) such item of Inventory is located on a leasehold, or is in
the possession or control of any warehouseman, bailee, agent or
processor, unless (i) the applicable lessor, warehouseman, bailee,
agent or processor (including any educational institution or
commercial Bookstore), has been notified of the Lien granted under
the Security Documents and the Borrower has used its commercially
reasonable efforts to induce such lessor, warehouseman, bailee,
agent or processor to enter into a Landlord Waiver or (ii) (A) the
Administrative Agent shall have received an opinion, in form and
substance acceptable to and from local counsel approved by the
Administrative Agent, and addressed to the Administrative Agent, the
Issuing Bank and the Lenders, to the effect that there is no law in
the jurisdiction where such Inventory is located that would allow
Inventory located on such leasehold, or in the possession or control
of such warehouseman, bailee, agent or processor, to be subjected to
any Lien in favor of the applicable lessor, warehouseman, bailee,
agent or processor arising by operation of law and (B) the
Administrative Agent shall have received a certificate of a
Responsible Officer of the Borrower certifying that there is no term
or condition of any agreement or other document governing the
relationship between the Borrower and the applicable lessor,
warehouseman, bailee, agent or processor that provides for any such
Lien;
(n) such item of Inventory consists of food, beverages or
sundries;
(o) such item of Inventory consists of cigarettes;
(p) such item of Inventory is to be sold by the Borrower from
a vending machine; or
<PAGE> 22
17
(q) such item of Inventory has been determined by the
Administrative Agent, exercising its reasonable discretion, to be
unacceptable because (i) the Administrative Agent believes that such
item of Inventory is not readily saleable under the customary terms
on which it is usually sold or (ii) such item of Inventory (other
than Information Systems Inventory) is not of a type typically sold
by campus Bookstores.
"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 protection of human health or
the environment, as now or may at any time hereafter be in effect.
"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 maximum rates
(expressed as a decimal) 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 per annum
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 Dow Jones Markets screen 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 Dow Jones Markets screen (or otherwise on such service), the
"Eurodollar Base Rate" for purposes of this definition shall be determined
by reference to such other comparable publicly available service for
displaying eurodollar rates as may be selected by the Administrative Agent
or, in the absence of such availability, by reference to the rate at which
Chase is offered Dollar deposits at or about 11:00 A.M., New York City
time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency
and exchange operations are then being conducted for delivery on the first
day of such Interest Period for the number of days comprised therein.
"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
<PAGE> 23
18
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
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).
"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 fiscal year of the Borrower, the excess,
if any, of (a) the sum, without duplication, of (i) Consolidated Net
Income for such fiscal year, (ii) an amount equal to the amount of all
non-cash charges (including depreciation and amortization) deducted in
arriving at such Consolidated Net Income, (iii) an amount equal to the
aggregate net non-cash loss on the Disposition of Property by the Borrower
and its Subsidiaries during such fiscal year (other than sales of
inventory in the ordinary course of business), to the extent deducted in
arriving at such Consolidated Net Income, (iv) the net increase during
such fiscal year (if any) in deferred tax accounts of the Borrower and its
Subsidiaries and (v) decreases in Consolidated Working Capital for such
fiscal year over (b) the sum, without duplication, of (i) an amount equal
to the amount of all non-cash credits included in arriving at such
Consolidated Net Income, (ii) the aggregate amount actually paid by the
Borrower and its Subsidiaries in cash during such fiscal year on account
of Capital Expenditures, (iii) the aggregate amount actually paid by the
Borrower and its Subsidiaries in cash during such fiscal year on account
of acquisitions (net of any debt incurred in such fiscal year in
connection with such acquisition and without duplication of any amounts
included in clause (b)(ix) below), (iv) the aggregate amount of all
prepayments of Revolving Credit Loans and Swing Line Loans during such
fiscal year to the extent accompanying permanent optional reductions of
the Revolving Credit Commitments, (v) the aggregate amount of all optional
prepayments of the Term Loans during such fiscal year, (vi) the aggregate
amount of all regularly scheduled principal payments of Funded Debt
(including, without limitation, the Term Loans) of the Borrower and its
Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent
permanent reduction in commitments thereunder), (vii) an amount equal to
the aggregate net non-cash gain on the Disposition of Property by the
Borrower and its Subsidiaries during such fiscal year (other than sales of
inventory in the ordinary course of business), to the extent included in
arriving at such Consolidated Net Income, (viii) the net decrease during
such fiscal year (if any) in deferred tax accounts of the Borrower and
(ix) increases in Consolidated Working Capital for such fiscal year
(without duplication of any amounts included in clause (b)(iii) above).
"Excess Cash Flow Application Date": as defined in Section 2.12(c).
<PAGE> 24
19
"Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect
of which either (i) the pledge of all of the Capital Stock of such
Subsidiary as Collateral or (ii) the guaranteeing by such Subsidiary of
the Obligations, would, in the good faith judgment of the Borrower, result
in adverse tax consequences to the Borrower.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"),
(b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made
thereunder (the "Tranche B Term Loan Facility") and (c) the Revolving
Credit Commitments and the extensions of credit made thereunder (the
"Revolving Credit Facility").
"Federal Funds Effective Rate"; 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 by
the Reference Lender from three federal funds brokers of recognized
standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"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 Borrower, Indebtedness in respect of the Loans.
"Funding Office": the office specified from time to time by the
Administrative Agent as its funding office by notice to the Borrower and
the Lenders pursuant to Section 10.2.
"GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time, except that for purposes
of Section 7.1, GAAP shall be determined on the basis of such principles
in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements delivered
pursuant to Section 4.1(b). In the event that any "Accounting Change" (as
defined below) shall occur and such change results in a change in the
method of calculation of financial covenants, standards or terms in this
Agreement, then the Borrower and the Administrative Agent agree to enter
into negotiations in order to amend such provisions of this Agreement so
as to equitably reflect such Accounting Changes with the desired result
that the criteria for evaluating the
<PAGE> 25
20
Borrower's financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made. Until such time
as such an amendment shall have been executed and delivered by the
Borrower, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be
calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required
by the promulgation of any rule, regulation, pronouncement or opinion by
the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants or, if applicable, the Securities and
Exchange Commission (or successors thereto or agencies with similar
functions).
"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 (including, without limitation, the National
Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.
"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
<PAGE> 26
21
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantors": the collective reference to Holdings and the
Subsidiary Guarantors.
"Holdings": as defined in the preamble hereto.
"Holdings Discount Debentures": as defined in the recitals hereto.
"Holdings Discount Debentures Indenture": the Indenture entered into
by Holdings in connection with the issuance of the Holdings Discount
Debentures, together with all instruments and other agreements entered
into by Holdings in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with
Section 7.9.
"Holdings Pro Forma Financial Statements": as defined in Section
4.1(a)(i).
"Holdings Projections": as defined in Section 6.2(c)(i).
"HWH Capital Partners": as defined in the recitals hereto.
"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 of such Person, (f) all
obligations of such Person, contingent or otherwise, as an account party
under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person, contingent or otherwise, to purchase, redeem,
retire or otherwise acquire for value any Capital Stock (other than common
stock) of such Person, (h) all Guarantee Obligations of such Person in
respect of obligations of the kind referred to in clauses (a) through (g)
above; (i) all obligations of the kind referred to in clauses (a) through
(h) above secured by (or for which the holder of such obligation has an
existing right, contingent or otherwise, to be secured by) any Lien on
Property (including, without limitation, accounts and contract rights)
owned by such Person, whether or not such Person has assumed or become
liable for the payment of such obligation, (j) for the purposes of Section
8(e) only, all obligations of such Person in respect of Interest Rate
Protection Agreements and (k) the liquidation value of any mandatorily
redeemable preferred Capital Stock of such Person or its Subsidiaries held
by any Person other than such Person and its Wholly Owned Subsidiaries.
<PAGE> 27
22
"Information Systems Inventory": all Inventory located at the
Borrower's warehouses consisting of computer hardware and software,
including IBM point-of-sale register systems and related software.
"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.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement
or other impairment thereof, including the right to receive all proceeds
and damages therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
of each January, April, July and October to occur while such Loan is
outstanding and the final maturity date of such Loan, (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 and (d) as to any Loan (other
than any Revolving Credit Loan that is a Base Rate Loan and any Swing Line
Loan), the date of any repayment or prepayment made in respect thereof.
"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 Borrower in its 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 Borrower 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 or beyond the date final
payment is due on the Tranche A Term Loans or the Tranche B Term
Loans, as the case may be,
<PAGE> 28
23
shall end on the Revolving Credit Termination Date or such due date,
as applicable;
(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 Borrower 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
Borrower or any of its Subsidiaries is a party or a beneficiary on the
date hereof or becomes a party or a beneficiary after the date hereof.
"Issuing Lender": The Chase Manhattan Bank, in its capacity as
issuer of any Letter of Credit.
"Inventory": as defined in the definition of "Eligible Inventory".
"Landlord Waiver": a written agreement satisfactory in form and
substance to the Administrative Agent (i) acknowledging that Inventory
located on a leasehold or in possession or control of any warehouseman,
bailee, agent or processor is subject to the Lien granted under the
Security Documents, (ii) waiving and releasing any applicable Lien held by
such lessor, warehouseman, bailee, agent or processor with respect to such
item of Inventory (whether arising by operation of law or otherwise) and
(iii) providing the Administrative Agent with the right to receive notice
of default, the right to repossess such item of Inventory at any time upon
the occurrence or during the continuance of a Default or Event of Default
and such other rights as may be reasonably required by the Administrative
Agent.
"L/C Commitment": $10,000,000.
"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.
<PAGE> 29
24
"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 Security Documents and the
Notes.
"Loan Parties": Holdings, the Borrower and each Subsidiary of
Holdings which is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the
Tranche A Term Loans, the Tranche B Term Loans or the Total Revolving
Extensions of Credit, as the case may be, outstanding under such Facility
(or, in the case of the Revolving Credit Facility, prior to any
termination of the Revolving Credit Commitments, the holders of more than
50% of the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
Lenders in respect of the Revolving Credit Facility.
"Management Investors": as defined in the recitals hereto.
"Material Adverse Effect": a material adverse effect on (a) the
Transactions, (b) the business, operations, property, condition (financial
or otherwise), prospects (on the Closing Date only), contingent
liabilities and material agreements of the Borrower and its 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 Holdings
and/or its Subsidiaries in excess of $1,000,000 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.
"Merger": as defined in the recitals hereto.
<PAGE> 30
25
"Merger Agreement": as defined in the recitals hereto.
"Merger Sub": as defined in the recitals hereto.
"Monthly Borrowing Base Certificate": a certificate executed and
delivered by the Borrower, substantially in the form of Exhibit J-2,
delivered pursuant to subsection 6.2(g).
"Mortgaged Properties": the owned real properties listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the Lenders
shall be granted a Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
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 D
(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.
"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 pursuant to a Security Document) 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 2.20(a).
"Non-Peak Period": the collective reference to (i) the period from
and including January 16 of any year to and including April 30 of the same
year and (ii) the period from and including September 16 of any year to
and including November 30 of the same year.
"Non-U.S. Lender": as defined in Section 2.20(d).
<PAGE> 31
26
"Notes": the collective reference to any promissory note evidencing
Loans.
"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 Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Administrative Agent or to any Lender (or, in the case of
Interest Rate Protection Agreements, any affiliate of 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 affiliate of 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 Borrower pursuant hereto) or otherwise.
"Obsolescence Reserve": an amount equal to 50% of the excess of (a)
total Wholesale Inventory held by the Borrower over (b) the Inventory
listed in the Borrower's buyers' guide; provided that during the Peak
Period such percentage shall be reduced to 25% so long as the Borrower
provides the supporting documentation and additional reports described in
Exhibit J-3 with respect to such Wholesale Inventory.
"Other Taxes": any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement.
"Over Advance Amount": (i) for the period from and including January
16 of any year to and including April 30 of the same year, $0, (ii) for
the period from and including May 1 of any year to and including June 30
of the same year, $10,000,000, (iii) for the period from and including
July 1 of any year to and including August 9 of the same year, $5,000,000,
(iv) for the period from and including August 10 of any year to and
including September 15 of the same year, $10,000,000, (v) for the period
from and including September 16 of any year to and including November 30
of the same year, $0, and (vi) for the period from and including December
1 of any year to and including January 15 of next succeeding year,
$10,000,000.
"Participant": as defined in Section 10.6(b).
"Past-due Addbacks": the aggregate amount of past due credit
balances aged over 120 days from the original invoice date.
<PAGE> 32
27
"Payment Office": the office specified from time to time by the
Administrative Agent as its payment office by notice to the Borrower and
the Lenders.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Peak Period": the collective reference to (i) the period from and
including May 1 of any year to and including September 15 of the same year
and (ii) the period from and including December 1 of any year to and
including January 15 of next succeeding year.
"Person": an individual, partnership, corporation, limited liability
company, 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 Borrower 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.
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Primary Investors": the collective reference to the Sponsor and its
Related Parties, HWH Capital Partners and any additional investment fund
for which the Sponsor is the sole advisor or which is effectively
controlled by the Sponsor.
"Pro Forma Financial Statements": the collective reference to the
Borrower Pro Forma Financial Statements and the Holdings Pro Forma
Financial Statements.
"Properties": as defined in Section 4.17.
"Property": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding
relating to any asset of Holdings, the Borrower or any of their respective
Subsidiaries.
"Reference Lender": the Administrative Agent.
"Refunded Swing Line Loans": as defined in Section 2.7.
"Refunding Date": as defined in Section 2.7.
"Register": as defined in Section 10.6(d).
<PAGE> 33
28
"Regulation G": Regulation G of the Board as in effect from time to
time.
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Reimbursement Obligation": the obligation of the Borrower 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 Holdings, the Borrower
or any of their respective 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 Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing
and that the Borrower (directly or indirectly through a Subsidiary)
intends and expects to use all or a specified portion of the Net Cash
Proceeds of an Asset Sale or Recovery Event to acquire assets useful in
its business.
"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 acquire
assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
Event, the earlier of (a) the date occurring one year after such
Reinvestment Event and (b) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, acquire assets
useful in the Borrower's business with all or any portion of the relevant
Reinvestment Deferred Amount.
"Related Party": with respect to the Sponsor (A) any controlling
stockholder or partner, a direct or indirect 80% (or more) owned
Subsidiary, or spouse or immediate family member (in the case of an
individual) of the Sponsor, (B) any trust, corporation, partnership or
other entity, the controlling beneficiaries, stockholders, partners or
owners of which, directly or indirectly, consist of the Sponsor and/or
such other Persons referred to in the immediately preceding clause (A)
and/or in the succeeding clause (D), (C) any partner or stockholder of the
Sponsor as of the Closing Date who acquires any assets or voting stock of
the Borrower or Holdings pursuant to a general distribution by the Sponsor
to each of its partners or stockholders or (D) any officer or director of
the Sponsor.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
<PAGE> 34
29
"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. ss.
2615.
"Required Lenders": the holders of more than 50% 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 Total
Revolving Credit Commitments or, if the Revolving Credit Commitments have
been terminated, the Total Revolving Extensions of Credit.
"Required Prepayment Lenders": the Majority Facility Lenders in
respect of each Facility.
"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 Borrower, but in any event, with respect to
financial matters, the chief financial officer or controller of the
Borrower.
"Retail Inventory": all Inventory located at a Bookstore consisting
of: new and used textbooks, including any related study aids; general
subject books; medical, technical and reference books; periodicals and
magazines; clothing, including school insignia items; electronics; gifts;
stationery and cards; school and office supplies and art; food, beverages
and sundries; and all other items held for resale in the ordinary course
of business.
"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans and participate in
Swing Line Loans and Letters of Credit, 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
1.1A, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Credit Commitments is
$50,000,000.
"Revolving Credit Commitment Period": the period from and including
the Closing Date to the Revolving Credit Termination Date.
"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 2.4.
<PAGE> 35
30
"Revolving Credit Percentage": as to any Revolving Credit Lender at
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the Total 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 Extensions of Credit then outstanding constitutes of
the aggregate principal amount of the Total Revolving Extensions of Credit
then outstanding).
"Revolving Credit Termination Date": March 31, 2004.
"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.
"RTV Reserve": at any time, an amount equal to the amount of
Inventory that is identified as to be returned to vendor.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages and all other security documents
hereafter delivered to the Administrative Agent granting a Lien on any
Property of any Person to secure the obligations and liabilities of any
Loan Party under any Loan Document.
"Senior Subordinated Note Indenture": the Indenture entered into by
the Borrower in connection with the issuance of the Senior Subordinated
Notes, together with all instruments and other agreements entered into by
the Borrower in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with
Section 7.9.
"Senior Subordinated Notes": as defined in the recitals hereto.
"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
<PAGE> 36
31
"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.
"Sponsor": as defined in the recitals hereto.
"Standard Sales Invoices": the collective reference to (i) invoices
resulting from sales by the Borrower to educational institutions or
commercial Bookstores of new or used books and other instructional
educational materials and (ii) invoices resulting from sales by the
Borrower to educational institutions or commercial Bookstores of
Information Systems Inventory or other Inventory in an aggregate amount at
any time of up to 10% of the gross Accounts with respect to all invoices
to educational institutions or commercial Bookstores, excluding Buy-Fund
Invoices, provided that the percentage of the gross Accounts with respect
to invoices to educational institutions or commercial Bookstores which may
result from sales of Information Systems Inventory or other Inventory
shall be subject to revision by the Administrative Agent in its reasonable
discretion within one year after the Closing Date upon the completion of a
satisfactory field review of such Accounts and Inventory by the
Administrative Agent.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company 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 the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than
any Excluded Foreign Subsidiary.
"Swing Line Commitment": the obligation of the Swing Line Lender to
make Swing Line Loans pursuant to Section 2.6 in an aggregate principal
amount at any one time outstanding not to exceed $5,000,000.
"Swing Line Lender": The Chase Manhattan Bank, in its capacity as
the lender of Swing Line Loans.
"Swing Line Loans": as defined in Section 2.6.
"Swing Line Participation Amount": as defined in Section 2.7.
<PAGE> 37
32
"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.
"Total Revolving Credit Commitments": at any time, the aggregate
amount of the Revolving Credit Commitments at such time.
"Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Credit
Lenders at such time.
"Tranche A Term Loan": as defined in Section 2.1.
"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 Borrower
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 1.1A. The original aggregate amount of the Tranche A Term Loan
Commitments is $27,500,000.
"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 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 B Term Loan": as defined in Section 2.1.
"Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender,
the obligation of such Lender, if any, to make a Tranche B Term Loan to
the Borrower 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 1.1A. The original aggregate amount of the
Tranche B Term Loan Commitments is $32,500,000.
"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
<PAGE> 38
33
Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding); provided,
that solely for purposes of calculating the amount of each installment of
Tranche B Term Loans (other than the last installment) payable to a Term
Loan Lender pursuant to Section 2.3(b), such Term Loan Lender's Tranche B
Term Loan Percentage shall be calculated without giving effect to any
portion of any prior mandatory or optional prepayment attributable to such
Term Loan Lender's Tranche B Term Loans which shall have been declined by
such Term Loan Lender (or, in the case of any Term Loan Lender which shall
have acquired its Tranche B Term Loans by assignment from another Person,
by such other Person).
"Transactions": as defined in the recitals hereto.
"Transferee": as defined in Section 10.15.
"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.
"Warehouse": any warehouses being used by the Borrower or its
Subsidiaries.
"Weekly Borrowing Base Certificate": a certificate executed and
delivered by the Borrower, substantially in the form of Exhibit J-1,
delivered pursuant to subsection 6.2(g).
"Wholesale Inventory": at any time, Inventory that is located at a
Warehouse at such time and consists of textbooks.
"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.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that
is a Wholly Owned Subsidiary of the Borrower.
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 Holdings, the Borrower and their respective
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.
<PAGE> 39
34
(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 Term Loan Commitments. Subject to the terms and conditions
hereof, (a) each Tranche A Term Loan Lender severally agrees to make a term loan
(a "Tranche A Term Loan") to the Borrower on the Closing Date in an amount not
to exceed the amount of the Tranche A Term Loan Commitment of such Lender and
(b) each Tranche B Term Loan Lender severally agrees to make a term loan (a
"Tranche B Term Loan") to the Borrower on the Closing Date in an amount not to
exceed the amount of the Tranche B Term Loan Commitment of such Lender. The Term
Loans may from time to time be Eurodollar Loans or Base Rate Loans, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.2 and 2.13.
2.2 Procedure for Term Loan Borrowing. The Borrower 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 Term Loan Lenders
make the Term Loans on the Closing Date and specifying the amount to be
borrowed. The Term Loans made on the Closing Date shall initially be Base Rate
Loans. Upon receipt of such notice the Administrative Agent shall promptly
notify each Term Loan Lender thereof. Not later than 12:00 Noon, New York City
time, on the Closing Date each Term Loan Lender shall make available to the
Administrative Agent at the Funding Office an amount in immediately available
funds equal to the Term Loan or Term Loans to be made by such Lender. The
Administrative Agent shall make available to the Borrower the aggregate of the
amounts made available to the Administrative Agent by the Term Loan Lenders in
immediately available funds.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loan of each
Tranche A Lender shall mature in 24 consecutive quarterly installments,
commencing on July 31, 1998, each of which shall be in an amount equal to such
Lender's Tranche A Term Loan Percentage multiplied by the amount set forth below
opposite such installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
July 31, 1998 $156,250
October 31, 1998 $468,750
January 31, 1999 $312,500
April 30, 1999 $312,500
July 31, 1999 $375,000
</TABLE>
<PAGE> 40
35
<TABLE>
<S> <C>
October 31, 1999 $1,125,000
January 31, 2000 $750,000
April 30, 2000 $750,000
July 31, 2000 $531,250
October 31, 2000 $1,593,750
January 31, 2001 $1,062,500
April 30, 2001 $1,062,500
July 31, 2001 $787,500
October 31, 2001 $2,362,500
January 31, 2002 $1,575,000
April 30, 2002 $1,575,000
July 31, 2002 $787,500
October 31, 2002 $2,362,500
January 31, 2003 $1,575,000
April 30, 2003 $1,575,000
July 31, 2003 $800,000
October 31, 2003 $2,400,000
January 31, 2004 $1,600,000
March 31, 2004 $1,600,000
</TABLE>
; provided that, notwithstanding the provisions of subsection 2.18(b) but
subject to the provisions of Section 2.21, the payments of principal of the
Tranche A Term Loans scheduled to be made on April 30 of each year may be made
at any time during the period from March 15 to April 30 of such year, in one
payment only, and any such payment made during such period and designated as the
scheduled installment for April 30 of such year shall be deemed to be the
scheduled installment for April 30 of such year and shall under no circumstances
be deemed to be an optional prepayment under Section 2.11.
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in
32 consecutive quarterly installments, commencing on July 31, 1998, each of
which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage multiplied by the amount set forth below opposite such installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
July 31, 1998 $125,000
October 31, 1998 $125,000
January 31, 1999 $125,000
April 30, 1999 $125,000
July 31, 1999 $125,000
October 31, 1999 $125,000
January 31, 2000 $125,000
April 30, 2000 $125,000
July 31, 2000 $125,000
October 31, 2000 $125,000
January 31, 2001 $125,000
April 30, 2001 $125,000
</TABLE>
<PAGE> 41
36
<TABLE>
<S> <C>
July 31, 2001 $125,000
October 31, 2001 $125,000
January 31, 2002 $125,000
April 30, 2002 $125,000
July 31, 2002 $125,000
October 31, 2002 $125,000
January 31, 2003 $125,000
April 30, 2003 $125,000
July 31, 2003 $125,000
October 31, 2003 $125,000
January 31, 2004 $125,000
April 30, 2004 $125,000
July 31, 2004 $1,843,750
October 31, 2004 $5,531,250
January 31, 2005 $3,687,500
April 30, 2005 $3,687,500
July 31, 2005 $1,843,750
October 31, 2005 $5,531,250
January 31, 2006 $3,687,500
March 31, 2006 $3,687,500
</TABLE>
; provided that, notwithstanding the provisions of subsection 2.18(b) but
subject to the provisions of Section 2.21, the payments of principal of the
Tranche B Term Loans scheduled to be made on April 30 of each year may be made
at any time during the period from March 15 to April 30 of such year, in one
payment only, and any such payment made during such period and designated as the
scheduled installment for April 30 of such year shall be deemed to be the
scheduled installment for April 30 of such year and shall under no circumstances
be deemed to be an optional prepayment under Section 2.11.
2.4 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 Borrower 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 (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;
provided that no Revolving Credit Loans shall be made if, after giving effect to
the making of such Revolving Credit Loans, the Total Revolving Extensions of
Credit would exceed the lesser of (A) the sum of (i) the Borrowing Base then in
effect plus (ii) the Acquisition Advance Amount and (B) the Total Revolving
Credit Commitments; and provided further that not more than $1,000,000 of
Revolving Extensions of Credit shall be available for borrowing on the Closing
Date. During the Revolving Credit Commitment Period the Borrower 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. The Revolving Credit Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.5 and 2.13, provided
that no Revolving
<PAGE> 42
37
Credit Loan shall be made as a Eurodollar Loan after the day that is one month
prior to the Revolving Credit Termination Date.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the 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, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be
borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar
Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. Any Revolving Credit Loans made
on the Closing Date shall initially be Base Rate Loans. 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
aggregate 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 $500,000 in excess thereof; provided, that the Swing Line Lender may
request, on behalf of the Borrower, borrowings under the Revolving Credit
Commitments which are Base Rate Loans in other amounts pursuant to Section 2.7.
Upon receipt of any such notice from the 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 Borrower at the
Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to the Borrower by the
Administrative Agent in like funds as received by the Administrative Agent.
2.6 Swing Line Commitment. (a) Subject to the terms and conditions
hereof, the Swing Line Lender agrees to make available a portion of the credit
otherwise available to the Borrower under the Revolving Credit Commitments from
time to time during the Revolving Credit Commitment Period by making swing line
loans ("Swing Line Loans") to the Borrower; provided that (i) 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 Revolving Credit Loans hereunder, may exceed the Swing Line
Commitment then in effect) and (ii) the 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 Borrower 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.
<PAGE> 43
38
(b) The Borrower shall repay all outstanding Swing Line Loans on the
Revolving Credit Termination Date.
2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line
Loans. (a) Whenever the Borrower desires that the Swing Line Lender make Swing
Line Loans 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 (i) the amount to be borrowed and (ii) the requested
Borrowing Date (which shall be a Business Day during the Revolving Credit
Commitment Period). Each borrowing under the Swing Line Commitment shall be in
an amount equal to $1,000,000 or a whole multiple of $100,000 in excess thereof.
Not later than 3:00 P.M., New York City time, on the Borrowing Date specified in
a notice in respect of Swing Line Loans, the Swing Line Lender shall make
available to the Administrative Agent at the Funding Office 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 Borrower on such Borrowing Date in
immediately available funds.
(b) The Swing Line Lender, at any time and from time to time in its
sole and absolute discretion may, on behalf of the Borrower (which hereby
irrevocably directs the Swing Line Lender to act on its behalf), on one Business
Day's notice given by the Swing Line Lender no later than 12:00 Noon, 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. Each Revolving Credit
Lender shall make the amount of such Revolving Credit Loan available to the
Administrative Agent at the Funding Office 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. The
Borrower irrevocably authorizes the Swing Line Lender to charge the Borrower's
accounts with the Administrative Agent (up to the amount available in each such
account) in order 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.
(c) If prior to the time a Revolving Credit Loan would have
otherwise been made pursuant to Section 2.7(b), one of the events described in
Section 8(f) shall have occurred and be continuing with respect to the Borrower
or if for any other reason, as determined by the Swing Line Lender in its sole
discretion, Revolving Credit Loans may not be made as contemplated by Section
2.7(b), 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 2.7(b)
(the "Refunding Date"), purchase for cash 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").
<PAGE> 44
39
(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 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 2.7(b) and to purchase participating interests pursuant
to Section 2.7(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 Borrower may have against the Swing Line Lender, the Borrower 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 Borrower; (iv) any breach of this Agreement or
any other Loan Document by the Borrower, 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.
2.8 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Credit Lender or Term Loan Lender or the Swing Line
Lender, as the case may be, (i) the then unpaid principal amount of each
Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit
Termination Date (or such earlier date on which the Loans become due and payable
pursuant to Section 8), (ii) the then unpaid principal amount of each Swing Line
Loan of the Swing Line Lender on the Revolving Credit Termination Date (or such
earlier date on which the Loans become due and payable pursuant to Section 8)
and (iii) the principal amount of each Term Loan of such Term Loan Lender in
installments according to the amortization schedule set forth in Section 2.3 (or
on such earlier date on which the Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees 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 Borrower 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 Borrower, shall
maintain the Register pursuant to Section 10.6(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder and any Note evidencing such
<PAGE> 45
40
Loan, the Type thereof and each Interest Period applicable thereto, (ii) the
amount of any principal or interest due and payable or to become due and payable
from the Borrower to each Lender hereunder and (iii) both the amount of any sum
received by the Administrative Agent hereunder from the Borrower and each
Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.8(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower 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 Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing any Term Loans, Revolving Credit
Loans or Swing Line Loans, as the case may be, of such Lender, substantially in
the forms of Exhibit G-1, G-2 or G-3, respectively, with appropriate insertions
as to date and principal amount.
2.9 Commitment Fees, etc. (a) The Borrower agrees 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 Commitment Fee
Rate 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
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates from time to time agreed to in writing by the
Borrower and the Administrative Agent.
2.10 Termination or Reduction of Revolving Credit Commitments. The
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 Total Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments. 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 Borrower may at any time and from
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of Base Rate
<PAGE> 46
41
Loans, which notice shall specify the date and amount of prepayment and whether
the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a
Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto, the Borrower shall also pay any amounts owing
pursuant to Section 2.21. Upon receipt of any such notice the Administrative
Agent shall promptly notify each relevant 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 (except in the case of Revolving Credit Loans
which are Base Rate Loans and Swing Line Loans) accrued interest to such date on
the amount prepaid. Partial prepayments of Term Loans and Revolving Credit Loans
shall be in an aggregate principal amount not less than $500,000. Partial
prepayments of the Term Loans shall be applied in the order set forth in Section
2.18. Partial prepayments of Swing Line Loans shall be in an aggregate principal
amount not less than $500,000.
2.12 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be
issued, or Indebtedness incurred, by Holdings, the Borrower or any of their
respective Subsidiaries (excluding (i) any Capital Stock of Holdings issued to
the Primary Investors in an aggregate amount of up to $15,000,000 in order to
finance Capital Expenditures and acquisitions otherwise permitted by this
Agreement and (ii) any Indebtedness incurred in accordance with subsections
7.2(a), (b), (c), (d), (e), (f), (g) and (h) as in effect on the date of this
Agreement), 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
Section 2.12(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date Holdings, the Borrower or any of their respective Subsidiaries shall
receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a
Reinvestment Notice shall be delivered in respect thereof, 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 Section
2.12(d); provided, that, notwithstanding the foregoing, (i) the aggregate Net
Cash Proceeds of Asset Sales and Recovery Events that may be excluded from the
foregoing requirement pursuant to a Reinvestment Notice shall not exceed
$1,000,000 in any fiscal year of the Borrower, or $2,000,000 in any fiscal year
of the Borrower immediately succeeding a fiscal year of the Borrower as of the
last day of which the Consolidated Leverage Ratio is less than or equal to 4.0
to 1.0, and (ii) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.12(d); and provided
further, that notwithstanding the foregoing, such Net Cash Proceeds which are
not subject to a Reinvestment Notice shall not be required to be applied toward
the prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments until the date upon which the aggregate amount of such Net Cash
Proceeds received by Holdings, the Borrower and their respective Subsidiaries
and not previously applied toward the prepayment of the Term Loans and the
reduction of the Revolving Credit Commitments shall exceed $1,000,000.
(c) Unless the Required Prepayment Lenders shall otherwise agree,
if, for any fiscal year of the Borrower commencing with the fiscal year ending
March 31, 1999, there
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42
shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow
Application Date, apply the ECF Percentage of such Excess Cash Flow toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.12(d). Each such prepayment and commitment
reduction shall be made on a date (an "Excess Cash Flow Application Date") no
later than three months after the date on which the financial statements of the
Borrower 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.
(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 Total Revolving
Extensions of Credit exceed the amount of the Total 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 Borrower
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 first to Base Rate
Loans and second to Eurodollar Loans. Each prepayment of the Loans under this
Section 2.12 (except in the case of Revolving Credit Loans that are Base Rate
Loans and Swing Line Loans) shall be accompanied by accrued interest to the date
of such prepayment on the amount prepaid. Partial prepayments of the Term Loans
shall be applied in the order set forth in Section 2.18.
(e) If, at any time the Total Revolving Extensions of Credit exceeds
the lesser of (A) the sum of (i) the Borrowing Base in effect on such date plus
(ii) the Acquisition Advance Amount and (B) the Total Revolving Credit
Commitments, the Borrower shall repay the Revolving Credit Loans to the extent
of such excess, provided that if the aggregate principal amount of Revolving
Credit Loans then outstanding is less than the amount of such excess (because
L/C Obligations constitute a portion thereof), the Borrower 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.
(f) The Borrower agrees that during each calendar year there shall
be a period of at least 30 consecutive days during which there are no Revolving
Extensions of Credit outstanding (other than Revolving Extensions of Credit made
under the Acquisition Advance Amount).
2.13 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to Base Rate Loans by 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
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43
with respect thereto. The Borrower may elect from time to time to convert Base
Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three
Business Days' prior irrevocable notice of such election (which notice shall
specify the length of the initial Interest Period therefor), provided that no
Base Rate Loan under a particular Facility may be converted into a Eurodollar
Loan (i) when any Event of Default has occurred and is continuing and the
Administrative Agent or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
conversions or (ii) after the date that is one month prior to the final
scheduled termination or maturity date of such Facility. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the 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 under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the 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. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
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 Eurodollar 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 Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $2,500,000 or a whole multiple of $500,000
in excess thereof and (b) no more than ten Eurodollar Tranches 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 (it being understood that Eurodollar Loans bear
interest from and including the first day of each Interest Period to but not
including the last day of such Interest Period).
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or
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44
not overdue) shall bear interest at a rate per annum which is equal to (x) in
the case of the Loans, the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this Section 2.15 plus 2% or (y) in the
case of Reimbursement Obligations, the rate applicable to Base Rate Loans under
the Revolving Credit Facility plus 2%, and (ii) if all or a portion of any
interest payable on any Loan or Reimbursement Obligation or any commitment fee
or other amount payable hereunder shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum equal to the rate applicable to Base Rate Loans
under the relevant Facility plus 2%.
(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, fees and
commissions payable pursuant hereto 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 Borrower and the relevant 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 Borrower and the relevant 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 Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.15(a) and the manner of
performing any required calculation hereunder.
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 Borrower) 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
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility 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,
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45
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility 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 under the
relevant Facility 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 under the relevant Facility shall be made or
continued as such, nor shall the Borrower have the right to convert Loans under
the relevant Facility to Eurodollar Loans.
2.18 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower 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.
(b) Each payment (including each prepayment) by the Borrower 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 (except as otherwise provided in Section 2.18(d)).
As among the Term Loans of any Tranche, prepayments shall be applied 75% ratably
to the respective remaining installments thereof and 25% in the direct order to
the respective next four installments thereof (or, to the extent that the
aggregate principal amount of the next four installments of the Tranche A Term
Loan Facility or the Tranche B Term Loan Facility, as the case may be, is less
than such 25%, the excess shall be applied ratably to the respective remaining
installments thereof). Amounts prepaid on account of the Term Loans may not be
reborrowed.
(c) Each payment (including each prepayment) by the Borrower 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.
(d) Notwithstanding anything to the contrary in Section 2.12 or
2.18, so long as any Tranche A Term Loans are outstanding, each Tranche B Term
Loan Lender may, at its option, decline up to 100% of the portion of any
mandatory payment applicable to the Tranche B Term Loans of such Lender;
accordingly, with respect to the amount of any mandatory prepayment described in
Section 2.12 that is allocated to Tranche B Term Loans (such amounts, the
"Tranche B Prepayment Amount"), at any time when Tranche A Term Loans remain
outstanding, the Borrower will, in lieu of applying such amount to the
prepayment of Tranche B Term Loans, on the date specified in Section 2.12 for
such prepayment, give the Administrative Agent telephonic notice (promptly
confirmed in writing) requesting that the Administrative Agent prepare and
provide to each Tranche B Lender a notice (each, a "Prepayment Option Notice")
as described below. As promptly as practicable after receiving such notice from
the Borrower, the Administrative Agent will send to each
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Tranche B Lender a Prepayment Option Notice, which shall be in the form of
Exhibit H, and shall include an offer by the Borrower to prepay on the date
(each a "Prepayment Date") that is five Business Days after the date of the
Prepayment Option Notice, the relevant Term Loans of such Lender by an amount
equal to the portion of the Prepayment Amount indicated in such Lender's
Prepayment Option Notice as being applicable to such Lender's Tranche B Term
Loans. On the Prepayment Date (i) the Borrower shall pay to the Administrative
Agent the aggregate amount necessary to prepay that portion of the outstanding
relevant Term Loans in respect of which Tranche B Lenders have accepted
prepayment as described above (such Lenders, the "Accepting Lenders"), and such
amount shall be applied to reduce the Tranche B Prepayment Amounts, with respect
to each Accepting Lender and (ii) the Borrower shall pay to the Administrative
Agent an amount equal to 100% of the portion of the Tranche B Prepayment Amount
not accepted by the Accepting Lenders, and such amount shall be applied to the
prepayment of the Tranche A Term Loans.
(e) All payments (including prepayments) to be made by the Borrower
hereunder, 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 Payment Office, 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.
(f) 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(f) 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 under the relevant Facility (in lieu of interest otherwise
provided for hereunder), on demand, from the Borrower.
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47
(g) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.19 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 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 2.20 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 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, relative to the date
hereof, 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, relative to the
date hereof, any amount receivable hereunder in respect thereof, then, in any
such case, the Borrower 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 2.19, it shall promptly notify the
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
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48
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 Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.
(c) A certificate as to any additional amounts payable pursuant to
this Section 2.19 submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section 2.19 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.20 Taxes. (a) All payments made by the Borrower under this
Agreement 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 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") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
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 and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section, (ii) that are United
States withholding taxes imposed on amounts payable to such Lender (including
United States withholding taxes with respect to amounts payable under this
Section 2.20) under laws in effect at the time the Lender becomes a party to
this Agreement, except to the extent that such Lender's assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from the
Borrower with respect to such Non-Excluded Taxes pursuant to Section 2.20(a) or
(iii) that is imposed as a result of an event occurring after the Lender becomes
a Lender other than a
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49
change in law or regulation or the introduction of any law or regulation or a
change in interpretation or administration of any law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the relevant Agent or Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other 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 Borrower shall indemnify the Administrative Agent and
the Lenders for any incremental taxes, 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 2.20 shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(d) Each Lender (or Participant) that is not a United States person
as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall
deliver to the 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, 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 statement substantially in the form of
Exhibit I and a Form W-8, or any subsequent versions thereof or successors
thereto 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 Borrower under this Agreement 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 Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this Section 2.20(d), a Non-U.S. Lender shall not be required
to deliver any form pursuant to this Section 2.20(d) that such Non-U.S. Lender
is not legally able to deliver.
(e) If the Administrative Agent or any Lender receives a refund in
respect of Non-Excluded Taxes or Other Taxes paid by the Borrower, which in the
good faith judgment of such Lender is allocable to such payment, it shall
promptly pay such refund, together with any other amounts paid by the Borrower
in connection with such refunded Non-Excluded Taxes or Other Taxes, to the
Borrower, net of all out-of-pocket expenses of such Lender incurred in obtaining
such refund, provided, however, that the Borrower agrees to promptly return such
refund to the Administrative Agent or the applicable Lender, as the case may be,
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if it receives notice from the Administrative Agent or applicable Lender that
such Administrative Agent or Lender is required to repay such refund. Each of
the Administrative Agent and each Lender agrees that it will contest such
Non-Excluded Taxes, Other Taxes or liabilities if (i) the Borrower furnishes to
it an opinion of reputable tax counsel acceptable to the Administrative Agent or
such Lender to the effect that such Non-Excluded Taxes or Other Taxes were
wrongfully or illegally imposed and (ii) the Administrative Agent or such Lender
determines, in sole discretion, that it would not be disadvantaged or prejudiced
in any manner whatsoever as a result of such contest.
2.21 Indemnity. The Borrower agrees 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 Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
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 2.21
submitted to the 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 Loans and all other amounts payable hereunder.
2.22 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 Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.21.
2.23 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.19 or 2.20(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any
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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 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 Borrower or the rights of any Lender pursuant to Section 2.19 or 2.20(a).
2.24 Replacement of Lenders under Certain Circumstances. The
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to Section 2.19 or 2.20 or (b) defaults
in its obligation to make Loans hereunder, with a replacement financial
institution; provided that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Default or Event of Default shall have occurred and
be continuing at the time of such replacement, (iii) prior to any such
replacement, such Lender shall have taken no action under Section 2.23 so as to
eliminate the continued need for payment of amounts owing pursuant to Section
2.19 or 2.20, (iv) the replacement financial institution shall purchase, at par,
all Loans and other amounts owing to such replaced Lender on or prior to the
date of replacement, (v) the Borrower shall be liable to such replaced Lender
under Section 2.21 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 10.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.19 or 2.20, as the case may be,
and (ix) any such replacement shall not be deemed to be a waiver of any rights
which the Borrower, the Administrative Agent or any other Lender shall have
against the replaced Lender.
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 Borrower 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, (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero or (iii) the Total Revolving Extensions of Credit would exceed the sum
of (x) the Borrowing Base then in effect plus (y) the Acquisition Advance
Amount. Each Letter of Credit shall (i) be denominated in Dollars and (ii)
expire no later than the earlier of (x) the first anniversary of its date of
issuance and (y) the date which is five Business Days prior to the Revolving
Credit Termination Date, provided that any Letter of Credit with a one-year term
may provide for the renewal thereof for additional one-year periods (which shall
in no event extend beyond the date referred to in clause (y) above).
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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 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 Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the 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 Letter
of Credit (including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrower will pay a
commission on all outstanding Letters of Credit at a per annum rate equal to the
Applicable Margin then in effect with respect to Eurodollar Loans under the
Revolving Credit Facility, shared ratably among the Revolving Credit Lenders and
payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date. In addition, the Borrower shall pay to the Issuing Lender for its own
account a fronting fee of 1/4 of 1% per annum, payable quarterly in arrears on
each L/C Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees and commissions, the Borrower
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.
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 Borrower in accordance with
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53
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 under the Revolving Credit Facility. 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
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.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the 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 of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower 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
(unless an event of the type described in clause (i) or (ii) of Section 8(f)
shall have occurred and be continuing with respect to the Borrower, in which
case the procedures specified in Section 3.4 for funding by L/C Participants
shall apply) constitute a request by the Borrower to the Administrative Agent
for a borrowing
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pursuant to Section 2.5 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 2.7 of Swing Line Loans) in the amount of such
drawing. The Borrowing Date with respect to such borrowing shall be the date of
such drawing.
3.6 Obligations Absolute. The Borrower's 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
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
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 the 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 the 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 Borrower agrees 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 Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
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
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower 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 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, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:
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55
4.1 Financial Condition. (a) (i) The unaudited pro forma
consolidated balance sheet of Holdings and its consolidated Subsidiaries as at
December 31, 1997 (including the notes thereto) (the "Holdings 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 December 31, 1997) to
(i) the consummation of the Transactions, (ii) the Loans to be made on the
Closing Date, the Senior Subordinated Notes to be issued on the Closing Date and
the Holdings Discount Debentures to be issued on the Closing Date, and the use
of proceeds of each thereof, (iii) the payment of fees and expenses in
connection with the foregoing and (iv) material acquisitions consummated during
the last two fiscal years of Holdings. The Holdings Pro Forma Balance Sheet has
been prepared based on the best information available to Holdings as of the date
of delivery thereof, and presents fairly in all material respects on a pro forma
basis the estimated financial position of Holdings and its consolidated
Subsidiaries as at December 31, 1997, assuming that the events specified in the
preceding sentence had actually occurred on such date, prepared in accordance
with Regulation S-X under the Securities Act of 1933, as amended (the
"Securities Act"). The unaudited pro forma consolidated statement of operations
of Holdings and its Subsidiaries for the nine-month period ended December 31,
1997 (including the notes thereto) (the "Holdings Pro Forma Income Statement";
collectively with the Holdings Pro Forma Balance Sheet, the "Holdings Pro Forma
Financial Statements"), copies of which have heretofore been furnished to each
Lender, has been prepared giving effect (as if such events had occurred on the
first day of such nine-month period) to (i) the consummation of the
Transactions, (ii) the Loans to be made on the Closing Date, the Senior
Subordinated Notes to be issued on the Closing Date and the Holdings Discount
Debentures to be issued on the Closing Date, and the use of proceeds of each
thereof and (iii) the payment of fees and expenses in connection with the
foregoing. The Holdings Pro Forma Income Statement has been prepared based on
the best information available to Holdings as of the date of delivery thereof,
and presents fairly in all material respects on a pro forma basis the estimated
consolidated financial condition of Holdings and its consolidated Subsidiaries
as at December 31, 1997 and the consolidated results of their operations for the
nine-month period then ended assuming that the events specified in the preceding
sentence had actually occurred on the first day of such nine-month period,
prepared in accordance with Regulation S-X under the Securities Act.
(ii) The unaudited pro forma consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at December 31, 1997 (including
the notes thereto) (the "Borrower 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 December 31, 1997) to (i) the consummation of
the Transactions, (ii) the Loans to be made on the Closing Date and the Senior
Subordinated Notes to be issued on the Closing Date and the use of proceeds of
each thereof, (iii) the equity contributions to be made by Holdings to the
Borrower, (iv) the payment of fees and expenses in connection with the foregoing
and (v) material acquisitions consummated during the last two fiscal years of
the Borrower. The Borrower Pro Forma Balance Sheet has been prepared based on
the best information available to the Borrower as of the date of delivery
thereof, and presents fairly in all material respects on a pro forma basis the
estimated financial position of the Borrower and its consolidated Subsidiaries
as at December 31, 1997, assuming that the events specified in the preceding
sentence had actually occurred on such date, prepared in accordance with
Regulation S-X under the Securities Act. The unaudited pro forma consolidated
statement of
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operations of the Borrower and its Subsidiaries for the nine-month period ended
December 31, 1997 (including the notes thereto) (the "Borrower Pro Forma Income
Statement"; collectively with the Borrower Pro Forma Balance Sheet, the
"Borrower Pro Forma Financial Statements"), copies of which have heretofore been
furnished to each Lender, has been prepared giving effect (as if such events had
occurred on the first day of such nine-month period) to (i) the consummation of
the Transactions, (ii) the Loans to be made on the Closing Date and the Senior
Subordinated Notes to be issued on the Closing Date and the use of proceeds of
each thereof and (iii) the payment of fees and expenses in connection with the
foregoing. The Borrower Pro Forma Income Statement has been prepared based on
the best information available to the Borrower as of the date of delivery
thereof, and presents fairly in all material respects on a pro forma basis the
estimated consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at December 31, 1997 and the consolidated results of their
operations for the nine-month period then ended assuming that the events
specified in the preceding sentence had actually occurred on the first day of
such nine-month period, prepared in accordance with Regulation S-X under the
Securities Act.
(b) (i) The audited consolidated balance sheets of Holdings and its
consolidated Subsidiaries as at March 31, 1995, March 31, 1996 and March 31,
1997, and the related consolidated statements of income and of cash flows for
the fiscal year ended March 31, 1997, the seven months ended March 31, 1996, the
five months ended August 31, 1995 and the fiscal year ended March 31, 1995,
reported on by and accompanied by an unqualified report from Arthur Andersen LLP
or Deloitte & Touche LLP, as the case may be, present fairly in all material
respects the consolidated financial condition of Holdings and its consolidated
Subsidiaries as at such date, and the consolidated results of its operations and
its consolidated cash flows for the respective fiscal years then ended. The
unaudited consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at December 31, 1997, and the related unaudited consolidated
statements of income and cash flows for the nine-month period ended on such
date, present fairly in all material respects the consolidated financial
condition of Holdings and its consolidated Subsidiaries as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
nine-month period then ended (subject to normal year-end audit adjustments). 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 the aforementioned firms of accountants
and disclosed therein). Holdings and its Subsidiaries do not have any material
Guarantee Obligations, material contingent liabilities or material liabilities
for taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, which are
not reflected in the most recent financial statements (including the notes
thereto) referred to in this paragraph (b)(i). During the period from March 31,
1997 to and including the date hereof, there has been no Disposition by Holdings
or any of its Subsidiaries of any material part of its business or Property.
(ii) The audited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at March 31, 1995, March 31, 1996 and March 31,
1997, and the related consolidated statements of income and of cash flows for
the fiscal year ended March 31, 1997, the seven months ended March 31, 1996, the
five months ended August 31,
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1995 and the fiscal year ended March 31, 1995, reported on by and accompanied by
an unqualified report from Arthur Andersen LLP or Deloitte & Touche LLP, as the
case may be, present fairly in all material respects the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such date, and
the consolidated results of its operations and its consolidated cash flows for
the respective fiscal years then ended. The unaudited consolidated balance sheet
of the Borrower and its consolidated Subsidiaries as at December 31, 1997, and
the related unaudited consolidated statements of income and cash flows for the
nine-month period ended on such date, present fairly in all material respects
the consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of its operations and
its consolidated cash flows for the nine-month period then ended (subject to
normal year-end audit adjustments). 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 the
aforementioned firm of accountants and disclosed therein). The Borrower and its
Subsidiaries do not have any material Guarantee Obligations, material contingent
liabilities or material liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including, without limitation, any
interest rate or foreign currency swap or exchange transaction or other
obligation in respect of derivatives, which are not reflected in the most recent
financial statements (including the notes thereto) referred to in this paragraph
(b)(ii). During the period from March 31, 1997 to and including the date hereof,
there has been no Disposition by the Borrower or any of its Subsidiaries of any
material part of its business or Property.
4.2 No Change. Since March 31, 1997 there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of Holdings, the
Borrower and their respective Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority 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 as a foreign
corporation 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, except where the failure to be so qualified could
not reasonably be expected to have a Material Adverse Effect, 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 corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
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 Transactions and the borrowings hereunder or with the
execution, delivery, performance,
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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. Each Loan Document has been duly executed and delivered on behalf
of each Loan Party party thereto. This Agreement constitutes, and each other
Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party 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, fraudulent
transfer or conveyance 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 any material Contractual Obligation of Holdings, the
Borrower or any of their respective 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 Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to the Borrower or
any of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
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 Holdings or the Borrower, threatened by or against Holdings,
the Borrower or any of their respective Subsidiaries or against any of 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 Holdings, the Borrower nor any of their
respective 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 Holdings, the Borrower and
their respective 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.
4.9 Intellectual Property. Each of Holdings, the Borrower and each
of their respective Subsidiaries owns, or is licensed to use, all Intellectual
Property necessary for the conduct of its business as currently conducted.
Schedule 4.9 sets forth all of the Intellectual Property owned or licensed by
each of Holdings, the Borrower and each of their respective Subsidiaries on the
Closing Date. 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 Holdings or Borrower
know of any valid basis for any such claim. The use of Intellectual Property by
Holdings, the Borrower and
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their respective Subsidiaries does not infringe on the rights of any Person in
any material respect.
4.10 Taxes. Each of Holdings, the Borrower and each of their
respective 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 Holdings, the Borrower or their
respective Subsidiaries, as the case may be); no tax Lien has been filed, and,
to the knowledge of Holdings and the Borrower, no claim is being asserted, with
respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans or
Letters of Credit 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 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 Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
Regulation G or Regulation U, as the case may be.
4.12 Labor Matters. There are no strikes or other labor disputes
against Holdings, the Borrower or any of their respective Subsidiaries pending
or, to the knowledge of Holdings or the Borrower, threatened that (individually
or in the aggregate) could reasonably be expected to have a Material Adverse
Effect. Hours worked by and payment made to employees of Holdings, the Borrower
and their respective Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Requirement of Law dealing with such
matters that (individually or in the aggregate) could reasonably be expected to
have a Material Adverse Effect. All payments due from Holdings, the Borrower or
any of their respective Subsidiaries on account of employee health and welfare
insurance that (individually or in the aggregate) could reasonably be expected
to have a Material Adverse Effect if not paid have been paid or accrued as a
liability on the books of Holdings, the Borrower or the relevant Subsidiary.
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 the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal
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from any Multiemployer Plan which has resulted or could reasonably be expected
to result in a material liability under ERISA, and neither the Borrower nor any
Commonly Controlled Entity would become subject to any material liability under
ERISA if the 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.
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 Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of Holdings at the date hereof.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used
to finance a portion of the Transactions and to pay related fees and expenses.
The proceeds of the Revolving Extensions of Credit made under the Borrowing Base
shall be used to finance a portion of the Transactions and to finance the
general capital needs and general corporate purposes of the Borrower in the
ordinary course of business, provided that proceeds of Revolving Extensions of
Credit which could not otherwise be borrowed under the Borrowing Base but for
the inclusion of the Over Advance Amount therein shall not be used to finance
acquisitions permitted pursuant to subsection 7.8(h) hereof. The proceeds of
Revolving Extensions of Credit made under the Acquisition Advance Amount shall
be used to finance acquisitions permitted pursuant to subsection 7.8(h) hereof.
4.17 Environmental Matters. (a) The facilities and properties owned,
leased or operated by Holdings, the Borrower or any of their respective
Subsidiaries (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
Holdings, the Borrower or any of their respective Subsidiaries (the "Business")
which could materially interfere with the continued operation of the Properties
or impair the fair saleable value thereof in an amount equaling or exceeding a
Material Environmental Amount. As of the Closing Date, neither Holdings, the
Borrower nor any of their respective Subsidiaries has assumed any liability of
any other Person under Environmental Laws.
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(c) Neither Holdings, the Borrower nor any of their respective
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 Holdings or the Borrower 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.
(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 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 Holdings and the Borrower, threatened, under
any Environmental Law to which Holdings, the Borrower or any of their respective
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 Environmental
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 Holdings, the Borrower or any of their respective 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, etc. 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 or any of them, 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 (or, in the case of the
Confidential Information Memorandum, as of the date of this Agreement), 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 Borrower to be reasonable at
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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. As of the date hereof, the representations and warranties of
Holdings and the Borrower, and to the knowledge of Holdings and the Borrower,
the representations and warranties of all other parties to the Merger Agreement,
contained in the Merger Agreement are true and correct in all material respects.
There is no fact known to any Loan Party that could reasonably be expected to
have a Material Adverse Effect that has not been expressly disclosed herein, in
the other Loan Documents, in the Confidential Information Memorandum or in any
other documents, 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) The Guarantee and Collateral 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. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements in appropriate form are filed in the
offices specified on Schedule 4.19(a), the Guarantee and Collateral 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 Guarantee and
Collateral Agreement), in each case prior and superior in right to any other
Person.
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties 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.
4.20 Solvency. Each Loan Party is, and after giving effect to the
Transactions and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 Senior Indebtedness. The Obligations constitute "Senior
Indebtedness" of the Borrower under and as defined in the Senior Subordinated
Note Indenture and the Holdings Discount Debentures Indenture. The obligations
of each Guarantor under the Guarantee and Collateral Agreement constitute
"Guarantor Senior Indebtedness" of such Guarantor under and as defined in the
Senior Subordinated Note Indenture and the Holdings Discount Debentures
Indenture.
4.22 Regulation H. No Mortgage encumbers improved real property
which is located in an area that has been identified by the Secretary of Housing
and Urban
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Development as an area having special flood hazards and in which flood insurance
has been made available under the National Flood Insurance Act of 1968.
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, 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 Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
Holdings and the Borrower, (ii) the Guarantee and Collateral Agreement,
executed and delivered by a duly authorized officer of Holdings, the
Borrower and each Subsidiary Guarantor, (iii) a Mortgage covering each of
the Mortgaged Properties, executed and delivered by a duly authorized
officer of each party thereto, and (iv) for the account of each relevant
Lender, Notes conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrower.
(b) Transactions. The following transactions shall have been
consummated, in each case on terms and conditions reasonably satisfactory
to the Lenders:
(i) Holdings shall have been capitalized with at least
$95,000,000 in cash consisting of (x) not less than an aggregate of
$50,002,680 of common equity from HWH Capital Partners and the
Management Investors and (y) $44,997,320 in gross cash proceeds from
the issuance by Holdings of the Holdings Discount Debentures, in
each case on terms and conditions satisfactory to the Administrative
Agent.
(ii) The Borrower shall have received (x) $110,000,000 in
gross cash proceeds from the issuance of the Senior Subordinated
Notes on terms and conditions satisfactory to the Administrative
Agent and (y) from Holdings all of the net cash proceeds from the
issuance of the Holdings Discount Debentures as a common equity
contribution to the Borrower.
(iii) The Transactions shall have been consummated in
accordance with applicable law and on terms reasonably satisfactory
to the Lenders. The Merger Agreement shall have terms and conditions
reasonably satisfactory to the Lenders, and no provision of the
Merger Agreement shall have been waived, amended, supplemented or
otherwise modified in any material respect without the prior written
approval of the Administrative Agent. Substantially all of the
existing indebtedness of Holdings and its Subsidiaries shall have
been repaid on terms reasonably satisfactory to the Administrative
Agent. The capitalization and corporate structure of each Loan Party
after the Transactions shall be reasonably satisfactory to the
Lenders in all respects.
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(c) Pro Forma Financial Statements; Financial Statements. The
Lenders shall have received (i) the Pro Forma Financial Statements, (ii)
audited consolidated financial statements of each of Holdings and the
Borrower referred to in the first sentence of each of subsections
4.1(b)(i) and 4.1(b)(ii) and (iii) unaudited interim consolidated
financial statements of each of Holdings and the Borrower for each fiscal
month and quarterly period ended subsequent to the date of the latest
applicable financial statements delivered pursuant to clause (ii) of this
paragraph as to which such financial statements are available, and such
financial statements shall not, in the reasonable judgment of the Lenders,
reflect any material adverse change in the consolidated financial
condition of Holdings and its Subsidiaries and the Borrower and its
Subsidiaries, respectively, as reflected in the financial statements or
projections contained in the Confidential Information Memorandum.
(d) Approvals. All governmental and third party approvals (including
landlords' and other consents) necessary in connection with the
Transactions, the continuing operations of Holdings, the Borrower and
their respective Subsidiaries and the transactions contemplated hereby
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 Transactions or the
financing contemplated hereby.
(e) Related Agreements. The Administrative Agent shall have received
(in a form reasonably satisfactory to the Administrative Agent), with a
copy for each Lender, true and correct copies, certified as to
authenticity by the Borrower, of the Merger Agreement, the Senior
Subordinated Note Indenture, the Holdings Discount Debentures Indenture
and such other documents or instruments as may be reasonably requested by
the Administrative Agent, including, without limitation, a copy of any
other debt instrument, security agreement or other material contract to
which the Loan Parties may be a party.
(f) Fees. The Lenders, the Administrative Agent and the Arranger
shall have received all fees required to be paid, and all expenses for
which invoices have been presented, on or before the Closing Date.
(g) Business Plan. The Lenders shall have received a satisfactory
business plan for fiscal years 1998-2003 and a satisfactory written
analysis of the business and prospects of the Borrower and its
Subsidiaries for the period from the Closing Date through the final
maturity of the Term Loans.
(h) Solvency Analysis. The Lenders shall have received a reasonably
satisfactory solvency opinion from an independent valuation firm
satisfactory to the Administrative Agent which shall document the solvency
of each of the Borrower and its subsidiaries and Holdings and its
subsidiaries after giving effect to the Transactions.
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(i) Lien Searches. The Administrative Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of Holdings or its Subsidiaries except for liens
permitted by Section 7.3.
(j) Environmental Audit. The Lenders shall have received a
reasonably satisfactory Phase I environmental site assessment pursuant to
ASTM standards with respect to the real properties owned by the Borrower
located at 4700 S. 19th Street, Lincoln, Nebraska (Administrative Offices
and Warehouse) and 5240 S. 19th Street, Lincoln, Nebraska (Auxiliary
Warehouse) from a firm satisfactory to the Administrative Agent.
(k) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C,
with appropriate insertions and attachments.
(l) Legal Opinions. The Administrative Agent shall have received the
following executed legal opinions:
(i) the legal opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to Holdings and the Borrower, substantially in the
form of Exhibit F;
(ii) to the extent consented to by the relevant counsel, each
legal opinion, if any, delivered in connection with the Merger
Agreement, accompanied by a reliance letter in favor of the Lenders;
and
(iii) the legal opinion of local counsel in each of Iowa,
Kansas, Nebraska and Texas and of such other special and local
counsel as may be required by the Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(m) Pledged Stock; Stock Power; Pledged Notes. The Administrative
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note pledged to the Administrative Agent pursuant to the
Guarantee and Collateral Agreement endorsed (without recourse) in blank
(or accompanied by an executed transfer form in blank satisfactory to the
Administrative Agent) by the pledgor thereof.
(n) 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 Administrative Agent to be filed, registered or recorded in order to
create in favor of the
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Administrative Agent, 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.
(o) Title Insurance; Flood Insurance. (i) The Administrative Agent
shall have received in respect of each Mortgaged Property a mortgagee's
title insurance policy (or policies) or marked up unconditional binder for
such insurance. Each such policy shall (A) be in an amount satisfactory to
the Administrative Agent; (B) be issued at ordinary rates; (C) insure that
the Mortgage insured thereby creates a valid first Lien on such Mortgaged
Property free and clear of all defects and encumbrances, except as
disclosed therein; (D) name the Administrative Agent for the benefit of
the Lenders as the insured thereunder; (E) be in the form of ALTA Loan
Policy - 1970 (Amended 10/17/70 and 10/17/84) (or equivalent policies or
such other form of loan policy as is authorized in the state in which the
Mortgaged Property is located); (F) contain such endorsements and
affirmative coverage as the Administrative Agent may reasonably request
and (G) be issued by title companies reasonably satisfactory to the
Administrative Agent (including any such title companies acting as
co-insurers or reinsurers, at the option of the Administrative Agent). The
Administrative Agent shall have received evidence satisfactory to it that
all premiums in respect of each such policy, all charges for mortgage
recording tax, and all related expenses, if any, have been paid.
(ii) If requested by the Administrative Agent, the Administrative
Agent shall have received (A) for each Mortgaged Property which is located
in a designated flood zone, a policy of flood insurance which (1) covers
any parcel of improved real property which is encumbered by any Mortgage
(2) 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 (3) has a term ending not
later than the maturity of the Indebtedness secured by such Mortgage and
(B) confirmation that the Borrower has received the notice required
pursuant to Section 208(e)(3) of Regulation H of the Board.
(iii) The Administrative Agent 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 clause (i) above and a copy of all
other material documents affecting the Mortgaged Properties.
(p) Insurance. The Administrative Agent shall be satisfied with the
insurance program to be maintained by Holdings and its Subsidiaries after
the Transactions and shall have received satisfactory insurance
certificates with respect thereto.
(q) Labor Matters; Other Matters. The Lenders shall be reasonably
satisfied with all labor, pension, regulatory, health and safety,
litigation, accounting and tax matters relating to Holdings and its
Subsidiaries.
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(r) Collateral Audit; Borrowing Base Certificate. The Lenders shall
have received (i) a satisfactory preliminary audit prepared by Chase's
asset-based evaluating group with respect to the accounts receivable and
inventory of the Borrower and its Subsidiaries and (ii) an initial Monthly
Borrowing Base Certificate from a Responsible Officer of the Borrower
setting forth the initial Borrowing Base.
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 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.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower 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
Holdings and the Borrower hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall and
shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent and
each Lender:
(a) (i) within 90 days after the end of each fiscal year of
Holdings, a copy of the audited consolidated balance sheet of Holdings and
its consolidated Subsidiaries as at the end of such year and the related
audited consolidated statements of income 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
independent certified public accountants of nationally recognized
standing; and
(ii) within 90 days after the end of each fiscal year of the
Borrower, a copy of the audited consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at the end of such year and the
related audited consolidated statements of income 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
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qualification or exception, or qualification arising out of the scope of
the audit, by independent certified public accountants of nationally
recognized standing;
(b) (i) not later than 45 days after the end of each of the first
three quarterly periods of each fiscal year of Holdings, the unaudited
consolidated balance sheet of Holdings and its consolidated Subsidiaries
as at the end of such quarter and the related unaudited consolidated
statements of income and of cash flows 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 as being fairly stated in all material respects
(subject to normal year-end audit adjustments); and
(ii) not later than 45 days after the end of each of the first three
quarterly periods of each fiscal year of the Borrower, the unaudited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and of cash flows 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 as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
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 as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the Administrative
Agent and each Lender, or, in the case of clause (h), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), 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;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer
stating that, to the best of each such Responsible Officer's knowledge,
each Loan Party during such period 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 (ii) in the case of quarterly
or annual financial statements, (x) a Compliance Certificate containing
all information necessary for determining compliance by Holdings, the
Borrower and their respective Subsidiaries with the provisions of this
Agreement referred to therein as of the last day of the fiscal quarter or
fiscal year of the Borrower, as the case may be, (y) to the extent not
previously
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disclosed to the Administrative Agent, a listing of any county or state
within the United States where any Loan Party keeps inventory or equipment
and of any Intellectual Property acquired by any Loan Party since the date
of the most recent list delivered pursuant to this clause (y) (or, in the
case of the first such list so delivered, since the Closing Date) and (z)
a certificate of a Responsible Officer (1) listing all of the acquisitions
made by the Borrower and its Subsidiaries during such period, (2)
specifying which, if any, of such acquisitions were financed, in whole or
in part, with Revolving Extensions of Credit made under the Acquisition
Advance Amount during such quarter, (3) setting forth the aggregate amount
of cash used to finance acquisitions made in prior quarters which was
replaced, if any, with Revolving Extensions of Credit made under the
Acquisition Advance Amount during such quarter and (4) setting forth in
reasonable detail the calculations made by the Borrower in determining the
purchase price of such acquisitions for purposes of determining
utilization of the Acquisition Advance Amount;
(c) (i) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of Holdings, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of Holdings and its Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the
"Holdings Projections"), which Holdings Projections shall in each case be
accompanied by a certificate of a Responsible Officer stating that such
Holdings Projections are based on reasonable estimates, information and
assumptions and that such Responsible Officer has no reason to believe
that such Holdings Projections are incorrect or misleading in any material
respect; and
(ii) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the
"Borrower Projections"), which Borrower Projections shall in each case be
accompanied by a certificate of a Responsible Officer stating that such
Borrower Projections are based on reasonable estimates, information and
assumptions and that such Responsible Officer has no reason to believe
that such Borrower Projections are incorrect or misleading in any material
respect;
(d) (i) within 45 days after the end of each fiscal quarter of
Holdings, a narrative discussion and analysis of the financial condition
and results of operations of Holdings and its Subsidiaries for such fiscal
quarter and for the period from the beginning of the then current fiscal
year to the end of such fiscal quarter, as compared to the portion of the
Holdings Projections covering such periods and to the comparable periods
of the previous year; and
<PAGE> 75
70
(ii) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion
of the Borrower Projections covering such periods and to the comparable
periods of the previous year;
(e) no later than 10 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to the Senior
Subordinated Note Indenture, the Holdings Discount Debentures Indenture or
the Merger Agreement;
(f) within five days after the same are sent, copies of all
financial statements and reports which Holdings or the Borrower sends to
the holders of any class of its debt securities or public equity
securities and within five days after the same are filed, copies of all
financial statements and reports which Holdings or the Borrower may make
to, or file with, the Securities and Exchange Commission or any successor
or analogous Governmental Authority;
(g) on the Closing Date, a Monthly Borrowing Base Certificate, and
thereafter (i) promptly after the end of each week (but in no event later
than the third Business Day of the following week) a Weekly Borrowing Base
Certificate as of the last day of the week most recently ended, each such
Borrowing Base Certificate to be certified as complete, true and correct
in all material respects on behalf of the Borrower by a Responsible
Officer of the Borrower, setting forth the amounts of Accounts and
Inventory of the Borrower as of the end of the previous fiscal week,
together with the other supporting documentation and additional reports
described in Exhibit J-3 and (ii) promptly after the end of each fiscal
month (but in no event later than the 12th Business Day of the following
month) a Monthly Borrowing Base Certificate as of the last day of the
month most recently ended, each such Borrowing Base Certificate to be
certified as complete, true and correct on behalf of the Borrower by a
Responsible Officer of the Borrower, setting forth the amount of Accounts,
Eligible Accounts Receivable, Inventory and Eligible Inventory of the
Borrower as of the last day of such month, together with the supporting
documentation and additional reports described in Exhibit J-3; and
(h) 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 Holdings, the Borrower or their respective Subsidiaries, as the
case may be.
<PAGE> 76
71
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
Preserve, renew and keep in full force and effect its corporate existence and
(ii) 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 by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) 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 Property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted and (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.
6.6 Inspection of Property; Books and Records; Discussions. (a) (i)
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 (ii)
permit representatives of any Lender (through the Administrative Agent) upon
reasonable prior written notice to visit and inspect any of its properties and
examine and make abstracts from any of its books and records during the
Borrower's normal business hours and as often as may reasonably be desired and
to discuss the business, operations, properties and financial and other
condition of Holdings, the Borrower and their respective Subsidiaries with
officers and employees of Holdings, the Borrower and such Subsidiaries and with
their independent certified public accountants.
(b) At any time upon the reasonable request of the Administrative
Agent, permit the Administrative Agent or professionals (including consultants,
accountants and appraisers) retained by the Administrative Agent to conduct
evaluations and appraisals of (i) the Borrower's practices in the computation of
the Borrowing Base, (ii) the assets included in the Borrowing Base, (iii)
systems and procedures relating to the Borrowing Base items, and (iv) other
related procedures deemed necessary by the Administrative Agent, and pay the
reasonable fees and expenses thereof in connection therewith (including, without
limitation, the fees and expenses associated with services performed by the
Administrative Agent's Specialized Due Diligence Department and with respect to
the weekly and monthly monitoring, the fees and expenses associated with
services performed by the Administrative Agent's Collateral Monitoring
Department); provided, however, that the Administrative Agent shall not be
entitled to conduct such evaluations and appraisals more frequently than once
per year unless (x) an Event of Default has occurred and is continuing or (y)
the Administrative Agent reasonably determines in consultation with the Borrower
that a material event or material change has occurred with respect to the Loan
Parties, their inventory practices or the performance of the Collateral and that
as a result of such event or change more frequent evaluations or appraisals are
required to effectively monitor the Borrowing Base, in which case the Borrower
will permit the Administrative Agent to conduct such
<PAGE> 77
72
evaluations and appraisals at such reasonable times and as often as may be
reasonably requested, in each case so long as any Revolving Credit Loans or
Letters of Credit shall be outstanding or shall have been requested by the
Borrower hereunder.
(c) In connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, agree to make such adjustments to its
parameters for including Eligible Inventory and Eligible Accounts Receivable in
the Borrowing Base as the Administrative Agent shall reasonably require based
upon the results of such evaluation and appraisal, provided that the
Administrative Agent shall specify to the Borrower in writing the reasons for
any such additional adjustments.
6.7 Notices. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings, the Borrower or any of their respective
Subsidiaries or (ii) litigation, investigation or proceeding which may
exist at any time between Holdings, the Borrower or any of their
respective 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 Holdings, the Borrower or
any of their respective Subsidiaries in which the amount involved is
$1,000,000 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 Borrower knows or has reason to know thereof: (i)
the 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 Borrower or any Commonly Controlled Entity or any Multiemployer
Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Plan;
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect; and
(f) as soon as possible after a Responsible Officer of the Borrower
knows or reasonably should know thereof, the failure to make any rental
payment when due and payable with respect to any property leased by the
Borrower or any of its Domestic Subsidiaries at which Inventory of the
Borrower or any of its Domestic Subsidiaries is located.
<PAGE> 78
73
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the 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 Borrower, within
three months after the Closing Date, enter into Interest Rate Protection
Agreements to the extent necessary to provide that at least 50% of the aggregate
principal amount of (i) the Senior Subordinated Notes and (ii) the Term Loans is
subject to either a fixed interest rate or interest rate protection for a period
of not less than three years, which Interest Rate Protection Agreements shall
have terms and conditions reasonably satisfactory to the Administrative Agent.
6.10 Additional Collateral, etc. (a) With respect to any Property
acquired after the Closing Date by Holdings, the Borrower or any of their
respective Subsidiaries (other than (x) any Property described in paragraph (b),
(c) or (d) below and (y) any Property subject to a Lien expressly permitted by
Section 7.3(g)) as to which the Administrative Agent, for the benefit of the
Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the Administrative Agent deems necessary or advisable
in order to grant to the Administrative Agent, for the benefit of the Lenders, a
security interest in such Property and (ii) take all actions necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a perfected first priority security interest in such Property, including without
limitation, the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or as may be requested by the Administrative Agent.
(b) With respect to any interest in any real property having a value
(together with improvements thereof) of at least $1,000,000 acquired after the
Closing Date by Holdings, the Borrower or any of their respective Subsidiaries
(other than any such real property subject to a Lien expressly permitted by
Section 7.3(g)), promptly (i) execute and deliver a first priority Mortgage in
favor of the Administrative Agent, for the benefit of the Lenders, covering such
real property, (ii) if requested by the Administrative Agent, provide the
Lenders with (x) title and extended coverage insurance covering such real
property in an
<PAGE> 79
74
amount at least equal to the purchase price of such real estate (or such other
amount as shall be reasonably specified by the Administrative Agent) as well as
a current ALTA survey thereof, together with a surveyor's certificate and (y)
any consents or estoppels reasonably deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by Holdings
(which, for the purposes of this paragraph (c), shall include any existing
Subsidiary that ceases to be an Excluded Foreign Subsidiary), the Borrower or
any of its Subsidiaries, promptly (i) execute and deliver to the Administrative
Agent such amendments to the Guarantee and Collateral Agreement as the
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such new Subsidiary which is owned by
Holdings, the Borrower or any of their respective Subsidiaries, (ii) deliver to
the Administrative Agent the certificates representing such Capital Stock,
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of Holdings, the Borrower or such Subsidiary, as the case may
be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and
Collateral Agreement and (B) to take such actions necessary or advisable to
grant to the Administrative Agent for the benefit of the Lenders a perfected
first priority security interest in the Collateral described in the Guarantee
and Collateral Agreement with respect to such new Subsidiary (subject to any
existing liens on such Collateral securing Indebtedness existing at the time
such new Subsidiary is created or acquired, so long as such Indebtedness was not
incurred in anticipation of such creation or acquisition and such Lien is not
spread to encumber additional property of such Subsidiary), including, without
limitation, the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or 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 above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings, the Borrower or any of their
respective Subsidiaries, promptly (i) execute and deliver to the Administrative
Agent such amendments to the Guarantee and Collateral Agreement as the
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such new Subsidiary which is owned by
Holdings, the Borrower or any of their respective Subsidiaries (provided that in
no event shall more than 65% of the total outstanding Capital Stock of any such
new Subsidiary be required to be so pledged), (ii) deliver to the Administrative
Agent the certificates representing such Capital Stock, together with undated
stock powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the
<PAGE> 80
75
case may be, and take such other action as may be necessary or, in the opinion
of the Administrative Agent, desirable to perfect the Lien of the Administrative
Agent thereon, and (iii) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(e) Prior to entering into a lease of a facility located in the
United States in which Inventory will be located on or after the Closing Date,
the Borrower and its Subsidiaries shall obtain a Landlord Waiver from each
landlord of any such facility.
6.11 Post-Closing Matters. (a) Surveys. Subject to force majeure,
within 30 days after the Closing Date, the Borrower shall deliver to the
Administrative Agent and the title insurance company issuing the policy referred
to in subsection 5.1(o)(i) (the "Title Insurance Company"), maps or plats of an
as-built survey of the sites of the Mortgaged Properties certified to the
Administrative Agent and the Title Insurance Company in a manner satisfactory to
them, dated a date satisfactory to the Administrative Agent and the Title
Insurance Company by an independent professional licensed land surveyor
satisfactory to the Administrative Agent 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: (A) the locations on such sites of all the
buildings, structures and other improvements and the established building
setback lines; (B) the lines of streets abutting the sites and width thereof;
(C) all access and other easements appurtenant to the sites; (D) 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; (E) any
encroachments on any adjoining property by the building structures and
improvements on the sites; (F) if the site is described as being on a filed map,
a legend relating the survey to said map; and (G) the flood zone designations,
if any, in which the Mortgaged Properties are located.
(b) Landlord Waivers. Within 30 days after the Closing Date, with
respect to each property leased by the Borrower and its Subsidiaries where
Inventory is located on the Closing Date, the Borrower shall deliver to the
Administrative Agent either (i) evidence that the applicable lessor (including
any educational institution or commercial Bookstore) has been notified of the
Lien granted under the Security Documents and the Borrower has used its
commercially reasonable efforts to induce such lessor to enter into a Landlord
Waiver or (ii)(A) an opinion, in form and substance acceptable to and from local
counsel approved by the Administrative Agent, and addressed to the
Administrative Agent, the Issuing Bank and the Lenders, to the effect that there
is no law in the jurisdiction where such leasehold is located that would allow
Inventory located on such leasehold to be subjected to any Lien in favor of the
applicable lessor arising by operation of law and (B) a certificate of a
Responsible Officer of the Borrower certifying that there is no term or
condition of any agreement or other document governing the relationship between
the Borrower and the applicable lessor that provides for any such Lien.
<PAGE> 81
76
(c) Environmental Audits. Within 30 days after the Closing Date, the
Borrower shall deliver to the Administrative Agent a reasonably satisfactory
Phase I environmental site assessment pursuant to ASTM standards with respect to
the real properties owned by the Borrower located at 1300 Q Street, Lincoln,
Nebraska (Nebraska Bookstore), 1314 W. Hickory Street, Denton, Texas
(Voertman's) and 3003 Forest Avenue, Des Moines, Iowa (University Bookstore)
from a firm satisfactory to the Administrative Agent.
SECTION 7. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter ending on the dates set forth below
to exceed the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter Leverage Ratio
-------------- --------------
<S> <C>
June 30, 1998 6.5 to 1.0
September 30, 1998 6.5 to 1.0
December 31, 1998 6.5 to 1.0
March 31, 1999 6.25 to 1.0
June 30, 1999 6.25 to 1.0
September 30, 1999 6.25 to 1.0
December 31, 1999 6.25 to 1.0
March 31, 2000 5.8 to 1.0
June 30, 2000 5.8 to 1.0
September 30, 2000 5.8 to 1.0
December 31, 2000 5.8 to 1.0
March 31, 2001 5.3 to 1.0
June 30, 2001 5.3 to 1.0
September 30, 2001 5.3 to 1.0
December 31, 2001 5.3 to 1.0
March 31, 2002 4.75 to 1.0
June 30, 2002 4.75 to 1.0
September 30, 2002 4.75 to 1.0
December 31, 2002 4.75 to 1.0
March 31, 2003 4.25 to 1.0
June 30, 2003 4.25 to 1.0
</TABLE>
<PAGE> 82
77
<TABLE>
<S> <C>
September 30, 2003 4.25 to 1.0
December 31, 2003 4.25 to 1.0
March 31, 2004 4.0 to 1.0
June 30, 2004 4.0 to 1.0
September 30, 2004 4.0 to 1.0
December 31, 2004 4.0 to 1.0
March 31, 2005 4.0 to 1.0
June 30, 2005 4.0 to 1.0
September 30, 2005 4.0 to 1.0
December 31, 2005 4.0 to 1.0
March 31, 2006 4.0 to 1.0
</TABLE>
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter ending on the dates set forth below
to be less than the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- --------------
<S> <C>
June 30, 1998 1.5 to 1.0
September 30, 1998 1.5 to 1.0
December 31, 1998 1.5 to 1.0
March 31, 1999 1.5 to 1.0
June 30, 1999 1.5 to 1.0
September 30, 1999 1.5 to 1.0
December 31, 1999 1.5 to 1.0
March 31, 2000 1.7 to 1.0
June 30, 2000 1.7 to 1.0
September 30, 2000 1.7 to 1.0
December 31, 2000 1.7 to 1.0
March 31, 2001 1.85 to 1.0
June 30, 2001 1.85 to 1.0
September 30, 2001 1.85 to 1.0
December 31, 2001 1.85 to 1.0
March 31, 2002 2.05 to 1.0
June 30, 2002 2.05 to 1.0
September 30, 2002 2.05 to 1.0
December 31, 2002 2.05 to 1.0
March 31, 2003 2.20 to 1.0
June 30, 2003 2.20 to 1.0
September 30, 2003 2.20 to 1.0
December 31, 2003 2.20 to 1.0
March 31, 2004 2.25 to 1.0
June 30, 2004 2.25 to 1.0
September 30, 2004 2.25 to 1.0
December 31, 2004 2.25 to 1.0
</TABLE>
<PAGE> 83
78
<TABLE>
<S> <C>
March 31, 2005 2.25 to 1.0
June 30, 2005 2.25 to 1.0
September 30, 2005 2.25 to 1.0
December 31, 2005 2.25 to 1.0
March 31, 2006 2.25 to 1.0
</TABLE>
; provided, that for the purposes of determining the Consolidated Interest
Coverage Ratio for the fiscal quarters of the Borrower ending June 30, 1998,
September 30, 1998 and December 31, 1998, Consolidated Interest Expense for the
relevant period shall be deemed to equal Consolidated Interest Expense for such
fiscal quarter (and, in the case of the latter two such determinations, all
fiscal quarters commencing after March 31, 1998) multiplied by 4, 2 and 4/3,
respectively.
(c) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter ending on the
dates set forth below to be less than the ratio set forth below opposite such
fiscal quarter:
<TABLE>
<CAPTION>
Consolidated Fixed
Fiscal Quarter Charge Coverage Ratio
-------------- ---------------------
<S> <C>
June 30, 1998 1.0 to 1.0
September 30, 1998 1.0 to 1.0
December 31, 1998 1.0 to 1.0
March 31, 1999 1.05 to 1.0
June 30, 1999 1.05 to 1.0
September 30, 1999 1.05 to 1.0
December 31, 1999 1.05 to 1.0
March 31, 2000 1.05 to 1.0
June 30, 2000 1.05 to 1.0
September 30, 2000 1.05 to 1.0
December 31, 2000 1.05 to 1.0
March 31, 2001 1.05 to 1.0
June 30, 2001 1.05 to 1.0
September 30, 2001 1.05 to 1.0
December 31, 2001 1.05 to 1.0
March 31, 2002 1.05 to 1.0
June 30, 2002 1.05 to 1.0
September 30, 2002 1.05 to 1.0
December 31, 2002 1.05 to 1.0
March 31, 2003 1.10 to 1.0
June 30, 2003 1.10 to 1.0
September 30, 2003 1.10 to 1.0
December 31, 2003 1.10 to 1.0
March 31, 2004 1.10 to 1.0
June 30, 2004 1.10 to 1.0
September 30, 2004 1.10 to 1.0
</TABLE>
<PAGE> 84
79
<TABLE>
<S> <C>
December 31, 2004 1.10 to 1.0
March 31, 2005 1.15 to 1.0
June 30, 2005 1.15 to 1.0
September 30, 2005 1.15 to 1.0
December 31, 2005 1.15 to 1.0
March 31, 2006 1.15 to 1.0
</TABLE>
; provided, that for the purposes of determining the Consolidated Fixed Charge
Coverage Ratio for the fiscal quarters of the Borrower ending June 30, 1998,
September 30, 1998 and December 31, 1998, Consolidated Interest Expense and
scheduled payments on account of principal of Indebtedness of the Borrower and
its Subsidiaries for the relevant period shall be deemed to equal Consolidated
Interest Expense and scheduled payments on account of principal of Indebtedness
of the Borrower and its Subsidiaries for such fiscal quarter (and, in the case
of the latter two such determinations, all fiscal quarters commencing after
March 31, 1998) multiplied by 4, 2 and 4/3, respectively.
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Indebtedness secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $5,000,000 at any one time
outstanding;
(d) Capital Lease Obligations in an aggregate principal amount not
to exceed $5,000,000 at any one time outstanding;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(f) guarantees made in the ordinary course of business by the
Borrower or any of its Subsidiaries of obligations of any Wholly Owned
Subsidiary Guarantor;
(g) (i) Indebtedness of the Borrower in respect of the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$110,000,000 and (ii) Guarantee Obligations of any Subsidiary Guarantor in
respect of such Indebtedness; provided that such Guarantee Obligations are
subordinated to the obligations of such Subsidiary Guarantor under the
Loan Documents to the same extent as are the obligations of the Borrower
in respect of the Senior Subordinated Notes;
(h) Indebtedness of Holdings in respect of the Holdings Discount
Debentures in an aggregate principal amount not to exceed $76,000,000;
<PAGE> 85
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(i) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount at any one time outstanding
(for the Borrower and all Subsidiaries) not to exceed $15,000,000 less the
aggregate principal amount of Indebtedness incurred pursuant to clauses
(c) and (d) above at such time; and
(j) Indebtedness of the Borrower in respect of Interest Rate
Protection Agreements.
Notwithstanding the foregoing, no Subsidiary of Holdings will create, incur,
assume or suffer to exist any Guarantee Obligation in respect of any
Indebtedness of Holdings.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
any Lien upon any of its Property 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 Holdings, the Borrower or
their respective 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
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(e), 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 the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(c) 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
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any Property other than the Property financed by such Indebtedness and
(iii) the amount of Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into
by the Borrower or any other Subsidiary in the ordinary course of its
business and covering only the assets so leased;
(j) Liens not otherwise permitted by this Section 7.3 so long as
neither (i) the aggregate outstanding principal amount of the obligations
secured thereby nor (ii) the aggregate fair market value (determined as of
the date such Lien is incurred) of the assets subject thereto exceeds (as
to the Borrower and all Subsidiaries) $1,000,000 at any one time;
(k) any covenants, easements, restrictions, encumbrances and
exceptions contained in any mortgagee's title insurance policy referred to
in Section 5.1(o)(i); and
(l) any existing leases or subleases of all or any portion of a
Mortgaged Property and any renewals and extensions thereof, any leases or
subleases entered into upon the expiration or termination of any such
lease or sublease, and any leases or subleases hereafter entered into of
all or any portion of a Mortgaged Property not required by the Borrower
for the operation of its business.
7.4 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 Dispose of all or substantially all
of its Property or business except:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the
continuing or surviving corporation) or with or into any Wholly Owned
Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor
shall be the continuing or surviving corporation); and
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor.
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
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(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor; and
(e) the sale of other assets at fair market value provided that (i)
such assets have a fair market value not to exceed $2,000,000 for any
fiscal year of the Borrower and not exceeding $5,000,000 in the aggregate
from the Closing Date and (ii) the consideration received by Holdings, the
Borrower and their respective Subsidiaries for each such sale of assets
shall not be less than 75% cash, provided, that the requirements of
Section 2.12(d) are complied with in connection therewith.
7.6 Limitation on Dividends. 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 Holdings, the
Borrower or any of their respective Subsidiaries 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 Holdings, the Borrower or any
of their respective Subsidiaries (collectively, "Restricted Payments"), except
that:
(a) any Subsidiary of the Borrower may make Restricted Payments to
the Borrower or any Wholly Owned Subsidiary Guarantor (and if such
Subsidiary is not a Wholly Owned Subsidiary of the Borrower, to its other
holders of Capital Stock on a pro rata basis, provided that any such
Restricted Payment to such other holders of Capital Stock be attributable
only to cash flows of such Subsidiary);
(b) so long as no Default or Event of Default shall have occurred
and be continuing after giving effect to the payment of any such dividend,
on or after August 15, 2003, the Borrower may pay dividends to Holdings to
permit Holdings to pay cash interest on the Holdings Discount Debentures
in an amount not to exceed the amount of interest required to be paid in
cash by the terms of the Holdings Discount Debentures Indenture;
(c) the Borrower may pay dividends to Holdings to permit Holdings to
(i) pay corporate overhead expenses incurred in the ordinary course of
business not to exceed $250,000 in any fiscal year and (ii) pay any taxes
which are due and payable by Holdings and the Borrower as part of a
consolidated group;
(d) so long as no Default or Event of Default shall have occurred
and be continuing, the Borrower may pay dividends to Holdings to permit
Holdings to purchase Holdings' common stock or common stock options from
present or former officers or employees, or the estate, heirs or legatees
of such former officers or employees, of Holdings, the Borrower or any of
their respective Subsidiaries upon the
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death, disability or termination of employment of such officer or
employee, provided, that the aggregate amount of payments under this
paragraph (d) during the term of this Agreement shall not exceed
$1,000,000 per annum and $2,000,000 in the aggregate, net of any cash
proceeds received by Holdings and contributed to the Borrower in
connection with resales of any common stock or common stock options so
purchased; and
(e) the Borrower may pay dividends to Holdings on the Closing Date
(i) in an amount equal to the aggregate principal amount of the Loans made
on the Closing Date to be used by Holdings solely to finance the
Transactions and (ii) in an amount equal to any cash payments required to
be made by Merger Sub or Holdings on the Closing Date with respect to
Excess Cash (as defined in the Merger Agreement) pursuant to Section
3.01(a) of the Merger Agreement.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure, except:
(a) Capital Expenditures of the Borrower and its Subsidiaries in the
ordinary course of business not exceeding $3,500,000 per fiscal year;
provided, that (i)(x) during the fiscal years of the Borrower ending on
March 31, 1999 and March 31, 2000, 50%, and (y) during any fiscal year of
the Borrower ending on March 31, 2001 or thereafter, 100%, of any such
amount not so expended in the fiscal year for which it is permitted, may
be carried over for expenditure in the next succeeding fiscal year and
(ii) Capital Expenditures made pursuant to this clause (a) during any
fiscal year shall be deemed made, first, in respect of amounts carried
over from the prior fiscal year pursuant to subclause (i) above and,
second, in respect of amounts permitted for such fiscal year as provided
above;
(b) in addition to the amounts permitted by clause (a) above,
Capital Expenditures of the Borrower and its Subsidiaries in the ordinary
course of business not exceeding an aggregate of $2,000,000 during the
term of this Agreement; and
(c) Capital Expenditures permitted pursuant to Section 7.8.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of 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;
(c) Guarantee Obligations permitted by Section 7.2;
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(d) loans and advances to employees of Holdings, the Borrower or its
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses) in an
aggregate amount for Holdings, the Borrower and its Subsidiaries not to
exceed $500,000 at any one time outstanding;
(e) the Transactions;
(f) investments made by the Borrower or any of its Subsidiaries with
the proceeds of any Reinvestment Deferred Amount;
(g) investments by Holdings, the Borrower or any of its Subsidiaries
in the Borrower or any Person that, prior to such investment, is a Wholly
Owned Subsidiary Guarantor; and
(h) acquisitions by the Borrower or any of its Subsidiaries of the
Capital Stock of, or assets of, entities engaged in similar lines of
business as the Borrower and its Subsidiaries on the Closing Date,
provided that (i) the aggregate purchase price for all such acquisitions
shall not exceed $20,000,000, (ii) the aggregate purchase price for all
such acquisitions in any fiscal year shall not exceed $10,000,000, (iii)
no Default or Event of Default shall have occurred or be continuing after
giving effect to any such acquisition, (iv) no Indebtedness shall be
assumed by the Borrower or any of its Subsidiaries in connection with any
such acquisition except to the extent otherwise permitted pursuant to this
Agreement and (v) the Borrower shall be in pro forma compliance with the
covenants set forth in Section 7.1 after giving effect to any such
acquisition.
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. (a) Make or offer to make any payment, prepayment, repurchase,
redemption or defeasance of or otherwise defease or segregate funds with respect
to the Senior Subordinated Notes or the Holdings Discount Debentures (other than
scheduled interest payments required to be made in cash) or pay interest in cash
on the Holdings Discount Debentures prior to August 15, 2003, (b) amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of the Senior Subordinated Notes or
the Holdings Discount Debentures (other than any such amendment, modification,
waiver or other change which (i) 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 thereon and (ii) does not involve the payment of a
consent fee), (c) designate any Indebtedness as "Designated Senior Indebtedness"
for the purposes of the Senior Subordinated Note Indenture or the Holdings
Discount Debentures Indenture or (d) amend its certificate of incorporation in
any manner determined by the Administrative Agent to be adverse to the Lenders
without the prior written consent of the Required Lenders.
7.10 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than Holdings,
the Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction
is (a) otherwise permitted under this Agreement, (b) in the
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ordinary course of business of Holdings, the Borrower or such Subsidiary, as the
case may be, and (c) upon fair and reasonable terms no less favorable to
Holdings, the Borrower 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. Notwithstanding the foregoing, Holdings and/or the Borrower may pay
fees to the Sponsor and HWH Capital Partners in connection with the Transactions
in an aggregate amount not to exceed $4,000,000 plus any reasonable
out-of-pocket expenses.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by Holdings, the Borrower or any of
their respective Subsidiaries of real or personal property owned by Holdings,
the Borrower or any of their respective Subsidiaries on the Closing Date which
has been or is to be sold or transferred by Holdings, the Borrower 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 Holdings, the Borrower or such Subsidiary. Notwithstanding the
foregoing, the Borrower or any its Subsidiaries may enter into any such
arrangement described in the immediately preceding sentence with respect to any
property acquired by the Borrower or such Subsidiary after the Closing Date to
the extent otherwise permitted pursuant to this Agreement, provided that such
arrangement is entered into within 90 days after such property is acquired by
the Borrower or such Subsidiary.
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year
of the Borrower to end on a day other than March 31 or change the Borrower's
method of determining fiscal quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to
exist or become effective any agreement which prohibits or limits the ability of
Holdings, the Borrower or any of their respective Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its Property or revenues, whether
now owned or hereafter acquired, to secure the Obligations or, in the case of
any guarantor, its obligations under the Guarantee and Collateral Agreement,
other than (a) this Agreement and the other Loan Documents, (b) the Holdings
Discount Debentures Indenture and the Senior Subordinated Note Indenture and (c)
any agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed thereby).
7.14 Limitation on Restrictions on Subsidiary Distributions. Enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any
other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or
any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances
or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents or the Senior Subordinated Note Indenture and (ii) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement which
has been entered into in connection
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with the Disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary.
7.15 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are related, ancillary or complementary thereto.
7.16 Limitation on Amendments to Merger Agreement. (a) Amend,
supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and
conditions of the indemnities and licenses furnished to the Borrower or any of
its Subsidiaries pursuant to the Merger Agreement such that after giving effect
thereto such indemnities or licenses shall be materially less favorable to the
interests of the Loan Parties or the Lenders with respect thereto or (b)
otherwise amend, supplement or otherwise modify the terms and conditions of the
Merger Agreement or any such other documents except to the extent that any such
amendment, supplement or modification could not reasonably be expected to have a
Material Adverse Effect.
7.17 Limitation on Activities of Holdings. In the case of Holdings,
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 Borrower, (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, (iii)
obligations with respect to its Capital Stock and (iv) the Holdings Discount
Debentures, (c) own, lease, manage or otherwise operate any properties or assets
(including cash (other than cash received in connection with dividends made by
the Borrower in accordance with Section 7.6 pending application in the manner
contemplated by said Section) and cash equivalents) other than the ownership of
shares of Capital Stock of the Borrower or (d) own the Capital Stock of any
Subsidiary (other than the Borrower and its Subsidiaries). Notwithstanding the
foregoing, Holdings may refinance the Holdings Discount Debentures upon terms no
less favorable to the Lenders than the terms set forth in the Holdings
Debentures Indenture on the Closing Date so long as any Indebtedness incurred by
Holdings to refinance the Holdings Discount Debentures has no scheduled
principal payments prior to the final maturity of the Loans hereunder and
requires no cash payments of interest prior to August 15, 2003.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower 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
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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 any 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 inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) Any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of Section
6.4(a) (with respect to Holdings and the Borrower only), Section 6.7(a) or
Section 7 or (ii) an "Event of Default" under and as defined in any
Mortgage shall have occurred and be continuing; or
(d) any 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; or
(e) Holdings, the Borrower or any of their respective Subsidiaries
shall (i) default in making any payment of any principal of any
Indebtedness (including, without limitation, any Guarantee Obligation, but
excluding the Loans) 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 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 the outstanding principal amount of which exceeds in the
aggregate $2,500,000; or
(f) (i) Holdings, the Borrower or any of their respective
Subsidiaries 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
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or any substantial part of its assets, or Holdings, the Borrower or any of
their respective Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against
Holdings, the Borrower or any of their respective Subsidiaries 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 Holdings, the Borrower or any of their respective Subsidiaries 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)
Holdings, the Borrower or any of their respective Subsidiaries 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) Holdings, the Borrower or any of their respective
Subsidiaries 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 the
Borrower 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) the Borrower 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 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
Holdings, the Borrower or any of their respective Subsidiaries involving
in the aggregate a liability (not paid or fully covered by insurance as to
which the relevant insurance company has acknowledged coverage) of
$2,500,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 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,
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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) (i) Any Person or "group" (within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended) other than
the Primary Investors (A) shall have acquired beneficial ownership of a
greater percentage of Holdings' voting common stock than is then held by
the Primary Investors or (B) shall obtain the power (whether or not
exercised) to elect a majority of the Borrower's or Holdings' directors
(for purposes of this clause (i), and clause (ii)(B) below, any shares of
voting stock that are required to be voted for a nominee of any Primary
Investor shall be deemed to be held by such Primary Investor for purposes
of determining the voting power held by any Person); or (ii) (A) the board
of directors of the Borrower or Holdings shall not consist of a majority
of Continuing Directors; as used in this paragraph "Continuing Directors"
shall mean the directors of the Borrower or Holdings, as the case may be,
on the Closing Date and each other director, if such other director's
nomination for election to the board of directors of Holdings is
recommended by a majority of the then Continuing Directors or (B) the
Primary Investors shall cease to be able to elect a majority of the board
of directors of Holdings or, through Holdings, the Borrower; or (iii) the
Primary Investors shall cease to own legally and beneficially at least 80%
of each outstanding class of common stock having ordinary voting power in
the election of directors of Holdings held by them on the Closing Date (as
appropriately adjusted to give effect to any stock dividends,
subdivisions, combinations and other similar combining or diluting events
after the Closing Date); or (iv) Holdings shall cease to own legally and
beneficially 100% of each class of Capital Stock of the Borrower, free of
Liens (other than Liens created by the Security Documents); or (v) a
"change of control" as defined in the Senior Subordinated Note Indenture
or the Holdings Discount Debentures Indenture shall occur; or
(k) The Senior Subordinated Notes or the guarantees thereof shall
cease, for any reason, to be validly subordinated to the Obligations or
the obligations of the Guarantors under the Loan Documents, as the case
may be, as provided in the Senior Subordinated Note Indenture, or any Loan
Party shall so assert;
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 Borrower or
Holdings, 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 Majority Revolving Credit Facility
Lenders, the Administrative Agent may, or upon the
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request of the Majority Revolving Credit Facility Lenders, the Administrative
Agent shall, by notice to the Borrower declare the Revolving Credit Commitments
to be terminated forthwith, whereupon the Revolving Credit 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 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 Borrower 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 Borrower 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 Borrower 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 Borrower (or such other Person as may be lawfully entitled thereto).
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 such 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 have no duties or responsibilities, except those
expressly set 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
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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 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.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
instrument, 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 Loan
Parties), 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 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 Loans.
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 notice from a Lender,
Holdings or the Borrower 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.
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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 have
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 shall have no 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
Holdings or the Borrower and without limiting the obligation of Holdings or the
Borrower to do so), ratably according to their respective Aggregate Exposure
Percentages in effect on the date on which indemnification is sought under this
Section 9.7 (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with such Aggregate Exposure Percentages immediately prior
to such date), 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 Loans) 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 Loans and all other amounts
payable hereunder.
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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 was not the Administrative Agent. With respect to its Loans
made or renewed by 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 and the
Borrower. 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 (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (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, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, 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 Loans. If no successor agent
has accepted appointment as Administrative Agent by the date that is 10 days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become
effective, and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. After any retiring Agent's
resignation as 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 Agent
under this Agreement and the other Loan Documents.
9.10 Authorization to Release Liens. The Administrative Agent is
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Borrower or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 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 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Administrative Agent and
each Loan Party 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
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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 Loan,
extend the scheduled date of any amortization payment in respect of any Term
Loan, 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, in each case without the consent of each Lender directly
affected thereby; (ii) amend, modify or waive any provision of this Section 10.1
or reduce any percentage specified in the definition of Required Lenders or
Required Prepayment Lenders, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, release all or substantially all of the Collateral or release
Holdings or all or substantially all of the Subsidiary Guarantors from their
obligations under the Guarantee and Collateral Agreement, in each case without
the written consent of all Lenders; (iii) reduce the percentage specified in the
definition of Majority Facility Lenders without the written consent of all
Lenders under each affected Facility; (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; (vii) amend, modify or waive any provision of Section 2.6 or 2.7
or increase or decrease the amount of Swing Line Commitment without the written
consent of the Swing Line Lender or (viii) amend or modify the definition of
"Acquisition Advance Amount", "Borrowing Base", "Eligible Accounts Receivable",
"Eligible Inventory" or "Over Advance Amount", in each case without the consent
of the Majority Revolving Credit 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 Loans. 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.
10.2 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 by a responsible officer of the addressee, addressed as follows in the
case of Holdings, the Borrower and the Administrative Agent, and as set forth in
an administrative questionnaire delivered to the Administrative Agent in the
case of the Lenders, or to such other address as may be hereafter notified by
the respective parties hereto:
Holdings: NBC Acquisition Corp.
4700 South 19th Street
Lincoln, Nebraska 68501
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Attention: Chief Financial Officer
Telecopy: 402-421-0507
The Borrower: Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, Nebraska 68501
Attention: Chief Financial Officer
Telecopy: 402-421-0507
The Administrative Agent: The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention: Janet Belden
Telecopy: 212-552-5658
with a copy to: Chase Securities Inc.
10 South LaSalle Street
Suite 2300
Chicago, Illinois 60603
Attention: Jonathan Twichell
Telecopy: 312-807-4550
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
10.3 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.
10.4 Survival of Representations and Warranties. 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 making of the
Loans hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the 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
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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 of 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 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, 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
Holdings, the Borrower any of their respective Subsidiaries or any of the
Properties (all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided, that the Borrower shall have no obligation hereunder to
any indemnitee with respect to indemnified liabilities (i) 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 or (ii) arising from a lawsuit or
administrative proceeding against such indemnitee if the Borrower was not given
notice of such lawsuit or administrative proceeding and an opportunity to
participate in the defense thereof at its own expense. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert and to cause its Subsidiaries not to assert, and hereby waives and
agrees to cause its Subsidiaries to so waive, all rights for contribution or any
other rights of recovery with respect to all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, under or related to Environmental Laws, that any of them might have by
statute or otherwise against any indemnitee. The agreements in this Section
shall survive repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Administrative Agent, all future holders of the Loans
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of the Administrative Agent and each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to 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
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performance thereof, such Lender shall remain the holder of any such Loan for
all purposes under this Agreement and the other Loan Documents, and the Borrower
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 Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans 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 to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, 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 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.19, 2.20 and 2.21 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 2.20, 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 (an "Assignor") may, 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 Borrower and the Administrative Agent
(which, in each case, shall not be unreasonably withheld or delayed), to an
additional bank, financial institution or other entity (an "Assignee") all or
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit E, executed by
such Assignee, such Assignor and the Administrative Agent (and, where the
consent of the Borrower is required pursuant to the foregoing provisions, by the
Borrower) 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 $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower and the Administrative Agent. Any such
assignment need not be ratable as among the Facilities. 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 and/or
Loans as set forth therein, and (y) the Assignor 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 of an Assignor's
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rights and obligations under this Agreement, such assigning Lender shall cease
to be a party hereto). Notwithstanding any provision of this Section 10.6, the
consent of the Borrower shall not be required for any assignment which occurs at
any time when any Event of Default shall have occurred and be continuing.
(d) The Administrative Agent shall maintain at its address referred
to in Section 10.2 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 and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time and any Notes evidencing such Loans. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of the Loan and any Note
evidencing such Loan recorded therein for all purposes of this Agreement. Any
assignment of any Loan whether or not evidenced by a Note shall be effective
only upon appropriate entries with respect thereto being made in the Register
(and each Note shall expressly so provide). Any assignment or transfer of all or
part of a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes in the same aggregate principal amount shall be issued to
the designated Assignee and the old Notes shall be returned by the
Administrative Agent to the Borrower marked "cancelled". The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) 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 or a person under common management with
such Lender, by the Borrower, the Administrative Agent and the Issuing Lender)
together with payment to the Administrative Agent of a registration and
processing fee of $3,500 (except that no such registration and processing fee
shall be payable in the case of an Assignee which is already a Lender or is an
affiliate of a Lender or a Person under common management with 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 give notice of such acceptance
and recordation to the Lenders and the Borrower. On or prior to such effective
date, the Borrower, at its own expense, upon request, shall execute and deliver
to the Administrative Agent (in exchange for the Revolving Credit Note and/or
Term Notes, as the case may be, of the assigning Lender) a new Revolving Credit
Note and/or Term Notes, as the case may be, to the order of such Assignee in an
amount equal to the Revolving Credit Commitment and/or applicable Term Loans, as
the case may be, assumed or acquired by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Revolving Credit
Commitment and/or Term Loans, as the case may be, upon request, a new Revolving
Credit Note and/or Term Notes, as the case may be, to the order of the assigning
Lender in an amount equal to the Revolving Credit Commitment and/or applicable
Term Loans, 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.
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(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section concerning assignments of Loans
and Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without limitation,
any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, 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 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 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 Holdings or
the Borrower, any such notice being expressly waived by Holdings and the
Borrower to the extent permitted by applicable law, upon any amount becoming due
and payable by Holdings or the Borrower hereunder (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 Holdings or
the Borrower. Each Lender agrees promptly to notify Holdings, the 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.
10.8 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 Borrower and the
Administrative Agent.
10.9 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
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any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of Holdings, the Borrower, 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.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings and the
Borrower 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 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 of America for
the Southern District of New York, 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 Holdings
or the Borrower, as the case may be at its address set forth in Section
10.2 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 10.12 any special, exemplary, punitive or consequential
damages.
10.13 Acknowledgements. Each of Holdings and the Borrower hereby
acknowledges that:
<PAGE> 106
101
(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 Holdings or the 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 Holdings and the Borrower, 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 Holdings, the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. 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 Participant or Assignee (each, a "Transferee") or prospective Transferee
which agrees to comply with the provisions of this Section, (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 10.15, (h) to the National Association of Insurance
Commissioners or any similar organization or any nationally recognized rating
agency that requires access to information about a Lender's investment portfolio
in connection with ratings issued with respect to such Lender, or (i) in
connection with the exercise of any remedy hereunder or under any other Loan
Document.
<PAGE> 107
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.
NBC ACQUISITION CORP.
By: /s/ Mark W. Oppegard
----------------------------------
Name: Mark W. Oppegard
Title: President and Chief Executive Officer
NEBRASKA BOOK COMPANY, INC.
By: /s/ Bruce E. Nevius
----------------------------------
Name: Bruce E. Nevius
Title: Treasurer and Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By: /s/ Lawrence Palumbo, Jr.
----------------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
BANKBOSTON
By: /s/ Timothy M. Barns
----------------------------------
Name: Timothy M. Barns
Title: Division Executive
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
----------------------------------
Name: David Bouhl, F.V.P.
Title: Head of orporate Banking
Chicago
By: /s/ Dean Balice
----------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
THE FIRST NATIONAL
BANK OF CHICAGO
By: /s/ Christina Zautcke
----------------------------------
Name: Christina Zautcke
Title: First Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ John Hanley
----------------------------------
Name: John Hanley
Title: Senior Credit Analyst
HELLER FINANCIAL, INC.
By: /s/ Patrick Hayes
----------------------------------
Name: Patrick Hayes
Title: Vice President
NATIONAL CITY BANK
By: /s/ Robert C. Rowe
----------------------------------
Name: Robert C. Rowe
Title: Vice President
<PAGE> 108
SOCIETE GENERALE
By: /s/ Christopher J. Speltz
----------------------------------
Name: Christopher J. Speltz
Title: V.P. and Manager
By: /s/ Damien Zinck
----------------------------------
Name: Damien Zinck
Title: Assistant Vice President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ David A. Draxler
----------------------------------
Name: David A. Draxler
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------------------
Name: Jeffrey W. Maillet
Title: SR. VICE PRES. & DIRECTOR
WELLS FARGO BANK
NATIONAL ASSOCIATION
By: /s/ Todd D. Robichaux
----------------------------------
Name: Todd D. Robichaux
Title: Vice President
<PAGE> 1
Exhibit 10.2
EXECUTION COPY
================================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
NBC ACQUISITION CORP.
and
NEBRASKA BOOK COMPANY, INC.
in favor of
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of February 13, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINED TERMS................................................... 1
1.1 Definitions...................................................... 1
1.2 Other Definitional Provisions.................................... 5
SECTION 2. GUARANTEE....................................................... 5
2.1 Guarantee........................................................ 5
2.2 Right of Contribution............................................ 6
2.3 No Subrogation................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations........ 7
2.5 Guarantee Absolute and Unconditional............................. 7
2.6 Reinstatement.................................................... 8
2.7 Payments......................................................... 8
SECTION 3. GRANT OF SECURITY INTEREST...................................... 8
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 9
4.1 Representations in Credit Agreement.............................. 9
4.2 Title; No Other Liens............................................ 9
4.3 Perfected First Priority Liens................................... 9
4.4 Chief Executive Office........................................... 10
4.5 Inventory and Equipment.......................................... 10
4.6 Farm Products.................................................... 10
4.7 Pledged Securities............................................... 10
4.8 Receivables...................................................... 10
4.9 Intellectual Property............................................ 10
SECTION 5. COVENANTS....................................................... 11
5.1 Covenants in Credit Agreement.................................... 11
5.2 Delivery of Instruments and Chattel Paper........................ 11
5.3 Maintenance of Perfected Security Interest; Further Documentation 11
5.4 Changes in Locations, Name, etc.................................. 12
5.5 Notices.......................................................... 12
5.6 Pledged Securities............................................... 12
5.7 Receivables...................................................... 13
5.8 Intellectual Property............................................ 14
SECTION 6. REMEDIAL PROVISIONS............................................. 15
6.1 Certain Matters Relating to Receivables.......................... 15
6.2 Communications with Obligors; Grantors Remain Liable............. 16
6.3 Pledged Stock.................................................... 16
6.4 Proceeds to be Turned Over To Administrative Agent............... 17
6.5 Application of Proceeds.......................................... 18
i
<PAGE> 3
Page
----
6.6 Code and Other Remedies......................................... 18
6.7 Registration Rights............................................. 19
6.8 Waiver; Deficiency.............................................. 20
SECTION 7. THE ADMINISTRATIVE AGENT....................................... 20
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc..... 20
7.2 Duty of Administrative Agent.................................... 22
7.3 Execution of Financing Statements............................... 22
7.4 Authority of Administrative Agent............................... 22
SECTION 8. MISCELLANEOUS.................................................. 23
8.1 Amendments in Writing........................................... 23
8.2 Notices......................................................... 23
8.3 No Waiver by Course of Conduct; Cumulative Remedies............. 23
8.4 Enforcement Expenses; Indemnification........................... 23
8.5 Successors and Assigns.......................................... 24
8.6 Set-Off......................................................... 24
8.7 Counterparts.................................................... 24
8.8 Severability.................................................... 24
8.9 Section Headings................................................ 25
8.10 Integration.................................................... 25
8.11 GOVERNING LAW.................................................. 25
8.12 Submission To Jurisdiction; Waivers............................ 25
8.13 Acknowledgements............................................... 25
8.14 WAIVER OF JURY TRIAL........................................... 26
8.15 Additional Grantors............................................ 26
8.16 Releases....................................................... 26
ii
<PAGE> 4
SCHEDULES
Schedule 1
Schedule 2
Schedule 3
Schedule 4
Schedule 5
Schedule 6
Schedule 7
ANNEXES
Annex 1 Assumption Agreement
iii
<PAGE> 5
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of February 13, 1998,
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of THE CHASE
MANHATTAN BANK, as Administrative Agent (in such capacity, the "Administrative
Agent") for the banks and other financial institutions (the "Lenders") from time
to time parties to the Credit Agreement, dated as of February 13, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among NBC Acquisition Corp. ("Holdings"), Nebraska Book Company,
Inc. (the "Borrower"), the Lenders and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms and
subject to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of
companies that includes each other Grantor (it being understood that as of the
Closing Date the Borrower and Holdings are the only Grantors);
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable transfers
to one or more of the other Grantors in connection with the operation of their
respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective extensions of credit to the Borrower under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the Borrower
thereunder, each Grantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in
<PAGE> 6
2
effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products,
Instruments, Inventory and Investment Property.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same
may be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid
principal of and interest on the Loans and Reimbursement Obligations and
all other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and Reimbursement
Obligations and interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) to the
Administrative Agent or any Lender (or, in the case of any Hedge Agreement
referred to below, any Affiliate of 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,
the Credit Agreement, this Agreement, the other Loan Documents, any Letter
of Credit or any Hedge Agreement entered into by the Borrower with any
Lender (or any Affiliate of any Lender) or any other document made,
delivered or given in connection therewith, in each case whether on
account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Administrative Agent or to
the Lenders that are required to be paid by the Borrower pursuant to the
terms of any of the foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by the
Administrative Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished
(including, without limitation, those listed in Schedule 6), all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings
and applications in the United States Copyright Office, and (ii) the right
to obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any Grantor as
licensor or licensee (including, without limitation, those listed in
Schedule 6), granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright.
<PAGE> 7
3
"General Intangibles": all "general intangibles" as such term is
defined in Section 9-106 of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which
such Grantor is a party or under which such Grantor has any right, title
or interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise
all remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is
not prohibited by such contract, agreement, instrument or indenture
without the consent of any other party thereto, would not give any other
party to such contract, agreement, instrument or indenture the right to
terminate its obligations thereunder, or is permitted with consent if all
necessary consents to such grant of a security interest have been obtained
from the other parties thereto (it being understood that the foregoing
shall not be deemed to obligate such Grantor to obtain such consents);
provided, that the foregoing limitation shall not affect, limit, restrict
or impair the grant by such Grantor of a security interest pursuant to
this Agreement in any Receivable or any money or other amounts due or to
become due under any such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
collective reference to (i) the Borrower Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Loan Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all fees and disbursements of
counsel to the Administrative Agent or to the Lenders that are required to
be paid by such Guarantor pursuant to the terms of this Agreement or any
other Loan Document).
"Guarantors": the collective reference to each Grantor other than
the Borrower.
"Hedge Agreements": as to any Person, all interest rate swaps, caps
or collar agreements or similar arrangements entered into by such Person
providing for protection against fluctuations in interest rates or
currency exchange rates or the exchange of nominal interest obligations,
either generally or under specific contingencies.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks
<PAGE> 8
4
and the Trademark Licenses, and all rights to sue at law or in equity for
any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Intercompany Note": any promissory note evidencing loans made by
any Grantor to Holdings or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged
Security.
"New York UCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to in
Schedule 6, and (iii) all rights to obtain any reissues or extensions of
the foregoing.
"Patent License": all agreements, whether written or oral, providing
for the grant by or to any Grantor of any right to manufacture, use or
sell any invention covered in whole or in part by a Patent, including,
without limitation, any of the foregoing referred to in Schedule 6.
"Pledged Notes": all promissory notes listed on Schedule 2, all
Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory
notes issued in connection with extensions of trade credit by any Grantor
in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged Notes
and the Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect.
"Proceeds": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Securities, collections
thereon or distributions or payments with respect thereto.
<PAGE> 9
5
"Receivable": any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademarks": (i) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications
in connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
in Schedule 6.
1.2 Other Definitional Provisions. (a) The words "hereof," "herein",
"hereto" 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 and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
<PAGE> 10
6
(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Administrative Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Borrower may be free from any Borrower
Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any
other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrower, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Administrative Agent and the Lenders, and each Guarantor
shall remain liable to the Administrative Agent and the Lenders for the full
amount guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower on
account of the Borrower Obligations are paid in full, no Letter of Credit shall
be outstanding and the Commitments are terminated. If any amount shall be paid
to any Guarantor on account of such subrogation rights at any time when all of
the Borrower Obligations shall not have been paid in full, such
<PAGE> 11
7
amount shall be held by such Guarantor in trust for the Administrative Agent and
the Lenders, segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Administrative Agent in
the exact form received by such Guarantor (duly indorsed by such Guarantor to
the Administrative Agent, if required), to be applied against the Borrower
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine.
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
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 the
Credit Agreement and the other Loan Documents and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Administrative Agent (or the Required
Lenders or all 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 Borrower
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
Borrower Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower 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 2; and all dealings between the Borrower and
any of the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
Each Guarantor waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon the Borrower or any of the Guarantors
with respect to the Borrower Obligations. Each Guarantor understands and agrees
that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Borrower Obligations or any other 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, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower or any other Person against the Administrative Agent or any Lender, or
(c) any other circumstance
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8
whatsoever (with or without notice to or knowledge of the Borrower or such
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Borrower for the Borrower Obligations, or of such
Guarantor under the guarantee contained in this Section 2, in bankruptcy or in
any other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Administrative Agent or
any Lender may, but shall be under no obligation to, make a similar demand on or
otherwise pursue such rights and remedies as it may have against the Borrower,
any other Guarantor or any other Person or against any collateral security or
guarantee for the Borrower Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any Lender to make any
such demand, to pursue such other rights or remedies or to collect any payments
from the Borrower, any other Guarantor or any 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 Borrower, any other Guarantor or any other Person
or any such collateral security, guarantee or right of offset, shall not relieve
any Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any Lender against any Guarantor.
For the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 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 Borrower 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
the Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at 270
Park Avenue, New York, New York 10017.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Administrative
Agent, and hereby grants to the Administrative Agent, for the ratable benefit of
the Lenders, a security interest in, all of the following property now owned or
at any time hereafter acquired by such Grantor or in which such Grantor now has
or at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"), as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of such Grantor's Obligations,:
(a) all Accounts;
(b) all Chattel Paper;
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(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Pledged Securities;
(j) all Investment Property;
(k) all books and records pertaining to the Collateral; and
(l) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrower thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:
4.1 Representations in Credit Agreement. In the case of each
Guarantor, the representations and warranties set forth in Section 4 of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Administrative Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty to
the Borrower's knowledge shall, for the purposes of this Section 4.1, be deemed
to be a reference to such Guarantor's knowledge.
4.2 Title; No Other Liens. Except for the security interest granted
to the Administrative Agent for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted by the Credit Agreement.
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4.3 Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Administrative Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for (i) unrecorded Liens permitted by the
Credit Agreement which have priority over the Liens on the Collateral by
operation of law and (ii) Liens described on Schedule 7.
4.4 Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.5 Inventory and Equipment. On the date hereof, the Inventory and
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
4.6 Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement.
4.8 Receivables. (a) No amount payable to such Grantor under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.
(b) None of the obligors on any Receivables is a Governmental
Authority.
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(c) The amounts represented by such Grantor to the Lenders from time
to time as owing to such Grantor in respect of the Receivables will at such
times be accurate.
4.9 Intellectual Property. (a) Schedule 6 lists all Intellectual
Property owned by such Grantor in its own name on the date hereof.
(b) On the date hereof, all material Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and does not
infringe the intellectual property rights of any other Person.
(c) Except as set forth in Schedule 6, on the date hereof, none of
the Intellectual Property is the subject of any licensing or franchise agreement
pursuant to which such Grantor is the licensor or franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge of such
Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question
the validity of any Intellectual Property or such Grantor's ownership interest
therein, or (ii) which, if adversely determined, would have a material adverse
effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative Agent and
the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor,
such Guarantor shall take, or shall refrain from taking, as the case may be,
each action that is necessary to be taken or not taken, as the case may be, so
that no Default or Event of Default is caused by the failure to take such action
or to refrain from taking such action by such Guarantor or any of its
Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Administrative Agent, duly indorsed in a manner
satisfactory to the Administrative Agent, to be held as Collateral pursuant to
this Agreement.
5.3 Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Grantor shall maintain the security interest created by
this Agreement as a perfected
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security interest having at least the priority described in Section 4.3 and
shall defend such security interest against the claims and demands of all
Persons whomsoever.
(b) Such Grantor will furnish to the Administrative Agent and the
Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in reasonable
detail.
(c) At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.4 Changes in Locations, Name, etc. Such Grantor will not, except
upon 15 days' prior written notice to the Administrative Agent and delivery to
the Administrative Agent of (a) all additional executed financing statements and
other documents reasonably requested by the Administrative Agent to maintain the
validity, perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 5 showing any additional
location at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 5;
(ii) change the location of its chief executive office or sole place
of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.
5.5 Notices. Such Grantor will advise the Administrative Agent and
the Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Administrative Agent to exercise any of its
remedies hereunder; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.6 Pledged Securities. (a) If such Grantor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate
<PAGE> 17
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representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a conversion
of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect
thereof, such Grantor shall accept the same as the agent of the Administrative
Agent and the Lenders, hold the same in trust for the Administrative Agent and
the Lenders and deliver the same forthwith to the Administrative Agent in the
exact form received, duly indorsed by such Grantor to the Administrative Agent,
if required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of any Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Pledged Securities or any property shall be distributed upon or with respect to
the Pledged Securities pursuant to the recapitalization or reclassification of
the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Securities shall be received by such
Grantor, such Grantor shall, until such money or property is paid or delivered
to the Administrative Agent, hold such money or property in trust for the
Lenders, segregated from other funds of such Grantor, as additional collateral
security for the Obligations.
(b) Without the prior written consent of the Administrative Agent,
such Grantor will not (i) vote to enable, or take any other action to permit,
any Issuer to issue any stock or other equity securities of any nature or to
issue any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Pledged Securities or Proceeds thereof (except
pursuant to a transaction expressly permitted by the Credit Agreement), (iii)
create, incur or permit to exist any Lien or option in favor of, or any claim of
any Person with respect to, any of the Pledged Securities or Proceeds thereof,
or any interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the right
or ability of such Grantor or the Administrative Agent to sell, assign or
transfer any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer
agrees that (i) it will be bound by the terms of this Agreement relating to the
Pledged Securities issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Administrative Agent
promptly in writing of the occurrence of any of the events described in Section
5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms
of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to
all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with
respect to the Pledged Securities issued by it.
<PAGE> 18
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5.7 Receivables. (a) Other than in the ordinary course of business
consistent with its past practice, such Grantor will not (i) grant any extension
of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Administrative Agent a copy of
each material demand, notice or document received by it that questions or calls
into doubt the validity or enforceability of more than 5% of the aggregate
amount of the then outstanding Receivables.
5.8 Intellectual Property. (a) Such Grantor (either itself or
through licensees) will (i) continue to use each material Trademark on each and
every trademark class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Administrative Agent, for the ratable
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way.
(b) Such Grantor (either itself or through licensees) will not do
any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i) will
employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material portion of the Copyrights may become invalidated or
otherwise impaired. Such Grantor will not (either itself or through licensees)
do any act whereby any material portion of the Copyrights may fall into the
public domain.
(d) Such Grantor (either itself or through licensees) will not do
any act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.
(e) Such Grantor will notify the Administrative Agent and the
Lenders immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or
<PAGE> 19
15
tribunal in any country) regarding such Grantor's ownership of, or the validity
of, any material Intellectual Property or such Grantor's right to register the
same or to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within five Business Days after the last day
of the fiscal quarter in which such filing occurs. Upon request of the
Administrative Agent, such Grantor shall execute and deliver, and have recorded,
any and all agreements, instruments, documents, and papers as the Administrative
Agent may request to evidence the Administrative Agent's and the Lenders'
security interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby.
(g) Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Administrative
Agent shall have the right to make test verifications of the Receivables in any
manner and through any medium that it reasonably considers advisable, and each
Grantor shall furnish all such assistance and information as the Administrative
Agent may require in connection with such test verifications. At any time and
from time to time, upon the Administrative Agent's request and at the expense of
the relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Administrative Agent to furnish to the Administrative
Agent reports showing reconciliations, aging and test verifications of, and
trial balances for, the Receivables.
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(b) The Administrative Agent hereby authorizes each Grantor to
collect such Grantor's Receivables, subject to the Administrative Agent's
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of an
Event of Default. If required by the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any
event, within two Business Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Administrative Agent if required,
in a Collateral Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
account of the Lenders only as provided in Section 6.5, and (ii) until so turned
over, shall be held by such Grantor in trust for the Administrative Agent and
the Lenders, segregated from other funds of such Grantor. Each such deposit of
Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
(c) At the Administrative Agent's request, each Grantor shall
deliver to the Administrative Agent all original and other documents evidencing,
and relating to, the agreements and transactions which gave rise to the
Receivables, including, without limitation, all original orders, invoices and
shipping receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
Administrative Agent in its own name or in the name of others may at any time
after the occurrence and during the continuance of an Event of Default
communicate with obligors under the Receivables to verify with them to the
Administrative Agent's satisfaction the existence, amount and terms of any
Receivables.
(b) Upon the request of the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables that the Receivables have been assigned
to the Administrative Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Administrative Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise thereto. Neither the
Administrative Agent nor any Lender shall have any obligation or liability under
any Receivable (or any agreement giving rise thereto) by reason of or arising
out of this Agreement or the receipt by the Administrative Agent or any Lender
of any payment relating thereto, nor shall the Administrative Agent or any
Lender be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
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6.3 Pledged Stock. (a) Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the relevant Grantor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Notes, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided, however, that
no vote shall be cast or corporate right exercised or other action taken which,
in the Administrative Agent's reasonable judgment, would impair the Collateral
or which would be inconsistent with or result in any violation of any provision
of the Credit Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the relevant Grantor or Grantors, (i) the Administrative Agent shall have the
right to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in the order set forth in Section 6.5, and (ii) any or all of the
Pledged Securities shall be registered in the name of the Administrative Agent
or its nominee, and the Administrative Agent or its nominee may thereafter
exercise (x) all voting, corporate and other rights pertaining to such Pledged
Securities at any meeting of shareholders of the relevant Issuer or Issuers or
otherwise and (y) any and all rights of conversion, exchange and subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization or
other fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Grantor or the Administrative Agent of any right, privilege or
option pertaining to such Pledged Securities, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Grantor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Administrative Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In addition
to the rights of the Administrative Agent and the Lenders specified in Section
6.1 with respect to payments of Receivables, if an Event of Default shall occur
and be continuing, all Proceeds
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received by any Grantor consisting of cash, checks and other near-cash items
shall be held by such Grantor in trust for the Administrative Agent and the
Lenders, segregated from other funds of such Grantor, and shall, forthwith upon
receipt by such Grantor, be turned over to the Administrative Agent in the exact
form received by such Grantor (duly indorsed by such Grantor to the
Administrative Agent, if required). All Proceeds received by the Administrative
Agent hereunder shall be held by the Administrative Agent in a Collateral
Account maintained under its sole dominion and control. All Proceeds while held
by the Administrative Agent in a Collateral Account (or by such Grantor in trust
for the Administrative Agent and the Lenders) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be agreed upon
by the Borrower and the Administrative Agent, or, if an Event of Default shall
have occurred and be continuing, at any time at the Administrative Agent's
election, the Administrative Agent may apply all or any part of Proceeds
constituting Collateral, whether or not held in any Collateral Account, and any
proceeds of the guarantee set forth in Section 2, in payment of the Obligations
in the following order:
First, to pay incurred and unpaid fees and expenses of the
Administrative Agent under the Loan Documents;
Second, to the Administrative Agent, for application by it towards
payment of amounts then due and owing and remaining unpaid in respect of
the Obligations, pro rata among the Lenders according to the amounts of
the Obligations then due and owing and remaining unpaid to the Lenders;
Third, to the Administrative Agent, for application by it towards
prepayment of the Obligations, pro rata among the Lenders according to the
amounts of the Obligations then held by the Lenders; and
Fourth, any balance of such Proceeds remaining after the Obligations
shall have been paid in full, no Letters of Credit shall be outstanding
and the Commitments shall have terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and
be continuing, the Administrative Agent, on behalf of the Lenders, may exercise,
in addition to all other rights and remedies granted to them in this Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or
<PAGE> 23
19
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Administrative Agent or
any Lender or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Administrative Agent or any
Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in any Grantor, which right or equity is hereby waived and released.
Each Grantor further agrees, at the Administrative Agent's request, to assemble
the Collateral and make it available to the Administrative Agent at places which
the Administrative Agent shall reasonably select, whether at such Grantor's
premises or elsewhere. The Administrative Agent shall apply the net proceeds of
any action taken by it pursuant to this Section 6.6, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Administrative Agent may elect, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
New York UCC, need the Administrative Agent account for the surplus, if any, to
any Grantor. To the extent permitted by applicable law, each Grantor waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.
6.7 Registration Rights. (a) If the Administrative Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 6.6, and if in the opinion of the Administrative Agent it is
necessary or advisable to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Grantor agrees to
cause such Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions which the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of Section 11(a) of the Securities Act.
<PAGE> 24
20
(b) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that no such private sale shall be
deemed to have been made in a commercially unreasonable manner solely because it
has had such a result. The Administrative Agent shall be under no obligation to
delay a sale of any of the Pledged Stock for the period of time necessary to
permit the Issuer thereof to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if such Issuer
would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 6.7 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 6.7 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert
any rights or privileges which it may acquire under Section 9-112 of the New
York UCC. Each Grantor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. (a)
Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Administrative Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:
<PAGE> 25
21
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable with respect to any other Collateral and file any claim or take
any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Administrative Agent for the purpose of
collecting any and all such moneys due under any Receivable or with
respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section
6.6 or 6.7, any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (2) ask or demand for, collect, and receive payment of
and receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral; (3)
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding
brought against such Grantor with respect to any Collateral; (6) settle,
compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the
Administrative Agent may deem appropriate; (7) assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which any
such Copyright, Patent or Trademark pertains), throughout the world for
such term or terms, on such conditions, and in such manner, as the
Administrative Agent shall in its sole discretion determine; and (8)
generally, sell, transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as
though the Administrative Agent were the absolute owner thereof for all
purposes, and do, at the Administrative Agent's option and such Grantor's
expense, at any time, or from time to time, all acts and things which the
Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Administrative Agent's and the Lenders' security
interests therein
<PAGE> 26
22
and to effect the intent of this Agreement, all as fully and effectively
as such Grantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in connection
with actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Revolving Credit Loans that are Base Rate Loans
under the Credit Agreement, from the date of payment by the Administrative Agent
to the date reimbursed by the relevant Grantor, shall be payable by such Grantor
to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's sole
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of
the New York UCC and any other applicable law, each Grantor authorizes the
Administrative Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Grantor in such form and in such offices as the Administrative
Agent reasonably determines appropriate to perfect the security interests of the
Administrative Agent under this Agreement. A photographic or other
<PAGE> 27
23
reproduction of this Agreement shall be sufficient as a financing statement or
other filing or recording document or instrument for filing or recording in any
jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor acknowledges
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with subsection 10.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in subsection 10.2 of the Credit Agreement; provided that any such
notice, request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees
to pay or reimburse each Lender and the Administrative Agent for all its costs
and expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which such Guarantor is a party,
including, without limitation, the fees and
<PAGE> 28
24
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent.
(b) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all 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 to the
extent the Borrower would be required to do so pursuant to subsection 10.5 of
the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of
the Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns; provided
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
Administrative Agent and each Lender at any time and from time to time while an
Event of Default shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply 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 the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or such
Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Loan Document
or otherwise, as the Administrative Agent or such Lender may elect, whether or
not the Administrative Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Lender under this Section 8.6 are in
addition to other rights
<PAGE> 29
25
and remedies (including, without limitation, other rights of set-off) which the
Administrative Agent or such Lender may have.
8.7 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.
8.8 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.
8.9 Section Headings. The Section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor 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 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 of America for
the Southern District of New York, 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 such
Grantor at its address referred to in
<PAGE> 30
26
Section 8.2 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 any special, exemplary, punitive or consequential
damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a
party;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Administrative
Agent and Lenders, 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 Grantors and the Lenders.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower and
Holdings that is required to become a party to this Agreement pursuant to
subsection 6.10(c) of the Credit Agreement shall become a Grantor for all
purposes of this Agreement upon execution and delivery by such Subsidiary of an
Assumption Agreement in the form of Annex 1 hereto.
8.16 Releases. (a) At such time as the Loans, the Reimbursement
Obligations and the other Obligations shall have been paid in full, the
Commitments have been terminated and no Letters of Credit shall be outstanding,
the Collateral shall be released from the Liens created hereby, and this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Administrative Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At the
request and sole expense of any Grantor following any such termination, the
Administrative Agent shall deliver to such Grantor any Collateral held by the
Administrative Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
<PAGE> 31
27
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of the Borrower, a Subsidiary
Guarantor shall be released from its obligations hereunder in the event that all
the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Credit Agreement;
provided that the Borrower shall have delivered to the Administrative Agent, at
least ten Business Days prior to the date of the proposed release, a written
request for release identifying the relevant Subsidiary Guarantor and the terms
of the sale or other disposition in reasonable detail, including the price
thereof and any expenses in connection therewith, together with a certification
by the Borrower stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents.
<PAGE> 32
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.
NBC ACQUISITION CORP.
By: /s/ Mark W. Oppegard
--------------------------------------------
Title: President and Chief Executive Officer
NEBRASKA BOOK COMPANY, INC.
By: /s/ Bruce E. Nevins
--------------------------------------------
Title: Treasurer and Chief Financial Officer
<PAGE> 1
Exhibit 10.3
EXECUTION COPY
PURCHASE AGREEMENT
NBC ACQUISITION CORP.
$76,000,000
10 3/4% Senior Discount Debentures due 2009
PURCHASE AGREEMENT
February 10, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
NBC Acquisition Corp., a Delaware corporation (as more fully defined
below, the "Company"), proposes to issue and sell $76,000,000 aggregate
principal amount of its 10 3/4% Senior Discount Debentures due 2009 (the
"Securities"). The Securities will be issued pursuant to an Indenture to be
dated as of February 13, 1998 (the "Indenture") between the Company and United
States Trust Company of New York, as trustee (the "Trustee"). The Company hereby
confirms its agreement with Chase Securities Inc. ("CSI" or the "Initial
Purchaser") concerning the purchase of the Securities from the Company by the
Initial Purchaser. For all purposes of this Agreement, (i) the term "Company"
shall mean, as the context requires, (A) prior to the consummation of the Merger
(as hereinafter defined), NBC Acquisition Corp., a Delaware corporation, and (B)
upon consummation of the Merger, the surviving corporation of the merger (the
"Merger") of NBC Merger Corp. ("Merger Corp."), a corporation formed under
Delaware law for purposes of consummating the Merger, with and into NBC
Acquisition Corp. pursuant to the Merger Agreement (the "Merger Agreement")
dated January 6, 1998 among the Company, certain shareholders of the Company
identified in the Merger Agreement and Merger Corp., an indirect wholly-owned
subsidiary of HWH Capital Partners, L.P., and (ii) the term "subsidiary", when
used with reference to the Company, shall refer collectively to each subsidiary
of the Company assuming that the Merger by Nebraska Merger Corp., a Kansas
corporation and a subsidiary of Merger Corp., ("Nebraska Merger Corp."), with
and into Nebraska Book Company, Inc., a Kansas corporation and a subsidiary of
the Company,("Nebraska Book") have been consummated as provided in the Merger
Agreement dated as of February 13, 1998 between Nebraska Merger Corp. and
Nebraska Book; provided that the Company shall not be a signatory
<PAGE> 2
2
to this Agreement until the Closing Date (as defined below), on which date the
Company shall become a party to this Agreement.
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon an exemption therefrom. The Company and
Merger Corp. have prepared a preliminary offering memorandum dated January 28,
1998 (the "Preliminary Offering Memorandum") and will prepare an offering
memorandum dated the date hereof (the "Offering Memorandum") setting forth
information concerning the Company and the Securities. Copies of the Preliminary
Offering Memorandum have been, and copies of the Offering Memorandum will be,
delivered by the Company and Merger Corp. to the Initial Purchaser pursuant to
the terms of this Agreement. Any references herein to the Preliminary Offering
Memorandum and the Offering Memorandum shall be deemed to include all amendments
and supplements thereto, unless otherwise noted. The Company and Merger Corp.
hereby confirm that it has authorized the use of the Preliminary Offering
Memorandum and the Offering Memorandum in connection with the offering and
resale of the Securities by the Initial Purchaser in accordance with Section 2.
Holders of the Securities (including the Initial Purchaser and its
direct and indirect transferees) will be entitled to the benefits of an Exchange
and Registration Rights Agreement, substantially in the form attached hereto as
Annex A (the "Registration Rights Agreement"), pursuant to which the Company
will agree to file with the Securities and Exchange Commission (the
"Commission") (i) a registration statement under the Securities Act (the
"Exchange Offer Registration Statement") registering an issue of senior
subordinated notes of the Company (the "Exchange Securities") which are
identical in all material respects to the Securities (except that the Exchange
Securities will not contain terms with respect to transfer restrictions) and
(ii) under certain circumstances, a shelf registration statement pursuant to
Rule 415 under the Securities Act (the "Shelf Registration Statement").
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. Each
of Merger Corp., and upon execution and delivery by the Company of this
Agreement, the Company represents and warrants to, and agrees with, the Initial
Purchaser on and as of the date hereof and the Closing Date (as defined in
Section 3)
that:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date
the Offering Memorandum will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or
<PAGE> 3
3
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
Merger Corp. and, upon execution and delivery by the Company of this
Agreement, the Company make no representation or warranty as to
information contained in or omitted from the Preliminary Offering
Memorandum or the Offering Memorandum in reliance upon and in conformity
with written information relating to the Initial Purchaser furnished to
Merger Corp. by or on behalf of the Initial Purchaser specifically for use
therein (the "Initial Purchaser's Information").
(b) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Securities, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Assuming the accuracy of the representations and warranties of
the Initial Purchaser contained in Section 2 and its compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchaser and the
offer, resale and delivery of the Securities by the Initial Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum, to
register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(d) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as a corporation in good standing
under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership or
lease of property or the conduct of their respective businesses requires
such qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure to so qualify or have such
power or authority would not, singularly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), results
of operations, business or prospects of the Company and their subsidiaries
taken as a whole (a "Material Adverse Effect").
(e) On the Closing Date (after giving effect to the
Recapitalization), the Company will have an authorized capitalization as
set forth in the Offering Memorandum under the heading "Capitalization";
all of the outstanding shares of capital stock of the Company will have
been duly and validly authorized and issued and will have been fully paid
<PAGE> 4
4
and non-assessable; and the capital stock of the Company will conform in
all material respects to the description thereof contained in the Offering
Memorandum. All of the outstanding shares of capital stock of each
subsidiary of the Company will have been duly and validly authorized and
issued, will be fully paid and non-assessable and will be owned directly
or indirectly by the Company, free and clear of any lien, charge,
encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party.
(f) Merger Corp. and the Company have full right, power and
authority to execute and deliver this Agreement, the Indenture, the
Registration Rights Agreement, the Securities and the Merger Agreement
(collectively, the "Transaction Documents"), to the extent it is a party
thereto, and to perform its obligations hereunder and thereunder; and all
corporate action required to be taken for the due and proper
authorization, execution and delivery of each of the Transaction Documents
and the consummation of the transactions contemplated thereby have been
duly and validly taken.
(g) This Agreement has been duly authorized, executed and delivered
by Merger Corp. (which pursuant to Section 2 will have no obligation to
issue or sell the Securities, hereunder) and on the Closing Date, will
have been duly authorized, executed and delivered by the Company (which as
the surviving corporation of the Merger will issue the Securities) and
will constitute a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights generally and by
general equitable principles (whether considered in a proceeding in equity
or at law) and except to the extent that indemnification or contribution
provisions may be unenforceable.
(h) The Registration Rights Agreement, when duly executed and
delivered by the Company on the Closing Date, will have been duly
authorized by the Company and, when duly executed and delivered in
accordance with its terms by each of the parties thereto, will constitute
a valid and legally binding agreement of the Company enforceable against
the Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
<PAGE> 5
5
(i) The Indenture, when duly executed and delivered by the Company
on the Closing Date, will have been duly authorized by the Company and,
when duly executed and delivered in accordance with its terms by each of
the parties thereto, will constitute a valid and legally binding agreement
of the Company enforceable against the Company in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally
and by general equitable principles (whether considered in a proceeding in
equity or at law). On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act and the
rules and regulations of the Commission applicable to an indenture which
is qualified thereunder.
(j) The Securities, when duly executed, authenticated, issued and
delivered as provided in the Indenture and paid for as provided herein,
will have been duly authorized by the Company and, when duly executed,
authenticated, issued and delivered as provided in the Indenture and paid
for as provided herein, will be duly and validly issued and outstanding
and will constitute valid and legally binding obligation of the Company
entitled to the benefits of the Indenture and enforceable against the
Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
(k) On the Closing Date the Exchange Securities will have been duly
authorized by all necessary corporate action of the Company, and when duly
executed, delivered and issued by the Company in accordance with the terms
of the Registration Rights Agreement and the Indenture and, assuming due
authentication thereof by the Trustee, will constitute valid and legally
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally
and by general equitable principles (whether considered in a proceeding in
equity or at law);
(l) The Merger Agreement has been duly authorized, executed and
delivered by the Company and Merger Corp. and constitutes a valid and
legally binding agreement of the Company and Merger Corp. enforceable
against the Company and Merger Corp. in accordance with its terms, except
to the
<PAGE> 6
6
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general
equitable principles (whether considered in a proceeding in equity or at
law).
(m) Each Transaction Document conforms in all material respects to
the description thereof contained in the Offering Memorandum.
(n) Except for agreements relating to existing indebtedness of
Nebraska Book that is being repaid or refinanced in connection with the
Recapitalization and which will cease to be in effect as of the Closing
Date, the execution, delivery and performance by Merger Corp. and the
Company of each of the Transaction Documents to which it is a party, the
issuance, authentication, sale and delivery of the Securities and
compliance by Merger Corp. and the Company with the terms thereof and the
consummation of the transactions contemplated by the Transaction Documents
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, except for such conflicts, breaches, violations or defaults or
liens, charges or encumbrances that would not, singularly or in the
aggregate, have a Material Adverse Effect or a material adverse effect on
Merger Corp.'s or the Company's ability to perform its obligations under
this Agreement and the Transaction Documents to which it is a party, nor
will such actions result in any violation of the provisions of the charter
or by-laws of the Company or any of its subsidiaries or any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their respective properties or assets; and no
consent, approval, authorization or order of, or filing or registration
with, any such court or arbitrator or governmental agency or body under
any such statute, judgment, order, decree, rule or regulation is required
for the execution, delivery and performance by Merger Corp. and the
Company of each of the Transaction Documents to which it is a party, the
issuance, authentication, sale and delivery of the Securities and
compliance by Merger Corp. and the Company with the terms thereof and the
consummation of the transactions contemplated by the Transaction Documents
to which it is a
<PAGE> 7
7
party, except for such consents, approvals, authorizations, filings,
registrations or qualifications (i) which shall have been obtained or made
prior to the Closing Date, (ii) as may be required to be obtained or made
under the Securities Act and applicable state securities laws as provided
in the Registration Rights Agreement and (iii) the failure of which to
obtain or make would, singularly or in the aggregate, have a Material
Adverse Effect or a material adverse effect on Merger Corp.'s or the
Company's ability to perform its obligations under this Agreement and the
Transaction Documents to which it is a party.
(o) Deloitte & Touche LLP and Arthur Andersen LLP are independent
certified public accountants with respect to the Company and its
subsidiaries within the meaning of Rule 101 of the Code of Professional
Conduct of the American Institute of Certified Public Accountants
("AICPA") and its interpretations and rulings thereunder. The historical
financial statements (including the related notes) contained in the
Offering Memorandum have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered thereby and fairly present the financial position of the entities
purported to be covered thereby at the respective dates indicated and the
results of its operations and its cash flows for the respective periods
indicated; and the financial information contained in the Offering
Memorandum under the headings "Summary--Summary Historical Financial
Data", "Summary--Summary Pro Forma Financial Data", "Capitalization",
"Selected Historical Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Management--Executive Compensation" are derived from the accounting
records of the Company and its subsidiaries and fairly present the
information purported to be shown thereby. The pro forma financial
information contained in the Offering Memorandum has been prepared on a
basis consistent with the historical financial statements contained in the
Offering Memorandum (except for the pro forma adjustments specified
therein), the pro forma adjustments have been properly applied to the
historical amounts in the compilation of those statements and in the case
of the pro forma adjustments relating to the Acquisitions (as defined in
the Offering Memorandum) the pro forma adjustments have been derived from
the historical financial statements of Specialty Books, Inc., Collegiate
Stores Corporation and South Carolina Bookstore, Inc. copies of which have
been provided to you and the pro forma adjustments give effect to
assumptions made on a reasonable basis and fairly presents the historical
and proposed transactions contemplated by the Offering Memorandum and the
Transaction Documents. The other historical financial and statistical
information and data included in the Offering Memorandum are, in all
material respects, fairly presented.
<PAGE> 8
8
(p) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which,
singularly or in the aggregate, if determined adversely to the Company or
any of its subsidiaries, could reasonably be expected to have a Material
Adverse Effect; and to the best knowledge of Merger Corp. and the Company,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(q) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Securities or suspends the sale of
the Securities in any jurisdiction; no injunction, restraining order or
order of any nature by any federal or state court of competent
jurisdiction has been issued with respect to the Company or any of its
subsidiaries which would prevent or suspend the issuance or sale of the
Securities or the use of the Preliminary Offering Memorandum or the
Offering Memorandum in any jurisdiction; no action, suit or proceeding is
pending against or, to the best knowledge of Merger Corp. and the Company,
threatened against or affecting the Company or any of its subsidiaries
before any court or arbitrator or any governmental agency, body or
official, domestic or foreign, which could reasonably be expected to
interfere with or adversely affect the issuance of the Securities or in
any manner draw into question the validity or enforceability of any of the
Transaction Documents or any action taken or to be taken pursuant thereto;
and Merger Corp. and the Company have complied with any and all requests
by any securities authority in any jurisdiction for additional information
to be included in the Preliminary Offering Memorandum and the Offering
Memorandum.
(r) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or by-laws, (ii) except for agreements relating
to existing indebtedness of Nebraska Book that is being repaid or
refinanced in connection with the Recapitalization and which will cease to
be in effect as of the Closing Date, in default in any material respect,
and no event has occurred which, with notice or lapse of time or both,
would constitute such a default, in the due performance or observance of
any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which it is a party or by which it is bound or to which any
of its property or assets is subject or (iii) in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject.
<PAGE> 9
9
(s) The Company and each of its subsidiaries possess all material
licenses, certificates, authorizations and permits issued by, and have
made all declarations and filings with, the appropriate federal, state or
foreign regulatory agencies or bodies which are necessary or desirable for
the ownership of their respective properties or the conduct of their
respective businesses as described in the Offering Memorandum, except
where the failure to possess or make the same would not, singularly or in
the aggregate, have a Material Adverse Effect, and neither Merger Corp.,
the Company nor any of the Company's subsidiaries has received
notification of any revocation or modification of any such license,
certificate, authorization or permit or has any reason to believe that any
such license, certificate, authorization or permit will not be renewed in
the ordinary course, except where such revocation, modification or
nonrenewal would not, singularly or in the aggregate, have a Material
Adverse Effect.
(t) The Company and each of its subsidiaries have filed or requested
extensions with respect to all federal, state, local and foreign income
and franchise tax returns required to be filed through the date hereof and
have paid all taxes due thereon, except for taxes being contested in good
faith and as to which adequate reserves have been established or taxes
currently payable without penalty or interest, except where the failure to
so file or make such payments would not, singularly or in the aggregate,
have a Material Adverse Effect, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor do
Merger Corp. or the Company or any of the Company's subsidiaries have any
knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, could reasonably be expected to have)
a Material Adverse Effect.
(u) The Company is not and none of its subsidiaries is (i) an
"investment company" or a company "controlled by" an investment company
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations of the Commission
thereunder or (ii) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(v) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is
<PAGE> 10
10
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(w) The Company and each of its subsidiaries have insurance covering
their respective properties, operations, personnel and businesses, which
insurance is in amounts and insures against such losses and risks as are
prudent and customary in the business in which they are engaged. Neither
Merger Corp., the Company nor any of the Company's subsidiaries have
received notice from any insurer or agent of such insurer that capital
improvements or other expenditures are required or necessary to be made in
order to continue such insurance.
(x) The Company and each of its subsidiaries owns or possesses
adequate rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights, licenses and know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) necessary for the conduct of their
respective businesses, except where the failure to so own or possess such
rights would not, singularly or in the aggregate, have a Material Adverse
Effect; and neither Merger Corp. nor the Company has any reason to believe
that the conduct of the business of the Company and its subsidiaries as
currently conducted and contemplated will conflict in any material respect
with, and neither Merger Corp., the Company nor any of the Company's
subsidiaries have not received any notice of any claim of conflict with,
any such rights of others, in either case which would, singularly or in
the aggregate, have a Material Adverse Effect.
(y) The Company and each of its subsidiaries have good and
marketable title in fee simple to, or have valid rights to lease or
otherwise use, all items of real and personal property which are material
to the businesses of the Company and its subsidiaries, in each case free
and clear of all liens, encumbrances, claims and defects and imperfections
of title except such as (i) do not materially interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries (ii) as are contemplated or permitted under the Credit
Agreement dated as of August 31, 1995 among Nebraska Book Company, Inc.
the Company, the financial institutions listed on schedule 2.01 thereto
and The Chase Manhattan Bank, as administrative agent and the related
collateral and security agreements or (iii) could not reasonably be
expected to have a Material Adverse Effect.
<PAGE> 11
11
(z) No labor disturbance by or dispute with the employees of the
Company or any of its subsidiaries exists or, to the best knowledge of
Merger Corp. and the Company, is contemplated or threatened which could,
singularly or in the aggregate, have a Material Adverse Effect.
(aa) No non-exempt "prohibited transaction" (as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")) or "accumulated funding
deficiency" (as defined in Section 302 of ERISA) or any of the events set
forth in Section 4043(b) of ERISA (other than events with respect to which
the 30-day notice requirement under Section 4043 of ERISA has been waived)
has occurred with respect to any employee benefit plan of the Company or
any of its subsidiaries which could reasonably be expected to have a
Material Adverse Effect; each such employee benefit plan is in compliance
in all material respects with applicable law, including ERISA and the
Code; the Company and each of its subsidiaries have not incurred and do
not expect to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan for which the Company
or any of its subsidiaries would have any liability; and each such pension
plan that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which could reasonably be expected to cause
the loss of such qualification.
(bb) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission or other release of any
kind of toxic or other wastes or other hazardous substances by, due to or
caused by the Company or any of its subsidiaries (or, to the best
knowledge of Merger Corp. and the Company, any other entity (including any
predecessor) for whose acts or omissions the Company or any of its
subsidiaries is or could reasonably be expected to be liable) upon any of
the property now or previously owned or leased by the Company or any of
its subsidiaries, or upon any other property, in violation of any statute
or any ordinance, rule, regulation, order, judgment, decree or permit or
which would, under any statute or any ordinance, rule (including rule of
common law), regulation, order, judgment, decree or permit, give rise to
any liability, except for any violation or liability that could not
reasonably be expected to have, singularly or in the aggregate with all
such violations and liabilities, a Material Adverse Effect; and there has
been no disposal, discharge, emission or other release of any kind onto
such property or into the environment surrounding such property of any
toxic or other wastes or other hazardous substances
<PAGE> 12
12
with respect to which Merger Corp. or the Company has knowledge, except
for any such disposal, discharge, emission or other release of any kind
which could not reasonably be expected to have, singularly or in the
aggregate with all such discharges and other releases, a Material Adverse
Effect.
(cc) Neither the Company nor, to the best knowledge of Merger Corp.
and the Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company has (i) used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977;
or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(dd) On and immediately after the Closing Date, the Company (after
giving effect to the issuance of the Securities and to the other
transactions related thereto as described in the Offering Memorandum) will
be Solvent. As used in this paragraph, the term "Solvent" means, with
respect to a particular date, that on such date (i) the present fair
market value (or present fair saleable value) of the assets of the Company
is not less than the total amount required to pay the probable liabilities
of the Company on its total existing debts and liabilities (including
contingent liabilities) as they become absolute and matured, (ii) the
Company is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments as they mature and
become due in the normal course of business, (iii) assuming the sale of
the Securities as contemplated by this Agreement and the Offering
Memorandum, the Company is not incurring debts or liabilities beyond its
ability to pay as such debts and liabilities mature and (iv) the Company
is not engaged in any business or transaction, and is not about to engage
in any business or transaction, for which its property would constitute
unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which the Company is engaged. In
computing the amount of such contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in the
light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
(ee) Except as described in the Offering Memorandum, there are no
outstanding subscriptions, rights, warrants, calls or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with
<PAGE> 13
13
respect to the sale or issuance of, any shares of capital stock of or
other equity or other ownership interest in the Company or any of its
subsidiaries.
(ff) Neither the Company nor any of its subsidiaries owns any
"margin securities" as that term is defined in Regulations G and U of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), and none of the proceeds of the sale of the Securities will be
used, directly or indirectly, for the purpose of purchasing or carrying
any margin security, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Securities
to be considered a "purpose credit" within the meanings of Regulation G,
T, U or X of the Federal Reserve Board.
(gg) Other than as disclosed in the Offering Memorandum, neither
Merger Corp., the Company nor any of the Company's subsidiaries is a party
to any contract, agreement or understanding with any person that would
give rise to a valid claim against the Company or the Initial Purchaser
for a brokerage commission, finder's fee or like payment in connection
with the offering and sale of the Securities.
(hh) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(ii) None of Merger Corp., the Company, any of their respective
affiliates or any person acting on their behalf has engaged or will engage
in any directed selling efforts (as such term is defined in Regulation S
under the Securities Act ("Regulation S")), and all such persons have
complied and will comply with the offering restrictions requirement of
Regulation S to the extent applicable.
(jj) Neither Merger Corp., the Company nor any of their respective
affiliates has, directly or through any agent, sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as such term is defined in the Securities Act), which is or will
be integrated with the sale of the Securities in a manner that would
require registration of the Securities under the Securities Act.
(kk) None of Merger Corp., the Company or any of their respective
affiliates or any other person acting on its or its affiliates behalf has
engaged, in connection with the offering of the Securities, in any form of
general solicitation or general advertising within the meaning of Rule
502(c) under the Securities Act.
(ll) There are no securities of the Company registered under the
Securities Exchange Act of 1934, as amended (the
<PAGE> 14
14
"Exchange Act"), or listed on a national securities exchange or quoted in
a U.S. automated inter-dealer quotation system.
(mm) Neither Merger Corp. nor the Company has taken and will not
take, directly or indirectly, any action prohibited by Regulation M under
the Exchange Act in connection with the offering of the Securities.
(nn) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in
the Preliminary Offering Memorandum or the Offering Memorandum has been
made or reaffirmed without a reasonable basis or has been disclosed other
than in good faith.
(oo) Since the date as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs, management or business prospects of the
Company, whether or not arising in the ordinary course of business, (ii)
the Company has not incurred any material liability or obligation, direct
or contingent, other than in the ordinary course of business, (iii) the
Company has not entered into any material transaction other than in the
ordinary course of business and (iv) there has not been any change in the
capital stock or long-term debt of the Company, or any dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(pp) The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources which Merger
Corp. and the Company believes to be reliable.
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein and consummation of the Merger, Merger
Corp. agrees to cause the Company to, and upon becoming a party to this
Agreement on the Closing Date, the Company agrees to issue and sell to the
Initial Purchaser and the Initial Purchaser agrees to purchase from the Company,
$76,000,000 principal amount of Securities at a purchase price equal to 57.135%
of the principal amount thereof. The Company shall not be obligated to deliver
any of the Securities except upon payment for all of the Securities to be
purchased as provided herein.
(b) The Initial Purchaser has advised Merger Corp. that it proposes
to offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. The Initial Purchaser
represents, warrants
<PAGE> 15
15
to, and agrees with, Merger Corp. and the Company that (i) it is purchasing the
Securities pursuant to a private sale exempt from registration under the
Securities Act, (ii) it has not solicited offers for, or offered or sold, and
will not solicit offers for, or offer or sell, the Securities by means of any
form of general solicitation or general advertising within the meaning of Rule
502(c) of Regulation D under the Securities Act ("Regulation D") or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (iii) has solicited and will solicit offers for the
Securities only from, and has offered or sold and will offer, sell or deliver
the Securities, as part of its offering, only (A) within the United States to
persons whom it reasonably believes to be qualified institutional buyers
("Qualified Institutional Buyers"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), or if any such person is buying for one or more institutional
accounts for which such person is acting as fiduciary or agent, only when such
person has represented to it that each such account is a Qualified Institutional
Buyer to whom notice has been given that such sale or delivery is being made in
reliance on Rule 144A and in each case, in transactions in accordance with Rule
144A and (B) outside the United States to persons other than U.S. persons in
reliance on Regulation S under the Securities Act ("Regulation S").
(c) In connection with the offer and sale of Securities in reliance
on Regulation S, the Initial Purchaser represents, warrants and agrees that:
(i) The Securities have not been registered under the Securities
Act and may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons except pursuant to an exemption
from, or in transactions not subject to, the registration requirements of
the Securities Act.
(ii) The Initial Purchaser has offered and sold the Securities,
and will offer and sell the Securities, (A) as part of its distribution at
any time and (B) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the Closing Date, only
in accordance with Regulation S or Rule 144A or any other available
exemption from registration under the Securities Act.
(iii) None of the Initial Purchaser or any of its affiliates or
any other person acting on its behalf has engaged or will engage in any
directed selling efforts with respect to the Securities, and all such
persons have complied and will comply with the offering restrictions
requirement of Regulation S.
(iv) At or prior to the confirmation of sale of any Securities
sold in reliance on Regulation S, it will have sent to each distributor,
dealer or other person receiving a
<PAGE> 16
16
selling concession, fee or other remuneration that purchase Securities
from it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering of the Securities and the
date of original issuance of the Securities, except in accordance
with Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual
arrangement with any distributor with respect to the distribution of the
Securities, except with its affiliates or with the prior written consent
of the Company.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
(d) The Initial Purchaser represents, warrants and agrees that (i)
it has not offered or sold and prior to the date six months after the Closing
Date will not offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and the
Public Offers of Securities Regulations 1995 with respect to anything done by it
in relation to the Securities in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issue of the Securities to a person who is a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise lawfully be issued or
passed on.
(e) The Initial Purchaser agrees that, prior to or simultaneously
with the confirmation of sale by the Initial Purchaser to any purchaser of any
of the Securities purchased by the Initial Purchaser from the Company pursuant
hereto, the
<PAGE> 17
17
Initial Purchaser shall furnish to that purchaser a copy of the Offering
Memorandum (and any amendment or supplement thereto that the Company shall have
furnished to such Initial Purchaser prior to the date of such confirmation of
sale). In addition to the foregoing, the Initial Purchaser acknowledges and
agrees that the Company and, for purposes of the opinions to be delivered to the
Initial Purchaser pursuant to Sections 5(d) and (e), counsel for the Company and
for the Initial Purchaser, respectively, may rely upon the accuracy of the
representations and warranties of the Initial Purchaser and its compliance with
its agreements contained in this Section 2, and the Initial Purchaser hereby
consents to such reliance.
(f) Merger Corp. and, upon becoming a party to this Agreement on the
Closing Date, the Company acknowledge and agree that the Initial Purchaser may
sell Securities to any affiliate of the Initial Purchaser and that any such
affiliate may sell Securities purchased by it to the Initial Purchaser to the
extent such sales are in compliance with the covenants, and do not conflict with
the representations and warranties, of the Initial Purchaser in this Section 2.
3. Delivery of and Payment for the Securities. (a) Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, New York, New York, or at such other place as shall be agreed upon by
the Initial Purchaser, Merger Corp. and the Company, at 9:00 A.M., New York City
time, on February 13, 1998, or at such other time or date as shall be agreed
upon by the Initial Purchaser, Merger Corp. and the Company (such date and time
of payment and delivery being referred to herein as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of
same-day funds to such account or accounts as the Company shall specify prior to
the Closing Date or by such other means as the parties hereto shall agree prior
to the Closing Date against delivery to the Initial Purchaser of the
certificates evidencing the Securities. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligations of the Initial Purchaser hereunder. Upon delivery,
the Securities shall be in global form, registered in such names and in such
denominations as the Initial Purchaser shall have requested in writing not less
than two full business days prior to the Closing Date. The Company agrees to
make one or more global certificates evidencing the Securities available for
inspection by CSI on behalf of the Initial Purchaser in New York, New York at
least 24 hours prior to the Closing Date.
4. Further Agreements of the Company. Merger Corp. and, upon the
execution and delivery by the Company of this Agreement, the Company agree with
the Initial Purchaser:
<PAGE> 18
18
(a) to advise the Initial Purchaser promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; to advise the Initial Purchaser promptly of any
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use its best efforts to prevent the issuance of any such
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at
the earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel for the
Initial Purchaser, without charge, as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum (and any amendments or
supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to the Initial Purchaser and counsel
for the Initial Purchaser and not to effect any such amendment or
supplement to which the Initial Purchaser shall reasonably object by
notice to Merger Corp. or the Company after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchaser or counsel for the Company, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as the Securities are outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, to furnish to holders of
<PAGE> 19
19
the Securities and prospective purchasers of the Securities designated by
such holders, upon request of such holders or such prospective purchasers,
the information required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act, unless the Company is then subject to and in
compliance with Section 13 or 15(d) of the Exchange Act (the foregoing
agreement being for the benefit of the holders from time to time of the
Securities and prospective purchasers of the Securities designated by such
holders);
(f) for so long as the Securities are outstanding, to furnish to the
Initial Purchaser copies of any annual reports, quarterly reports and
current reports filed by the Company with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall be
furnished by the Company to the Trustee or to the holders of the
Securities pursuant to the Indenture or the Exchange Act or any rule or
regulation of the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchaser may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchaser may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchaser
may reasonably request; provided that the Company and its subsidiaries
shall not be obligated to qualify as a foreign corporations in any
jurisdiction in which they are not so qualified or to file a general
consent to service of process in any jurisdiction or to subject itself to
material taxation in any jurisdiction where it is not so subject;
(h) to assist the Initial Purchaser in arranging for the Securities
to be designated Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") Market securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. ("NASD") relating to trading in the PORTAL Market and for the
Securities to be eligible for clearance and settlement through The
Depository Trust Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
<PAGE> 20
20
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case
may be, not to, and to cause its affiliates not to, and not to authorize
or knowingly permit any person acting on its behalf to, solicit any offer
to buy or offer to sell the Securities by means of any form of general
solicitation or general advertising within the meaning of Regulation D or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act; and not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, contract or disposition would cause
the exemption afforded by Section 4(2) of the Securities Act to cease to
be applicable to the offering and sale of the Securities as contemplated
by this Agreement and the Offering Memorandum;
(k) for a period of 180 days from the date of the Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company or any of its
subsidiaries (other than the Securities and the 8 3/4% Senior Subordinated
Notes due 2008 to be issued by Nebraska Book on the Closing Date) without
the prior written consent of the Initial Purchaser;
(l) during the period from the Closing Date until two years after
the Closing Date, without the prior written consent of the Initial
Purchaser, not to, and not permit any of its affiliates (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities that
have been reacquired by them, except for Securities purchased by the
Company or any of its affiliates and resold in a transaction registered
under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(n) in connection with the offering of the Securities, until CSI
shall have notified the Company of the completion of the resale of the
Securities, not to, and to cause its affiliated purchasers (as defined in
Regulation M under the Exchange Act) not to, either alone or with one or
more other persons, bid for or purchase, for any account in which it or
any of its affiliated purchasers has a beneficial interest, any
Securities, or attempt to induce any person to purchase
<PAGE> 21
21
any Securities; and not to, and to cause its affiliated purchasers not to,
make bids or purchase for the purpose of creating actual, or apparent,
active trading in or of raising the price of the Securities;
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a copy of
the independent accountants' report included in the Offering Memorandum
signed by the accountants rendering such report;
(q) to do and perform all things required to be done and performed
by it under this Agreement that are within its control prior to or after
the Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) except as contemplated in the Offering Memorandum including,
without limitation, the consummation of the Recapitalization, to not take
any action prior to the execution and delivery of the Indenture which, if
taken after such execution and delivery, would have violated any of the
covenants contained in the Indenture;
(s) to not take any action prior to the Closing Date which would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d);
(t) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of the Company and of which the Initial Purchaser
is notified), without the prior written consent of the Initial Purchaser,
unless in the judgment of the Company and its counsel, and after
notification to the Initial Purchaser, such press release or communication
is required by law; and
(u) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds".
Notwithstanding any provision of Sections 4(a) or 4(d) to the
contrary, the Company's obligations under Sections 4(a) or 4(d) shall terminate
on the earliest to occur of (i) the effective date of an Exchange Offer
Registration Statement pursuant to the Registration Rights Agreement, (ii) the
effective
<PAGE> 22
22
date of a Shelf Registration Statement pursuant to the Registration Rights
Agreement and (iii) the date upon which the Initial Purchaser and its affiliates
cease to hold Securities acquired as part of the initial distribution, the
occurrence of which the Initial Purchaser shall promptly notify the Company.
5. Conditions of Initial Purchaser' Obligations. The obligations of
the Initial Purchaser hereunder are subject to the accuracy, on and as of the
date hereof and the Closing Date, of the representations and warranties of
Merger Corp. and the Company contained herein, to the accuracy of the statements
of the Company and its officers made in any certificates delivered pursuant
hereto, to the performance by Merger Corp. and the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchaser as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchaser
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) On the date thereof, the Offering Memorandum (or any amendment
of supplement thereto) did not, and on the Closing Date the Offering
Memorandum (or any amendment or supplement thereto) shall not contain an
untrue statement of a fact which, in the reasonable opinion of counsel for
the Initial Purchaser, is material or omits to state any fact which, in
the reasonable opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of each of the Transaction Documents
and the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
reasonably satisfactory in all material respects to the Initial Purchaser,
and the Company shall have furnished to the Initial Purchaser all
documents and information that they or its counsel may reasonably request
to enable them to pass upon such matters.
(d) Each of Paul, Weiss, Rifkind, Wharton & Garrison and Triplett,
Woolf & Garretson shall have furnished to the Initial Purchaser their
written opinions, as counsel to Merger Corp. and the Company, addressed to
the Initial Purchaser and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchaser,
<PAGE> 23
23
substantially to the effect set forth in Annex B-1 and B-2, respectively,
hereto.
(e) The Initial Purchaser shall have received from Simpson Thacher &
Bartlett, counsel for the Initial Purchaser, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchaser may reasonably require, and the Company shall have furnished to
such counsel such documents and information as they request for the
purpose of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Initial Purchaser two
letters (the "Initial Letters"), one of Deloitte & Touche LLP and one of
Arthur Andersen LLP, addressed to the Initial Purchaser and dated the date
hereof, in form and substance satisfactory to the Initial Purchaser,
substantially to the effect set forth in Annex C and D hereto.
(g) The Company shall have furnished to the Initial Purchaser two
letters (the "Bring-Down Letters"), one of Deloitte & Touche LLP and one
of Arthur Andersen LLP, addressed to the Initial Purchaser and dated the
Closing Date (i) confirming that they are independent public accountants
with respect to the Company and its subsidiaries within the meaning of
Rule 101 of the Code of Professional Conduct of the AICPA and its
interpretations and rulings thereunder, (ii) stating, as of the date of
the Bring-Down Letters (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Offering Memorandum, as of a date not more
than three business days prior to the date of the Bring-Down Letters),
that the conclusions and findings of such accountants with respect to the
financial information and other matters covered by the Initial Letters are
accurate and (iii) confirming in all material respects the conclusions and
findings set forth in the Initial Letters.
(h) The Company shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its chief executive officer and
its chief financial officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, the Offering
Memorandum, as of its date, did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
and since the date of the Offering Memorandum, no event has occurred which
should have been set forth in a supplement or amendment to the Offering
Memorandum so that the Offering Memorandum (as so amended or supplemented)
would not include any untrue statement of a material fact and would not
omit
<PAGE> 24
24
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (C) to the best of such
officer's knowledge after reasonable investigation as of the Closing Date,
the representations and warranties of the Company in this Agreement are
true and correct in all material respects, the Company has complied in all
material respects with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder on or prior to the Closing
Date, and subsequent to the date of the most recent financial statements
contained in the Offering Memorandum, there has been no material adverse
change in the financial position or results of operation of the Company or
any of its subsidiaries, or any change, or any development including a
prospective change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company
and its subsidiaries taken as a whole, except as set forth in the Offering
Memorandum.
(i) The Initial Purchaser shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) The Securities shall have been approved by the NASD for trading
in the PORTAL Market.
(l) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchaser shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchaser reasonably in advance of the Closing Date.
(m) There shall not have occurred any invalidation of Rule 144A
under the Securities Act by any court or any withdrawal or proposed
withdrawal of any rule or regulation under the Securities Act or the
Exchange Act by the Commission or any amendment or proposed amendment
thereof by the Commission which in the judgment of the Initial Purchaser
would materially impair the ability of the Initial Purchaser to purchase,
hold or effect resales of the Securities as contemplated hereby.
(n) Subsequent to the execution and delivery of this Agreement or,
if earlier, the dates as of which information
<PAGE> 25
25
is given in the Offering Memorandum (exclusive of any amendment or
supplement thereto), there shall not have been any change in the capital
stock or long-term debt or any change, or any development involving a
prospective change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company
and its subsidiaries taken as a whole, the effect of which, in any such
case described above, is, in the judgment of the Initial Purchaser, so
material and adverse as to make it impracticable or inadvisable to proceed
with the sale or delivery of the Securities on the terms and in the manner
contemplated by this Agreement and the Offering Memorandum (exclusive of
any amendment or supplement thereto).
(o) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body which would, as of the Closing Date, prevent the issuance
or sale of the Securities; and no injunction, restraining order or order
of any other nature by any federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance or sale of the Securities.
(p) Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the Securities
or any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of the Securities or any of the Company's
other debt securities or preferred stock.
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities
of the Company on any exchange or in the over-the-counter market shall
have been suspended or (ii) any moratorium on commercial banking
activities shall have been declared by federal or New York state
authorities or (iii) an outbreak or escalation of hostilities or a
declaration by the United States of a national emergency or war or (iv) a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) the
<PAGE> 26
26
effect of which, in the case of this clause (iv), is, in the judgment of
the Initial Purchaser, so material and adverse as to make it impracticable
or inadvisable to proceed with the sale or the delivery of the Securities
on the terms and in the manner contemplated by this Agreement and in the
Offering Memorandum (exclusive of any amendment or supplement thereto).
(r) The transactions contemplated by the Recapitalization, as
defined in the Offering Memorandum, shall have been consummated.
(s) The Initial Purchaser shall have received on the Closing Date a
counterpart to this Agreement executed by the Company.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchaser.
6. Termination. The obligations of the Initial Purchaser hereunder
may be terminated by the Initial Purchaser, in its absolute discretion, by
notice given to and received by Merger Corp. prior to delivery of and payment
for the Securities if, prior to that time, any of the events described in
Section 5(m), (n), (o), (p) or (q) shall have occurred and be continuing.
7. Reimbursement of Initial Purchaser's Expenses. If (a) this
Agreement shall have been terminated pursuant to Section 6, (b) the Company
shall fail to tender the Securities for delivery to the Initial Purchaser for
any reason permitted under this Agreement or (c) the Initial Purchaser shall
decline to purchase the Securities for any reason permitted under this
Agreement, Merger Corp. shall reimburse the Initial Purchaser for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchaser in connection
with this Agreement and the proposed purchase and resale of the Securities.
8. Indemnification. (a) Merger Corp., and following the execution
and delivery of this Agreement by the Company, the Company shall indemnify and
hold harmless the Initial Purchaser, its affiliates, its respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls the Initial Purchaser within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 8(a) and
Section 9 as the Initial Purchaser), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including,
without limitation, any loss, claim, damage, liability or action relating to
purchases and sales of the Securities), to which the Initial Purchaser may
become subject, whether commenced or threatened,
<PAGE> 27
27
under the Securities Act, the Exchange Act, any other federal or state statutory
law or regulation, at common law or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Offering Memorandum or the Offering Memorandum or in any amendment
or supplement thereto or in any information provided by the Company pursuant to
Section 4(e) or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse the Initial Purchaser promptly upon
demand for any legal or other expenses reasonably incurred by the Initial
Purchaser in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that Merger Corp. and the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, liability or action arises out
of, or is based upon, an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with the Initial Purchaser's Information; and provided, further, that
with respect to any such untrue statement in or omission from the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 8(a)
shall not inure to the benefit of the Initial Purchaser to the extent that the
sale to the person asserting any such loss, claim, damage, liability or action
was an initial resale by the Initial Purchaser and any such loss, claim, damage,
liability or action of or with respect to the Initial Purchaser results from the
fact that both (A) to the extent required by applicable law, a copy of the
Offering Memorandum was not sent or given to such person at or prior to the
written confirmation of the sale of such Securities to such person and (B) the
untrue statement in or omission from the Preliminary Offering Memorandum was
corrected in the Offering Memorandum unless, in either case, such failure to
deliver the Offering Memorandum was a result of non-compliance by Merger Corp.
or the Company with Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless Merger
Corp., the Company, its affiliates, its respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
Merger Corp. or the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 8(b) and
Section 9 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which Merger
Corp. or the Company may become subject, whether commenced or threatened, under
the Securities Act, the Exchange Act, any other federal or state statutory law
or regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a
<PAGE> 28
28
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with the Initial
Purchaser's Information, and shall reimburse Merger Corp. or the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 8(a) or 8(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 8 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
indemnified party shall have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party
<PAGE> 29
29
and the indemnifying party (in which case the indemnifying party will not have
the right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
The obligations of Merger Corp., the Company and the Initial
Purchaser in this Section 8 and in Section 9 are in addition to any other
liability that Merger Corp., the Company or the Initial Purchaser, as the case
may be, may otherwise have, including in respect of any breaches of
representations, warranties and agreements made herein by any such party.
9. Contribution. If the indemnification provided for in Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b), 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 loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by Merger Corp. and the Company on the one hand and the
Initial Purchaser on the other from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate
<PAGE> 30
30
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of Merger Corp. and the Company on the one hand and the
Initial Purchaser on the other with respect to the statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by Merger Corp. or the Company on the one hand and the Initial
Purchaser on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by or on behalf of the Company, on the one hand, and the total discounts and
commissions received by the Initial Purchaser with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, in each case as set forth
in the table on the cover page of the Offering Memorandum. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to Merger Corp. or the Company or information
supplied by Merger Corp. or the Company on the one hand or to the Initial
Purchaser's Information on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. Merger Corp, the Company and the Initial
Purchaser agree that it would not be just and equitable if contributions
pursuant to this Section 9 were to be determined by pro rata allocation (even if
the Initial Purchaser were treated as one entity for such purpose) or by any
other method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 9 shall be deemed to include, for
purposes of this Section 9, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. Notwithstanding the provisions of
this Section 9, the Initial Purchaser shall not be required to contribute any
amount in excess of the amount by which the total discounts and commissions
received by the Initial Purchaser with respect to the Securities purchased by it
under this Agreement exceeds the amount of any damages which the Initial
Purchaser has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchaser, Merger Corp.,
the Company and their respective successors. This Agreement and the terms and
provisions hereof
<PAGE> 31
31
are for the sole benefit of only those persons, except as provided in Sections 8
and 9 with respect to affiliates, officers, directors, employees,
representatives, agents and controlling persons of Merger Corp., the Company and
the Initial Purchaser and in Section 4(e) with respect to holders and
prospective purchasers of the Securities. Nothing in this Agreement is intended
or shall be construed to give any person, other than the persons referred to in
this Section 10, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
11. Expenses. Merger Corp. and, upon the execution and delivery of
this Agreement by the Company, the Company agree with the Initial Purchaser to
pay (a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection provided,
however, that the cost of renting an aircraft for use during the marketing of
the Securities, will be borne equally by the Company and its subsidiary,
Nebraska Book, on the one hand and the Initial Purchaser on the other hand; (b)
the costs incident to the preparation, printing and distribution of the
Preliminary Offering Memorandum, the Offering Memorandum and any amendments or
supplements thereto; (c) the costs of reproducing and distributing each of the
Transaction Documents; (d) the costs incident to the preparation, printing and
delivery of the certificates evidencing the Securities, including stamp duties
and transfer taxes, if any, payable upon issuance of the Securities; (e) the
fees and expenses of the Company's counsel and independent accountants; (f) the
fees and expenses of qualifying the Securities under the securities laws of the
several jurisdictions as provided in Section 4(h) and of preparing, printing and
distributing Blue Sky Memoranda (including related fees and expenses of counsel
for the Initial Purchaser); (g) any fees charged by rating agencies for rating
the Securities; (h) the fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties); (i) all
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on the PORTAL Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement which are not otherwise specifically provided for in this Section 11;
provided, however, that except as provided in this Section 11 and Section 7, the
Initial Purchaser shall pay its own costs and expenses.
12. Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of Merger Corp., the Company and the
Initial Purchaser contained in this Agreement or made by or on behalf of the
Company or the Initial Purchaser pursuant to this Agreement or any certificate
delivered pursuant hereto shall survive the delivery of and payment for the
Securities and shall remain in full force and effect, regardless of any
termination or cancellation of this
<PAGE> 32
32
Agreement or any investigation made by or on behalf of any of them or any of
their respective affiliates, officers, directors, employees, representatives,
agents or controlling persons.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: Thomas W. Walker (telecopier no.: (212)
270-0994); or
(b) if to Merger Corp. or the Company, shall be delivered or sent by
mail or telecopy transmission to the address of the Company set forth in
the Offering Memorandum, Attention: Chief Executive Officer (telecopier
no.: (402)421-0507);
provided that any notice to the Initial Purchaser pursuant to Section 8(c) shall
also be delivered or sent by mail to such Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
14. Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
15. Initial Purchaser's Information. The parties hereto acknowledge
and agree that, for all purposes of this Agreement, the Initial Purchaser's
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchaser;
(ii) the legend on the inside front cover page concerning over-allotment and
trading activities by the Initial Purchaser; and (iii) the statements concerning
the Initial Purchaser contained in the first and second sentences of the third
paragraph, the second sentence of the ninth paragraph, the twelfth paragraph,
and the thirteenth paragraph under the heading "Plan of Distribution".
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be
<PAGE> 33
33
an original, but all such counterparts shall together constitute one and the
same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE> 34
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to Merger Corp. a counterpart hereof,
whereupon this instrument will become a binding agreement among Merger Corp.
and, following the execution and delivery by the Company of this Agreement on
the Closing Date, the Company, on the one hand, and the Initial Purchaser, on
the other hand, in accordance with its terms.
Very truly yours,
NBC ACQUISITION CORP.
By: /s/ Douglas D. Wheat
----------------------------
Name: Douglas D. Wheat
Title: Senior Vice President
NBC MERGER CORP.
By: /s/ Douglas D. Wheat
----------------------------
Name: Douglas D. Wheat
Title: Senior Vice President
Accepted:
CHASE SECURITIES INC.
By: /s/ Jeffrey Blumin
----------------------
Authorized Signatory
Address for notices pursuant to Section 8(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
<PAGE> 1
Exhibit 10.4
EXECUTION COPY
PURCHASE AGREEMENT
NEBRASKA BOOK COMPANY, INC.
$110,000,000
8 3/4% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
February 10, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Nebraska Book Company, Inc., a Kansas corporation (the "Company"),
proposes to issue and sell $110,000,000 aggregate principal amount of its 8 3/4%
Senior Subordinated Notes due 2008 (the "Securities"). The Securities will be
issued pursuant to an Indenture to be dated as of February 13, 1998 (the
"Indenture") between the Company and United States Trust Company of New York, as
trustee (the "Trustee"). The Company hereby confirms its agreement with Chase
Securities Inc. ("CSI" or the "Initial Purchaser") concerning the purchase of
the Securities from the Company by the Initial Purchaser. For all purposes of
this Agreement, the term "Company" shall mean, as the context requires, (A)
prior to the consummation of the Merger (as hereinafter defined), Nebraska Book
Company, Inc., a Kansas corporation, and (B) upon consummation of the Merger,
the surviving corporation of the merger (the "Merger") of Nebraska Merger Corp.
("Merger Corp."), a corporation formed under Kansas law for purposes of
consummating the Merger, with and into Nebraska Book Company, Inc. pursuant to a
Merger Agreement (the "Merger Agreement") to be dated February 13, 1998 between
the Company and Merger Corp., an indirect wholly-owned subsidiary of HWH Capital
Partners, L.P.; provided that the Company shall not be a signatory to this
Agreement until the Closing Date (as defined below), on which date the Company
shall become a party to this Agreement.
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon an exemption therefrom. The Company and
Merger Corp. have prepared a preliminary offering memorandum dated January 28,
1998 (the "Preliminary Offering Memorandum") and will prepare an offering
memorandum dated the date hereof (the "Offering Memorandum") setting forth
information concerning the Company and the
<PAGE> 2
2
Securities. Copies of the Preliminary Offering Memorandum have been, and copies
of the Offering Memorandum will be, delivered by the Company and Merger Corp. to
the Initial Purchaser pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Offering Memorandum shall
be deemed to include all amendments and supplements thereto, unless otherwise
noted. The Company and Merger Corp. hereby confirm that it has authorized the
use of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering and resale of the Securities by the Initial
Purchaser in accordance with Section 2.
Holders of the Securities (including the Initial Purchaser and its
direct and indirect transferees) will be entitled to the benefits of an Exchange
and Registration Rights Agreement, substantially in the form attached hereto as
Annex A (the "Registration Rights Agreement"), pursuant to which the Company
will agree to file with the Securities and Exchange Commission (the
"Commission") (i) a registration statement under the Securities Act (the
"Exchange Offer Registration Statement") registering an issue of senior
subordinated notes of the Company (the "Exchange Securities") which are
identical in all material respects to the Securities (except that the Exchange
Securities will not contain terms with respect to transfer restrictions) and
(ii) under certain circumstances, a shelf registration statement pursuant to
Rule 415 under the Securities Act (the "Shelf Registration Statement").
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. Each
of Merger Corp., and upon execution and delivery by the Company of this
Agreement, the Company represents and warrants to, and agrees with, the Initial
Purchaser on and as of the date hereof and the Closing Date (as defined in
Section 3) that:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date
the Offering Memorandum will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided
that Merger Corp. and, upon execution and delivery by the Company of this
Agreement, the Company make no representation or warranty as to
information contained in or omitted from the Preliminary Offering
Memorandum or the Offering Memorandum in reliance upon and in conformity
with written information relating to the Initial Purchaser furnished to
Merger Corp. by or on behalf of the Initial Purchaser specifically for use
therein (the "Initial Purchaser's Information").
<PAGE> 3
3
(b) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Securities, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Assuming the accuracy of the representations and warranties of
the Initial Purchaser contained in Section 2 and its compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchaser and the
offer, resale and delivery of the Securities by the Initial Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum, to
register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(d) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or lease
of property or the conduct of its businesses requires such qualification,
and has all power and authority necessary to own or hold its properties
and to conduct the businesses in which it is engaged, except where the
failure to so qualify or have such power or authority would not,
singularly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or
prospects of the Company (a "Material Adverse Effect"). The Company does
not have any subsidiaries.
(e) On the Closing Date (after giving effect to the
Recapitalization), the Company will have an authorized capitalization as
set forth in the Offering Memorandum under the heading "Capitalization";
all of the outstanding shares of capital stock of the Company have been
duly and validly authorized and issued and will have been fully paid and
non-assessable; and the capital stock of the Company will conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(f) Merger Corp. and the Company have full right, power and
authority to execute and deliver this Agreement, the Indenture, the
Registration Rights Agreement, the Securities and the Merger Agreement
(collectively, the "Transaction Documents"), to the extent it is a party
thereto, and to perform its obligations hereunder and thereunder; and all
corporate action required to be taken for the due and proper
authorization, execution and delivery of each of the Transaction Documents
and the consummation of
<PAGE> 4
4
the transactions contemplated thereby have been duly and validly taken.
(g) This Agreement has been duly authorized, executed and delivered
by Merger Corp. (which pursuant to Section 2 will have no obligation to
issue or sell the Securities hereunder) and on the Closing Date, will have
been duly authorized, executed and delivered by the Company (which as the
surviving corporation of the Merger will issue the Securities) and will
constitute a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights generally and by
general equitable principles (whether considered in a proceeding in equity
or at law) and except to the extent that indemnification or contribution
provisions may be unenforceable.
(h) The Registration Rights Agreement, when duly executed and
delivered by the Company on the Closing Date, will have been duly
authorized by the Company and, when duly executed and delivered in
accordance with its terms by each of the parties thereto, will constitute
a valid and legally binding agreement of the Company enforceable against
the Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
(i) The Indenture, when duly executed and delivered by the Company
on the Closing Date, will have been duly authorized by the Company and,
when duly executed and delivered in accordance with its terms by each of
the parties thereto, will constitute a valid and legally binding agreement
of the Company enforceable against the Company in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally
and by general equitable principles (whether considered in a proceeding in
equity or at law). On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act and the
rules and regulations of the Commission applicable to an indenture which
is qualified thereunder.
(j) The Securities when duly executed, authenticated, issued and
delivered as provided in the Indenture and paid for as provided herein,
will have been duly authorized by
<PAGE> 5
5
the Company and, when duly executed, authenticated, issued and delivered
as provided in the Indenture and paid for as provided herein, will be duly
and validly issued and outstanding and will constitute valid and legally
binding obligation of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally
and by general equitable principles (whether considered in a proceeding in
equity or at law).
(k) The Exchange Securities have been duly authorized by all
necessary corporate action of the Company, and when duly executed,
delivered and issued by the Company in accordance with the terms of the
Registration Rights Agreement and the Indenture and, assuming due
authentication thereof by the Trustee, will constitute valid and legally
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
morato rium and other similar laws affecting creditors' rights generally
and by general equitable principles (whether considered in a proceeding in
equity or at law);
(l) The Merger Agreement has been duly authorized, executed and
delivered by the Company and Merger Corp. and constitutes a valid and
legally binding agreement of the Company and Merger Corp. enforceable
against the Company and Merger Corp. in accordance with its terms, except
to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights generally and by
general equitable principles (whether considered in a proceeding in equity
or at law).
(m) Each Transaction Document conforms in all material respects to
the description thereof contained in the Offering Memorandum.
(n) Except for agreements relating to existing indebtedness of the
Company that is being repaid or refinanced in connection with the
Recapitalization and which will cease to be in effect as of the Closing
Date, the execution, delivery and performance by Merger Corp. and the
Company of each of the Transaction Documents to which it is a party, the
issuance, authentication, sale and delivery of the Securities and
compliance by Merger Corp. and the Company with the terms thereof and the
consummation of the transactions contemplated by the Transaction Documents
will
<PAGE> 6
6
not conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or
assets of the Company is subject, except for such conflicts, breaches,
violations or defaults or liens, charges or encumbrances that would not,
singularly or in the aggregate, have a Material Adverse Effect or a
material adverse effect on Merger Corp.'s or the Company's ability to
perform its obligations under this Agreement and the Transaction Documents
to which it is a party, nor will such actions result in any violation of
the provisions of the charter or by-laws of the Company or any statute or
any judgment, order, decree, rule or regulation of any court or arbitrator
or governmental agency or body having jurisdiction over the Company or any
of its properties or assets; and no consent, approval, authorization or
order of, or filing or registration with, any such court or arbitrator or
governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by Merger Corp. and the Company of each of the Transaction
Documents to which it is a party, the issuance, authentication, sale and
delivery of the Securities and compliance by Merger Corp. and the Company
with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents, except for such consents,
approvals, authorizations, filings, registrations or qualifications (i)
which shall have been obtained or made prior to the Closing Date, (ii) as
may be required to be obtained or made under the Securities Act and
applicable state securities laws as provided in the Registration Rights
Agreement and (iii) the failure of which to obtain or make would,
singularly or in the aggregate, have a Material Adverse Effect or a
material adverse effect on Merger Corps.'s or the Company's ability to
perform its obligations under this Agreement and the Transaction Documents
to which it is a party.
(o) Deloitte & Touche LLP and Arthur Andersen LLP are independent
certified public accountants with respect to the Company within the
meaning of Rule 101 of the Code of Professional Conduct of the American
Institute of Certified Public Accountants ("AICPA") and its
interpretations and rulings thereunder. The historical financial
statements (including the related notes) contained in the Offering
Memorandum have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
thereby and fairly present the financial position of the entities
purported to be covered thereby at the respective dates indicated and the
<PAGE> 7
7
results of its operations and its cash flows for the respective periods
indicated; and the financial information contained in the Offering
Memorandum under the headings "Summary--Summary Historical Financial
Data", "Summary--Summary Pro Forma Financial Data", "Capitalization",
"Selected Historical Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Management--Executive Compensation" are derived from the accounting
records of the Company and fairly present the information purported to be
shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma adjustments specified therein), the pro forma
adjustments have been properly applied to the historical amounts in the
compilation of those statements and in the case of the pro forma
adjustments relating to the Acquisitions (as defined in the Offering
Memorandum) the pro forma adjustments have been derived from the
historical financial statements of Specialty Books, Inc., Collegiate
Stores Corporation and South Carolina Bookstore, Inc. copies of which have
been provided to you and the pro forma adjustments give effect to
assumptions made on a reasonable basis and fairly presents the historical
and proposed transactions contemplated by the Offering Memorandum and the
Transaction Documents. The other historical financial and statistical
information and data included in the Offering Memorandum are, in all
material respects, fairly presented.
(p) There are no legal or governmental proceedings pending to which
the Company is a party or of which any property or assets of the Company
is the subject which, singularly or in the aggregate, if determined
adversely to the Company, could reasonably be expected to have a Material
Adverse Effect; and to the best knowledge of Merger Corp. and the Company,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(q) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Securities or suspends the sale of
the Securities in any jurisdiction; no injunction, restraining order or
order of any nature by any federal or state court of competent
jurisdiction has been issued with respect to the Company which would
prevent or suspend the issuance or sale of the Securities or the use of
the Preliminary Offering Memorandum or the Offering Memorandum in any
jurisdiction; no action, suit or proceeding is pending against or, to the
best knowledge of Merger Corp. and the Company, threatened against or
affecting the Company before any court or arbitrator or any governmental
agency, body or official,
<PAGE> 8
8
domestic or foreign, which could reasonably be expected to interfere with
or adversely affect the issuance of the Securities or in any manner draw
into question the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken pursuant thereto; and Merger
Corp. and the Company have complied with any and all requests by any
securities authority in any jurisdiction for additional information to be
included in the Preliminary Offering Memorandum and the Offering
Memorandum.
(r) The Company is not (i) in violation of its charter or by-laws,
(ii) except for agreements relating to existing indebtedness of the
Company that is being repaid or refinanced in connection with the
Recapitalization and which will cease to be in effect as of the Closing
Date, in default in any material respect, and no event has occurred which,
with notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which it is a party
or by which it is bound or to which any of its property or assets is
subject or (iii) in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject.
(s) The Company possesses all material licenses, certificates,
authorizations and permits issued by, and has made all declarations and
filings with, the appropriate federal, state or foreign regulatory
agencies or bodies which are necessary or desirable for the ownership of
its properties or the conduct of its businesses as described in the
Offering Memorandum, except where the failure to possess or make the same
would not, singularly or in the aggregate, have a Material Adverse Effect,
and neither the Company nor Merger Corp. has received notification of any
revocation or modification of any such license, certificate, authorization
or permit or has any reason to believe that any such license, certificate,
authorization or permit will not be renewed in the ordinary course, except
where such revocation, modification or nonrenewal would not, singularly or
in the aggregate, have a Material Adverse Effect.
(t) The Company has filed or requested extensions with respect to
all federal, state, local and foreign income and franchise tax returns
required to be filed through the date hereof and has paid all taxes due
thereon, except for taxes being contested in good faith and as to which
adequate reserves have been established or taxes currently payable without
penalty or interest, except where the failure to so file or make such
payments would not, singularly or in the aggregate, have a Material
Adverse Effect, and no tax deficiency has been determined adversely to the
Company
<PAGE> 9
9
which has had (nor do Merger Corp. or the Company have any knowledge of
any tax deficiency which, if determined adversely to the Company could
reasonably be expected to have) a Material Adverse Effect.
(u) The Company is not (i) an "investment company" or a company
"controlled by" an investment company within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the
rules and regulations of the Commission thereunder or (ii) a "holding
company" or a "subsidiary company" of a holding company or an "affiliate"
thereof within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(w) The Company has insurance covering its properties, operations,
personnel and businesses, which insurance is in amounts and insures
against such losses and risks as are prudent and customary in the business
in which it is engaged. Neither Merger Corp. nor the Company has received
notice from any insurer or agent of such insurer that capital improvements
or other expenditures are required or necessary to be made in order to
continue such insurance.
(x) The Company owns or possesses adequate rights to use all
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses
and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of its businesses, except where the
failure to so own or possess such rights would not, singularly or in the
aggregate, have a Material Adverse Effect; and neither Merger Corp. nor
the Company has any reason to believe that the conduct of its businesses
as currently conducted and contemplated will conflict in any material
respect with, and neither Merger Corp. nor the Company has received any
notice of any claim of conflict with, any such rights of others, in either
case which would, singularly or in the aggregate, have a Material Adverse
Effect.
<PAGE> 10
10
(y) The Company has good and marketable title in fee simple to, or
have valid rights to lease or otherwise use, all items of real and
personal property which are material to the business of the Company, in
each case free and clear of all liens, encumbrances, claims and defects
and imperfections of title except such as (i) do not materially interfere
with the use made and proposed to be made of such property by the Company,
(ii) as are contemplated or permitted under the Credit Agreement dated as
of August 31, 1995 among NBC Acquisition Corp., the Company, the financial
institutions listed on schedule 2.01 thereto and The Chase Manhattan Bank,
as administrative agent and the related collateral and security agreements
or (iii) could not reasonably be expected to have a Material Adverse
Effect.
(z) No labor disturbance by or dispute with the employees of the
Company exists or, to the best knowledge of Merger Corp. and the Company,
is contemplated or threatened which could, singularly or in the aggregate,
have a Material Adverse Effect.
(aa) No non-exempt "prohibited transaction" (as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")) or "accumulated funding
deficiency" (as defined in Section 302 of ERISA) or any of the events set
forth in Section 4043(b) of ERISA (other than events with respect to which
the 30-day notice requirement under Section 4043 of ERISA has been waived)
has occurred with respect to any employee benefit plan of the Company
which could reasonably be expected to have a Material Adverse Effect; each
such employee benefit plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Company has not incurred
and does not expect to incur liability under Title IV of ERISA with
respect to the termination of, or withdrawal from, any pension plan for
which the Company would have any liability; and each such pension plan
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which could reasonably be expected to cause
the loss of such qualification.
(bb) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission or other release of any
kind of toxic or other wastes or other hazardous substances by, due to or
caused by the Company (or, to the best knowledge of Merger Corp. and the
Company, any other entity (including any predecessor) for whose acts or
omissions the Company is or could reasonably be expected to be liable)
upon any of the property now or previously owned or leased by the Company,
<PAGE> 11
11
or upon any other property, in violation of any statute or any ordinance,
rule, regulation, order, judgment, decree or permit or which would, under
any statute or any ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability,
except for any violation or liability that could not reasonably be
expected to have, singularly or in the aggregate with all such violations
and liabilities, a Material Adverse Effect; and there has been no
disposal, discharge, emission or other release of any kind onto such
property or into the environment surrounding such property of any toxic or
other wastes or other hazardous substances with respect to which Merger
Corp. or the Company has knowledge, except for any such disposal,
discharge, emission or other release of any kind which could not
reasonably be expected to have, singularly or in the aggregate with all
such discharges and other releases, a Material Adverse Effect.
(cc) Neither the Company nor, to the best knowledge of Merger Corp.
and the Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company has (i) used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977;
or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(dd) On and immediately after the Closing Date, the Company (after
giving effect to the issuance of the Securities and to the other
transactions related thereto as described in the Offering Memorandum) will
be Solvent. As used in this paragraph, the term "Solvent" means, with
respect to a particular date, that on such date (i) the present fair
market value (or present fair saleable value) of the assets of the Company
is not less than the total amount required to pay the probable liabilities
of the Company on its total existing debts and liabilities (including
contingent liabilities) as they become absolute and matured, (ii) the
Company is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments as they mature and
become due in the normal course of business, (iii) assuming the sale of
the Securities as contemplated by this Agreement and the Offering
Memorandum, the Company is not incurring debts or liabilities beyond its
ability to pay as such debts and liabilities mature and (iv) the Company
is not engaged in any business or transaction, and is not about to engage
in any business or transaction, for which its property would constitute
unreasonably small capital after giving due
<PAGE> 12
12
consideration to the prevailing practice in the industry in which the
Company is engaged. In computing the amount of such contingent liabilities
at any time, it is intended that such liabilities will be computed at the
amount that, in the light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become
an actual or matured liability.
(ee) Except as described in the Offering Memorandum, there are no
outstanding subscriptions, rights, warrants, calls or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of
capital stock of or other equity or other ownership interest in the
Company.
(ff) The Company does not own any "margin securities" as that term
is defined in Regulations G and U of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), and none of the proceeds of
the sale of the Securities will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might
cause any of the Securities to be considered a "purpose credit" within the
meanings of Regulation G, T, U or X of the Federal Reserve Board.
(gg) Other than as disclosed in the Offering Memorandum, neither
Merger Corp. nor the Company is a party to any contract, agreement or
understanding with any person that would give rise to a valid claim
against the Company or the Initial Purchaser for a brokerage commission,
finder's fee or like payment in connection with the offering and sale of
the Securities.
(hh) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(ii) None of Merger Corp., the Company, any of their respective
affiliates or any person acting on their behalf has engaged or will engage
in any directed selling efforts (as such term is defined in Regulation S
under the Securities Act ("Regulation S")), and all such persons have
complied and will comply with the offering restrictions requirement of
Regulation S to the extent applicable.
(jj) Neither Merger Corp., the Company nor any of their respective
affiliates has, directly or through any agent, sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as such term is defined in the Securities Act), which is or will
be integrated with the sale of the Securities in a manner that
<PAGE> 13
13
would require registration of the Securities under the Securities Act.
(kk) None of Merger Corp., the Company or any of their respective
affiliates or any other person acting on their behalf has engaged, in
connection with the offering of the Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act.
(ll) There are no securities of the Company registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
listed on a national securities exchange or quoted in a U.S. automated
inter-dealer quotation system.
(mm) Neither Merger Corp. nor the Company has taken and will not
take, directly or indirectly, any action prohibited by Regulation M under
the Exchange Act in connection with the offering of the Securities.
(nn) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in
the Preliminary Offering Memorandum or the Offering Memorandum has been
made or reaffirmed without a reasonable basis or has been disclosed other
than in good faith.
(oo) Since the date as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs, management or business prospects of the
Company, whether or not arising in the ordinary course of business, (ii)
the Company has not incurred any material liability or obligation, direct
or contingent, other than in the ordinary course of business, (iii) the
Company has not entered into any material transaction other than in the
ordinary course of business and (iv) there has not been any change in the
capital stock or long-term debt of the Company, or any dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(pp) The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources which Merger
Corp. and the Company believes to be reliable.
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein and consummation of the Merger, Merger
Corp. agrees to cause the Company to, and upon becoming a party to this
Agreement on the
<PAGE> 14
14
Closing Date, the Company agrees to issue and sell to the Initial Purchaser and
the Initial Purchaser agrees to purchase from the Company, $110,000,000
principal amount of Securities at a purchase price equal to 97.00% of the
principal amount thereof. The Company shall not be obligated to deliver any of
the Securities except upon payment for all of the Securities to be purchased as
provided herein.
(b) The Initial Purchaser has advised Merger Corp. that it proposes
to offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. The Initial Purchaser
represents, warrants to, and agrees with, Merger Corp. and the Company that (i)
it is purchasing the Securities pursuant to a private sale exempt from
registration under the Securities Act, (ii) it has not solicited offers for, or
offered or sold, and will not solicit offers for, or offer or sell, the
Securities by means of any form of general solicitation or general advertising
within the meaning of Rule 502(c) of Regulation D under the Securities Act
("Regulation D") or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (iii) has solicited and will solicit
offers for the Securities only from, and has offered or sold and will offer,
sell or deliver the Securities, as part of its offering, only (A) within the
United States to persons whom it reasonably believes to be qualified
institutional buyers ("Qualified Institutional Buyers"), as defined in Rule 144A
under the Securities Act ("Rule 144A"), or if any such person is buying for one
or more institutional accounts for which such person is acting as fiduciary or
agent, only when such person has represented to it that each such account is a
Qualified Institutional Buyer to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A and in each case, in
transactions in accordance with Rule 144A and (B) outside the United States to
persons other than U.S. persons in reliance on Regulation S under the Securities
Act ("Regulation S").
(c) In connection with the offer and sale of Securities in reliance
on Regulation S, the Initial Purchaser represents, warrants and agrees that:
(i) The Securities have not been registered under the Securities Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except pursuant to an exemption from,
or in transactions not subject to, the registration requirements of the
Securities Act.
(ii) The Initial Purchaser has offered and sold the Securities, and
will offer and sell the Securities, (A) as part of its distribution at any
time and (B) otherwise until 40 days after the later of the commencement
of the offering of the Securities and the Closing Date, only in accordance
<PAGE> 15
15
with Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act.
(iii) None of the Initial Purchaser or any of its affiliates or any
other person acting on its behalf has engaged or will engage in any
directed selling efforts with respect to the Securities, and all such
persons have complied and will comply with the offering restrictions
requirement of Regulation S.
(iv) At or prior to the confirmation of sale of any Securities sold
in reliance on Regulation S, it will have sent to each distributor, dealer
or other person receiving a selling concession, fee or other remuneration
that purchase Securities from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering of the Securities and the
date of original issuance of the Securities, except in accordance
with Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Securities,
except with its affiliates or with the prior written consent of the
Company.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
(d) The Initial Purchaser represents, warrants and agrees that (i)
it has not offered or sold and prior to the date six months after the Closing
Date will not offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and the
Public Offers of Securities Regulations 1995 with respect to anything done by it
in relation to the
<PAGE> 16
16
Securities in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Securities to a
person who is a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
(e) The Initial Purchaser agrees that, prior to or simultaneously
with the confirmation of sale by the Initial Purchaser to any purchaser of any
of the Securities purchased by the Initial Purchaser from the Company pursuant
hereto, the Initial Purchaser shall furnish to that purchaser a copy of the
Offering Memorandum (and any amendment or supplement thereto that the Company
shall have furnished to such Initial Purchaser prior to the date of such
confirmation of sale). In addition to the foregoing, the Initial Purchaser
acknowledges and agrees that the Company and, for purposes of the opinions to be
delivered to the Initial Purchaser pursuant to Sections 5(d) and (e), counsel
for the Company and for the Initial Purchaser, respectively, may rely upon the
accuracy of the representations and warranties of the Initial Purchaser and its
compliance with its agreements contained in this Section 2, and the Initial
Purchaser hereby consents to such reliance.
(f) Merger Corp. and, upon becoming a party to this Agreement on the
Closing Date, the Company acknowledge and agree that the Initial Purchaser may
sell Securities to any affiliate of the Initial Purchaser and that any such
affiliate may sell Securities purchased by it to the Initial Purchaser to the
extent such sales are in compliance with the covenants, and do not conflict with
the representations and warranties, of the Initial Purchaser in this Section 2.
3. Delivery of and Payment for the Securities. (a) Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, New York, New York, or at such other place as shall be agreed upon by
the Initial Purchaser, Merger Corp. and the Company, at 9:00 A.M., New York City
time, on February 13, 1998, or at such other time or date as shall be agreed
upon by the Initial Purchaser, Merger Corp. and the Company (such date and time
of payment and delivery being referred to herein as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of
same-day funds to such account or accounts as the Company shall specify prior to
the Closing Date or by such other means as the parties hereto shall agree prior
to the Closing Date against delivery to the Initial Purchaser of the
certificates evidencing the Securities. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligations of the
<PAGE> 17
17
Initial Purchaser hereunder. Upon delivery, the Securities shall be in global
form, registered in such names and in such denominations as the Initial
Purchaser shall have requested in writing not less than two full business days
prior to the Closing Date. The Company agrees to make one or more global
certificates evidencing the Securities available for inspection by CSI on behalf
of the Initial Purchaser in New York, New York at least 24 hours prior to the
Closing Date.
4. Further Agreements of the Company. Merger Corp. and, upon the
execution and delivery by the Company of this Agreement, the Company agree with
the Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; to advise the Initial Purchaser promptly of any
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use its best efforts to prevent the issuance of any such
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at
the earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel for the
Initial Purchaser, without charge, as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum (and any amendments or
supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to the Initial Purchaser and counsel
for the Initial Purchaser and not to effect any such amendment or
supplement to which the Initial Purchaser shall reasonably object by
notice to Merger Corp. or the Company after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchaser or counsel for the Company, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a
<PAGE> 18
18
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the
time it is delivered to a purchaser, not misleading, or if it is necessary
to amend or supplement the Offering Memorandum to comply with applicable
law, to promptly prepare such amendment or supplement as may be necessary
to correct such untrue statement or omission or so that the Offering
Memorandum, as so amended or supplemented, will comply with applicable
law;
(e) for so long as the Securities are outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, to furnish to holders of the Securities and prospective
purchasers of the Securities designated by such holders, upon request of
such holders or such prospective purchasers, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act, unless
the Company is then subject to and in compliance with Section 13 or 15(d)
of the Exchange Act (the foregoing agreement being for the benefit of the
holders from time to time of the Securities and prospective purchasers of
the Securities designated by such holders);
(f) for so long as the Securities are outstanding, to furnish to the
Initial Purchaser copies of any annual reports, quarterly reports and
current reports filed by the Company with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall be
furnished by the Company to the Trustee or to the holders of the
Securities pursuant to the Indenture or the Exchange Act or any rule or
regulation of the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchaser may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchaser may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchaser
may reasonably request; provided that the Company shall not be obligated
to qualify as a foreign corporation in any jurisdiction in which it is not
so qualified or to file a general consent to service of process in any
jurisdiction or to subject itself to material taxation in any jurisdiction
where it is not so subject;
(h) to assist the Initial Purchaser in arranging for the Securities
to be designated Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") Market securities in accordance with the rules and
regulations
<PAGE> 19
19
adopted by the National Association of Securities Dealers, Inc. ("NASD")
relating to trading in the PORTAL Market and for the Securities to be
eligible for clearance and settlement through The Depository Trust Company
("DTC");
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case
may be, not to, and to cause its affiliates not to, and not to authorize
or knowingly permit any person acting on its behalf to, solicit any offer
to buy or offer to sell the Securities by means of any form of general
solicitation or general advertising within the meaning of Regulation D or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act; and not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, contract or disposition would cause
the exemption afforded by Section 4(2) of the Securities Act to cease to
be applicable to the offering and sale of the Securities as contemplated
by this Agreement and the Offering Memorandum;
(k) for a period of 180 days from the date of the Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company (other than the
Securities) without the prior written consent of the Initial Purchaser;
(l) during the period from the Closing Date until two years after
the Closing Date, without the prior written consent of the Initial
Purchaser, not to, and not permit any of its affiliates (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities that
have been reacquired by them, except for Securities purchased by the
Company or any of its affiliates and resold in a transaction registered
under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a
<PAGE> 20
20
closed-end investment company required to be registered, but not
registered thereunder;
(n) in connection with the offering of the Securities, until CSI
shall have notified the Company of the completion of the resale of the
Securities, not to, and to cause its affiliated purchasers (as defined in
Regulation M under the Exchange Act) not to, either alone or with one or
more other persons, bid for or purchase, for any account in which it or
any of its affiliated purchasers has a beneficial interest, any
Securities, or attempt to induce any person to purchase any Securities;
and not to, and to cause its affiliated purchasers not to, make bids or
purchase for the purpose of creating actual, or apparent, active trading
in or of raising the price of the Securities;
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a copy of
the independent accountants' report included in the Offering Memorandum
signed by the accountants rendering such report;
(q) to do and perform all things required to be done and performed
by it under this Agreement that are within its control prior to or after
the Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) except as contemplated in the Offering Memorandum including,
without limitation, the consummation of the Recapitalization, to not take
any action prior to the execution and delivery of the Indenture which, if
taken after such execution and delivery, would have violated any of the
covenants contained in the Indenture;
(s) to not take any action prior to the Closing Date which would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d);
(t) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of the Company and of which the Initial Purchaser
is notified), without the prior written consent of the Initial Purchaser,
unless in the judgment of the Company and its counsel, and after
<PAGE> 21
21
notification to the Initial Purchaser, such press release or communication
is required by law; and
(u) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds".
Notwithstanding any provision of Sections 4(a) or 4(d) to the
contrary, the Company's obligations under Sections 4(a) or 4(d) shall terminate
on the earliest to occur of (i) the effective date of an Exchange Offer
Registration Statement pursuant to the Registration Rights Agreement, (ii) the
effective date of a Shelf Registration Statement pursuant to the Registration
Rights Agreement and (iii) the date upon which the Initial Purchaser and its
affiliates cease to hold Securities acquired as part of the initial
distribution, the occurrence of which the Initial Purchaser shall promptly
notify the Company.
5. Conditions of Initial Purchaser' Obligations. The obligations of
the Initial Purchaser hereunder are subject to the accuracy, on and as of the
date hereof and the Closing Date, of the representations and warranties of
Merger Corp. and the Company contained herein, to the accuracy of the statements
of the Company and its officers made in any certificates delivered pursuant
hereto, to the performance by Merger Corp. and the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchaser as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchaser
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) On the date thereof, the Offering Memorandum (or any amendment
of supplement thereto) did not, and on the Closing Date the Offering
Memorandum (or any amendment or supplement thereto) shall not contain an
untrue statement of a fact which, in the reasonable opinion of counsel for
the Initial Purchaser, is material or omits to state any fact which, in
the reasonable opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of each of the Transaction Documents
and the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
reasonably satisfactory in all material respects to the
<PAGE> 22
22
Initial Purchaser, and the Company shall have furnished to the Initial
Purchaser all documents and information that they or its counsel may
reasonably request to enable them to pass upon such matters.
(d) Each of Paul, Weiss, Rifkind, Wharton & Garrison and Triplett,
Woolf & Garretson shall have furnished to the Initial Purchaser their
written opinions, as counsel to Merger Corp. and the Company, addressed to
the Initial Purchaser and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchaser, substantially to the
effect set forth in Annex B-1 and B-2 respectively, hereto.
(e) The Initial Purchaser shall have received from Simpson Thacher &
Bartlett, counsel for the Initial Purchaser, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchaser may reasonably require, and the Company shall have furnished to
such counsel such documents and information as they request for the
purpose of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Initial Purchaser two
letters (the "Initial Letters"), one of Deloitte & Touche LLP and one of
Arthur Andersen LLP, addressed to the Initial Purchaser and dated the date
hereof, in form and substance satisfactory to the Initial Purchaser,
substantially to the effect set forth in Annex C and D hereto.
(g) The Company shall have furnished to the Initial Purchaser two
letters (the "Bring-Down Letters"), one of Deloitte & Touche LLP and one
of Arthur Andersen LLP, addressed to the Initial Purchaser and dated the
Closing Date (i) confirming that they are independent public accountants
with respect to the Company and its subsidiaries within the meaning of
Rule 101 of the Code of Professional Conduct of the AICPA and its
interpretations and rulings thereunder, (ii) stating, as of the date of
the Bring-Down Letters (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Offering Memorandum, as of a date not more
than three business days prior to the date of the Bring-Down Letters),
that the conclusions and findings of such accountants with respect to the
financial information and other matters covered by the Initial Letters are
accurate and (iii) confirming in all material respects the conclusions and
findings set forth in the Initial Letters.
(h) The Company shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its chief executive officer and
its chief financial officer stating that (A) such officers have carefully
examined the
<PAGE> 23
23
Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of
its date, did not include any untrue statement of a material fact and did
not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and since the
date of the Offering Memorandum, no event has occurred which should have
been set forth in a supplement or amendment to the Offering Memorandum so
that the Offering Memorandum (as so amended or supplemented) would not
include any untrue statement of a material fact and would not omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading and (C) to the best of such officer's
knowledge after reasonable investigation as of the Closing Date, the
representations and warranties of the Company in this Agreement are true
and correct in all material respects, the Company has complied in all
material respects with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder on or prior to the Closing
Date, and subsequent to the date of the most recent financial statements
contained in the Offering Memorandum, there has been no material adverse
change in the financial position or results of operation of the Company,
or any change, or any development including a prospective change, in or
affecting the condition (financial or otherwise), results of operations,
business or prospects of the Company, except as set forth in the Offering
Memorandum.
(i) The Initial Purchaser shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) The Securities shall have been approved by the NASD for trading
in the PORTAL Market.
(l) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchaser shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchaser reasonably in advance of the Closing Date.
(m) There shall not have occurred any invalidation of Rule 144A
under the Securities Act by any court or any withdrawal or proposed
withdrawal of any rule or regulation
<PAGE> 24
24
under the Securities Act or the Exchange Act by the Commission or any
amendment or proposed amendment thereof by the Commission which in the
judgment of the Initial Purchaser would materially impair the ability of
the Initial Purchaser to purchase, hold or effect resales of the
Securities as contemplated hereby.
(n) Subsequent to the execution and delivery of this Agreement or,
if earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any change in the capital stock or long-term debt or any
change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), results of operations, business or
prospects of the Company, the effect of which, in any such case described
above, is, in the judgment of the Initial Purchaser, so material and
adverse as to make it impracticable or inadvisable to proceed with the
sale or delivery of the Securities on the terms and in the manner
contemplated by this Agreement and the Offering Memorandum (exclusive of
any amendment or supplement thereto).
(o) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body which would, as of the Closing Date, prevent the issuance
or sale of the Securities; and no injunction, restraining order or order
of any other nature by any federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance or sale of the Securities.
(p) Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the Securities
or any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of the Securities or any of the Company's
other debt securities or preferred stock.
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities
<PAGE> 25
25
of the Company on any exchange or in the over-the-counter market shall
have been suspended or (ii) any moratorium on commercial banking
activities shall have been declared by federal or New York state
authorities or (iii) an outbreak or escalation of hostilities or a
declaration by the United States of a national emergency or war or (iv) a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) the effect of which, in the
case of this clause (iv), is, in the judgment of the Initial Purchaser, so
material and adverse as to make it impracticable or inadvisable to proceed
with the sale or the delivery of the Securities on the terms and in the
manner contemplated by this Agreement and in the Offering Memorandum
(exclusive of any amendment or supplement thereto).
(r) The transactions contemplated by the Recapitalization, as
defined in the Offering Memorandum, shall have been consummated.
(s) The Initial Purchaser shall have received on the Closing Date a
counterpart to this Agreement executed by the Company.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchaser.
6. Termination. The obligations of the Initial Purchaser hereunder
may be terminated by the Initial Purchaser, in its absolute discretion, by
notice given to and received by Merger Corp. prior to delivery of and payment
for the Securities if, prior to that time, any of the events described in
Section 5(m), (n), (o), (p) or (q) shall have occurred and be continuing.
7. Reimbursement of Initial Purchaser's Expenses. If (a) this
Agreement shall have been terminated pursuant to Section 6, (b) the Company
shall fail to tender the Securities for delivery to the Initial Purchaser for
any reason permitted under this Agreement or (c) the Initial Purchaser shall
decline to purchase the Securities for any reason permitted under this
Agreement, Merger Corp. shall reimburse the Initial Purchaser for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchaser in connection
with this Agreement and the proposed purchase and resale of the Securities.
8. Indemnification. (a) Merger Corp., and following the execution
and delivery of this Agreement by the Company, the Company shall indemnify and
hold harmless the Initial Purchaser, its affiliates, its respective officers,
directors, employees,
<PAGE> 26
26
representatives and agents, and each person, if any, who controls the Initial
Purchaser within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 8(a) and Section 9 as the
Initial Purchaser), from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, without limitation, any
loss, claim, damage, liability or action relating to purchases and sales of the
Securities), to which the Initial Purchaser may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
or in any amendment or supplement thereto or in any information provided by the
Company pursuant to Section 4(e) or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and shall reimburse the Initial Purchaser
promptly upon demand for any legal or other expenses reasonably incurred by the
Initial Purchaser in connection with investigating or defending or preparing to
defend against or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that Merger Corp. and the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, an untrue statement or alleged untrue statement
in or omission or alleged omission from any of such documents in reliance upon
and in conformity with the Initial Purchaser's Information; and provided,
further, that with respect to any such untrue statement in or omission from the
Preliminary Offering Memorandum, the indemnity agreement contained in this
Section 8(a) shall not inure to the benefit of the Initial Purchaser to the
extent that the sale to the person asserting any such loss, claim, damage,
liability or action was an initial resale by the Initial Purchaser and any such
loss, claim, damage, liability or action of or with respect to the Initial
Purchaser results from the fact that both (A) to the extent required by
applicable law, a copy of the Offering Memorandum was not sent or given to such
person at or prior to the written confirmation of the sale of such Securities to
such person and (B) the untrue statement in or omission from the Preliminary
Offering Memorandum was corrected in the Offering Memorandum unless, in either
case, such failure to deliver the Offering Memorandum was a result of
non-compliance by Merger Corp. or the Company with Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless Merger
Corp., the Company, its affiliates, its respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
Merger Corp. or the Company within the meaning of the Securities Act or the
Exchange
<PAGE> 27
27
Act (collectively referred to for purposes of this Section 8(b) and Section 9 as
the Company), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which Merger Corp. or the Company
may become subject, whether commenced or threatened, under the Securities Act,
the Exchange Act, any other federal or state statutory law or regulation, at
common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with the Initial Purchaser's Information, and shall
reimburse Merger Corp. or the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending or
preparing to defend against or appearing as a third party witness in connection
with any such loss, claim, damage, liability or action as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 8(a) or 8(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 8 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
indemnified party shall have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the
<PAGE> 28
28
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
The obligations of Merger Corp., the Company and the Initial
Purchaser in this Section 8 and in Section 9 are in addition to any other
liability that Merger Corp., the Company or the Initial Purchaser, as the case
may be, may otherwise have, including in respect of any breaches of
representations, warranties and agreements made herein by any such party.
9. Contribution. If the indemnification provided for in Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b), then each
<PAGE> 29
29
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 loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by Merger Corp. and the Company on the one hand and the Initial
Purchaser on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of Merger Corp. and
the Company on the one hand and the Initial Purchaser on the other with respect
to the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by Merger Corp. or the Company on
the one hand and the Initial Purchaser on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Securities purchased under this Agreement (before
deducting expenses) received by or on behalf of the Company, on the one hand,
and the total discounts and commissions received by the Initial Purchaser with
respect to the Securities purchased under this Agreement, on the other, bear to
the total gross proceeds from the sale of the Securities under this Agreement,
in each case as set forth in the table on the cover page of the Offering
Memorandum. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to Merger Corp. or
the Company or information supplied by Merger Corp. or the Company on the one
hand or to the Initial Purchaser's Information on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. Merger Corp., the Company
and the Initial Purchaser agree that it would not be just and equitable if
contributions pursuant to this Section 9 were to be determined by pro rata
allocation (even if the Initial Purchaser were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 9 shall be deemed
to include, for purposes of this Section 9, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 9, the Initial Purchaser shall not be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by the Initial Purchaser with respect to the Securities
purchased by it under this Agreement exceeds the amount of any damages which the
Initial Purchaser has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or
<PAGE> 30
30
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchaser, Merger Corp.,
the Company and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 8 and 9 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of Merger Corp., the
Company and the Initial Purchaser and in Section 4(e) with respect to holders
and prospective purchasers of the Securities. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 10, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
11. Expenses. Merger Corp. and, upon the execution and delivery of
this Agreement by the Company, the Company agree with the Initial Purchaser to
pay (a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection, provided,
however, that the cost of renting an aircraft for use during the marketing of
the Securities will be borne equally by the Company and its parent, NBC
Acquisition Corp., on the one hand and the Initial Purchaser on the other hand;
(b) the costs incident to the preparation, printing and distribution of the
Preliminary Offering Memorandum, the Offering Memorandum and any amendments or
supplements thereto; (c) the costs of reproducing and distributing each of the
Transaction Documents; (d) the costs incident to the preparation, printing and
delivery of the certificates evidencing the Securities, including stamp duties
and transfer taxes, if any, payable upon issuance of the Securities; (e) the
fees and expenses of the Company's counsel and independent accountants; (f) the
fees and expenses of qualifying the Securities under the securities laws of the
several jurisdictions as provided in Section 4(h) and of preparing, printing and
distributing Blue Sky Memoranda (including related fees and expenses of counsel
for the Initial Purchaser); (g) any fees charged by rating agencies for rating
the Securities; (h) the fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties); (i) all
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on the PORTAL Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement which are not otherwise specifically provided for in this Section 11;
provided, however, that except as provided in this Section 11 and Section 7, the
Initial Purchaser shall pay its own costs and expenses.
<PAGE> 31
31
12. Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of Merger Corp., the Company and the
Initial Purchaser contained in this Agreement or made by or on behalf of the
Company or the Initial Purchaser pursuant to this Agreement or any certificate
delivered pursuant hereto shall survive the delivery of and payment for the
Securities and shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any of them or any of their respective affiliates, officers,
directors, employees, representatives, agents or controlling persons.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: Thomas W. Walker (telecopier no.: (212)
270-0994); or
(b) if to Merger Corp. or the Company, shall be delivered or sent by
mail or telecopy transmission to the address of the Company set forth in
the Offering Memorandum, Attention: Chief Executive Officer (telecopier
no.: (402)421-0507);
provided that any notice to the Initial Purchaser pursuant to Section 8(c) shall
also be delivered or sent by mail to such Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
14. Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
15. Initial Purchaser's Information. The parties hereto acknowledge
and agree that, for all purposes of this Agreement, the Initial Purchaser's
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchaser;
(ii) the legend on the inside front cover page concerning over-allotment and
trading activities by the Initial Purchaser; and (iii) the statements concerning
the Initial Purchaser contained in the first and second sentences of the third
paragraph, the second sentence of the ninth paragraph, the twelfth paragraph,
and the thirteenth paragraph under the heading "Plan of Distribution".
<PAGE> 32
32
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
<PAGE> 33
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to Merger Corp. a counterpart hereof,
whereupon this instrument will become a binding agreement among Merger Corp.
and, following the execution and delivery by the Company of this Agreement on
the Closing Date, the Company, on the one hand, and the Initial Purchaser, on
the other hand, in accordance with its terms.
Very truly yours,
NEBRASKA BOOK COMPANY, INC.
By: /s/ Douglas D. Wheat
----------------------------------
Name: Douglas D. Wheat
Title: Senior Vice President
NEBRASKA MERGER CORP.
By: /s/ Douglas D. Wheat
----------------------------------
Name: Douglas D. Wheat
Title: Senior Vice President
Accepted:
CHASE SECURITIES INC.
By: /s/ Jeffrey Blumin
------------------------
Authorized Signatory
Address for notices pursuant to Section 8(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
<PAGE> 1
Exhibit 10.5
FORM OF MEMORANDUM OF UNDERSTANDING
This MEMORANDUM OF UNDERSTANDING (this "Memorandum") dated as of
February 13, 1998, sets forth the mutual and binding understanding of [name of
executive] (the "Executive") and NBC Acquisition Corp. (the "Buyer") regarding
the material terms of employment of Executive by Nebraska Book Company, Inc.
(the "Company") following the Merger (as defined below).
The Buyer, NBC Merger Corp. ("Buyer's Sub") and the Company have
entered into an agreement (the "Merger Agreement") to merge Buyer's Sub into the
Company (the "Merger"). This Memorandum will only take effect upon the
consummation of the Merger. For good and fair value and consideration, the
parties agree as follows:
o POSITION:
Executive shall be employed as President and Chief Executive Officer of
the Company.
o TERM:
The term of Executive's employment hereunder (the "Term") shall be from
the date of the consummation of the Merger to March 31, 2001, unless
extended or earlier terminated in accordance with this Memorandum or
otherwise by agreement of the parties. The Term shall be automatically
extended for additional periods of one year each unless either party gives
at least 120 day prior written notice to the other of the intention to
terminate the Executive's employment hereunder at the end of the then
current Term.
o BASE SALARY:
Executive will be paid a base salary at the rate of $[ ](1) per annum.
Increases in base salary for Executive shall be determined by the Board of
Directors of the Company (the "Board") after due consideration of the
recommendation of the Chief Executive Officer of the Company (the "CEO").
Increases in base salary thereafter shall be determined annually in the
same manner.
- --------
(1) The executives' salaries are: Mark W. Oppegard - $187,000; Bruce E. Nevius
- $90,000; Larry R. Rempe - $105,000; Kenneth F. Jirovsky - $100,000;
William H. Allen - $100,000; Thomas A. Hoff - $80,000; and Ardean A. Arndt
- $73,500.
<PAGE> 2
2
o INCENTIVE BONUSES:
Executive shall be afforded the opportunity to earn an Incentive Bonus
with respect to each of fiscal years 1999, 2000 and 2001 based upon the
attainment of financial objectives established by the Board (or a
committee thereof), following consideration of the recommendation of the
CEO.
o STOCK OWNERSHIP:
Immediately prior to the Merger, Executive shall exchange shares of common
stock of the Company owned by Executive (the "Roll Over Shares") for
securities of the Buyer (the "Buyer Securities"). The Buyer Securities
received by Executive in such exchange shall consist of common stock and
shall be issued on the same terms and in the same proportions as are
applicable to the other investors in the Buyer.
o STOCK OPTIONS:
For each of fiscal years 1999, 2000 and 2001, Executive shall be granted
options to acquire a number of shares of common stock of the Buyer to be
determined by the Board, subject to the achievement by the Company of
annual performance targets to be established by the Board.
The options shall have an exercise price equal to the fair market value
per share as of the date of grant. Each option shall be exercisable as to
25% of the shares covered thereby on the date of grant and shall become
exercisable as to an additional 25% of the shares covered thereby on each
of the first three anniversaries of the date of grant of such option,
subject to Executive's continued employment with the Company on such
anniversary dates. Customary terms and conditions shall apply to such
options.
o TAG-ALONG AND DRAG-ALONG RIGHTS:
In the event of a sale of the majority of the common stock of the Buyer,
all shares of Buyer stock owned by Executive (including shares hereafter
acquired) shall be subject to tag-along and drag-along rights, entitling
and obligating Executive to sell his shares ratably with, and on the same
terms and conditions as, other selling shareholders.
o NON-TRANSFERABILITY OF STOCK:
Other than the sale described above, Executive shall not sell, transfer,
pledge or convey any Buyer stock or options other than (i) for estate
planning purposes, to a family trust or family partnership for the benefit
of immediate members of the Executive's family, (ii) upon Executive's
death, to his estate,
<PAGE> 3
3
(iii) upon Executive's disability or (iv) after an initial public offering
of Buyer common stock, subject in each case (except iv) to the tag-along
and drag-along provisions of the immediately preceding paragraph.
o TERMINATION OF EMPLOYMENT PRIOR TO THE EXPIRATION OF TERM:
-Termination by the Company without "cause": Executive entitled to (i)
continued payment of base salary for 12 months, (ii) payment of Incentive
Bonus when otherwise due in respect of year of termination, prorated
through date of termination, and (iii) continuation for 12 months of any
health, life insurance and disability insurance benefits provided to the
Executive immediately before such termination.
-Death/Disability: Executive entitled to (i) payment of base salary
through the date of termination plus an additional six (6) months, and
(ii) payment of Incentive Bonus when otherwise due in respect of year of
termination, prorated through date of termination.
-Executive voluntary resignation or termination by Company for "cause":
Executive entitled to payment of base salary through date of termination.
-Cause Defined: "Cause" shall mean the Executive willfully neglects his
duties hereunder, is convicted of any felony or gross misdemeanor (except
traffic related), is guilty of gross misconduct in connection with the
performance of his duties hereunder, or materially breaches affirmative or
negative covenants or undertakings hereunder (including under Appendix A).
o NON-COMPETITION AND CONFIDENTIALITY AGREEMENTS:
Executive agrees to be bound by the terms of the Non-competition and
Confidentiality Agreement attached as Appendix A, which is hereby
incorporated by reference.
o FRINGE BENEFITS AND EMPLOYEE BENEFITS:
Existing fringe benefit plans and entitlements will be continued.
o COUNTERPARTS AND ADDITIONAL DOCUMENTATION:
This Memorandum may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument, and the signature of any party to any
counterpart shall be deemed a signature to, and may be appended to, any
other counterpart. Upon the request of either of the parties hereto, this
<PAGE> 4
4
Memorandum shall be augmented with more extensive documentation, but the
opportunity to request such additional documentation shall not affect the
binding nature of this Memorandum.
NBC ACQUISITION CORP.
By
--------------------------
Its Chairman
Executive
----------------------------
<PAGE> 5
Appendix A
Non-Competition and Confidentiality Agreement
Capitalized terms used herein without definition shall have the respective
meanings specified in the Memorandum of Understanding dated as of February 13,
1998 between NBC Acquisition Corp. and [name of executive] (the "Memorandum of
Understanding").
I. Executive acknowledges that (i) the principal business of the Company
is the wholesale distribution of used college textbooks and the ownership (or
management) of college bookstores (the "Company Business"); (ii) he is one of
the limited number of persons who has developed such business; (iii) the
business of the Company is national and international in scope; (iv) his work
for the Company has brought him and will continue to bring him into close
contact with many confidential affairs not readily available to the public; and
(v) the Buyer is spending millions of dollars to acquire the Company and would
not purchase the Company but for the agreements and covenants of Executive
contained herein. Executive covenants and agrees that:
A. Non-Competition. During the term of Executive's employment by the
Company or any of its affiliates and for a period of three years following the
termination (whether for cause or otherwise) of Executive's employment with the
Company and all of its affiliates (the "Restricted Period"), Executive shall not
in the United States of America or in any foreign country, directly or
indirectly, (i) engage in the Company Business for his own account; (ii) enter
the employ of, or render any services to, any person engaged in such activities;
or (iii) become interested in any person engaged in the Company Business,
directly or indirectly, as an individual, partner, shareholder, officer,
director, principal, agent, employee, trustee, consultant or in any other
relationship or capacity; provided, however, that Executive may work for or own
a college bookstore, if the annual sales of the company that owns such bookstore
do not exceed $10,000,000, and that Executive may own, directly, or indirectly,
solely as an investment, securities of any person which are traded on any
national securities exchange if Executive (a) is not a controlling person of, or
a member of a group which controls, such person and (b) does not, directly or
indirectly, own 1% or more of any class of securities of such person.
B. Confidential Information. During the term of Executive's
employment by the Company or any of its affiliates and during the Restricted
Period, Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others except in connection with the
business and affairs of the Company, all confidential matters of the Company and
its affiliates, including, without limitation, trade "know-how," secrets,
consultant contracts, customer lists, subscription lists, details of 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,
<PAGE> 6
2
technical processes, designs and design projects, inventions and research
projects and other business affairs of the Company and its affiliates learned by
Executive heretofore or hereafter, and shall not disclose them to anyone outside
of the Company and its affiliates, either during or after employment by the
Company or any of its affiliates, except (i) as required in the course of
performing duties hereunder, (ii) with the Company's express written consent,
(iii) if such information is or becomes generally known by the public other than
as a result of a breach hereof or of a similar Non-Competition and
Confidentiality Agreement, or (iv) as required by law or judicial or
administrative process.
C. Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Executive or made
available to Executive concerning the business of the Company or any of its
affiliates shall be the Company's property and shall be delivered to the Company
promptly upon the termination of Executive's employment with the Company or any
of its affiliates or at any other time on request.
D. Employees of the Company. During the Restricted Period, Executive
shall not, directly or indirectly, hire, solicit or encourage to leave the
employment of the Company or any of its affiliates, any employee of the Company
or its affiliates or hire any such employee who has left the employment of the
Company or any of its affiliates within one year of the termination of such
employee's employment with the Company and all of its affiliates.
E. Consultants of the Company. During the Restricted Period,
Executive shall not, directly or indirectly, hire, solicit or encourage to cease
to work with the Company or any of its affiliates any consultant, who provides
consulting services material to the operation of the Company Business, then
under contract with the Company or any of its affiliates.
II. Rights and Remedies Upon Breach. If Executive breaches, or threatens
to commit a breach of, any of the provisions of Paragraph I (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
A. Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
B. Accounting. The right and remedy to require Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
<PAGE> 7
3
increments or other benefits (collectively, "Benefits") derived or received by
Executive as the result of any transactions constituting a breach of any of the
Restrictive Covenants, and Executive shall account for and pay over such
Benefits to the Company.
C. Discontinuance of Payment. The right and remedy to discontinue
the payment of any amounts owing under the Memorandum of Understanding.
III. Severability of Covenants. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
IV. Blue-Pencilling. If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the power to
reduce the duration or area of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
<PAGE> 1
Exhibit 10.6
NBC ACQUISITION CORP.
1995 STOCK INCENTIVE PLAN
As adopted August 31, 1995
<PAGE> 2
Table of Contents
Page
----
ARTICLE 1 GENERAL ...................................................1
1.1 Purpose....................................................1
1.2 Administration.............................................1
1.3 Persons Eligible for Awards................................2
1.4 Types of Awards Under the Plan.............................2
1.5 Shares Available for Awards................................2
1.6 Definitions of Certain Terms...............................3
1.7 Agreements Evidencing Awards...............................3
ARTICLE 2 STOCK OPTIONS..............................................4
2.1 Grant of Stock Options.....................................4
2.2 Exercisability of Options..................................4
2.3 Limitation on Exercise.....................................5
2.4 Payment of Option Price....................................5
2.5 Termination of Employment..................................7
2.6 Call and Put Options.......................................8
2.7 Special ISO Requirements..................................10
ARTICLE 3 MISCELLANEOUS.............................................10
3.1 Amendment of the Plan; Modification of Awards.............10
3.2 Restrictions..............................................11
3.3 Nontransferability........................................12
3.4 Withholding Taxes.........................................12
3.5 Adjustments Upon Changes in Capitalization................13
3.6 Right of Discharge Reserved...............................13
3.7 No Rights as a Stockholder................................13
3.8 Nature of Payments........................................14
3.9 Non-Uniform Determinations................................14
3.10 Other Payments or Awards..................................14
3.11 Reorganization............................................14
3.12 Section Headings..........................................15
3.13 Effective Date and Term of Plan...........................15
3.14 Governing Law.............................................16
APPENDIX A............................................................17
APPENDIX B............................................................18
i
<PAGE> 3
NBC ACQUISITION CORP.
1995 STOCK INCENTIVE PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of this NBC Acquisition Corp. 1995 Stock
Incentive Plan (the "Plan) is to provide for certain officers, directors and key
employees of NBC Acquisition Corp. (the "Company") and/or its subsidiary,
Nebraska Book Company ("Nebraska Book") an equity-based incentive to maintain
and enhance the performance and profitability of the Company.
1.2 Administration.
(a) The Plan shall be administered by the Compensation
Committee or such other committee (the "Committee") appointed by the Board of
Directors of the Company (the "Board"), which committee shall consist of two or
more directors, provided, that if any class of common equity securities of the
Company is required to be registered under section 12 of the Securities Exchange
Act of 1934 (the "Act"), each director appointed to the Committee shall be a
"disinterested person" within the meaning of Rule 16b-3 under the Act. The
members of the Committee shall be appointed by, and may be changed at any time
and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all
of the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Plan agreements executed pursuant to the Plan, (iii)
to prescribe, amend and rescind rules relating to the Plan, (iv) to make any
determination necessary or advisable in administering the Plan, and (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan.
(c) The determination of the Committee on all matters relating
to the Plan or any Plan agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein,
unless and until the Board shall appoint the members of the Committee, the Plan
shall be administered by the Board; and the Board may, in its sole discretion,
at any time and from time to time, resolve to administer the Plan. In either of
the foregoing events, the term "Committee" as used herein shall be deemed to
mean the
<PAGE> 4
2
Board. Notwithstanding the foregoing, a member of the Committee may not act with
respect to any award of options to such member.
1.3 Persons Eligible for Awards. Awards under the Plan may be made
to such officers, directors and executive, managerial, professional or other
employees ("key personnel") of the Company or Nebraska Book, as the Committee
shall from time to time in its sole discretion select; officers and directors
who are not employees of the Company or Nebraska Book also shall be eligible to
receive awards under the Plan.
1.4 Types of Awards Under the Plan.
(a) Awards may be made, under the Plan in the form of stock
options ("options"), as more fully set forth in Article II.
(b) Options granted under the Plan may be either (i)
"nonqualified" stock options subject to the provisions of section 83 of the
Internal Revenue Code of 1986, as amended (the "Code") or (ii) options intended
to qualify for incentive stock option treatment described in Code section 422.
(c) All options when granted are intended to be nonqualified
stock options, unless the applicable Plan agreement explicitly states that an
option is intended to be an incentive stock option. If an option is intended to
be an incentive stock option, and if for any reason such option (or portion
thereof) shall not qualify as an incentive stock option, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a
nonqualified stock option appropriately granted under the Plan provided that
such option (or portion) otherwise meets the Plan's requirements relating to
nonqualified stock options.
1.5 Shares Available for Awards.
(a) Subject to Section 3.5 (relating to adjustments upon
changes in capitalization), as of any date the total number of shares of Common
Stock with respect to which options may be granted under the Plan shall be equal
to the excess (if any) of (i) 200, 000 of shares of Common Stock, over (ii) the
sum of (A) the number of shares of Common Stock subject to outstanding options
granted under the Plan and (B) the number of shares previously issued pursuant
to the exercise of options granted under the Plan. In accordance with (and
without limitation upon) the preceding sentence, shares of Common Stock covered
by the Plan which expire, terminate, or are cancelled for any reason whatsoever
without grantee (or the grantee's beneficiary) having enjoyed any of the
benefits of stock ownership (other than voting rights or dividends that are
forfeited) shall again become available for awards under the Plan.
<PAGE> 5
3
(b) Shares of stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock.
(c) Without limiting the generality of the foregoing, the
Committee may cancel any award granted under the Plan and issue a new award in
substitution therefor upon such terms as the Committee may in its sole
discretion determine (provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made) without the
grantee's consent, where (unless the applicable Plan agreement (as defined in
Section 1.7(a)) otherwise provides) the substituted award confers upon the
grantee, until exercised, substantially the same economic benefit inherent in
the replaced award, and with the grantee's consent if otherwise or if such
substitution is deemed to be a modification (within the meaning of Code section
424(h)(3)) of such award.
1.6 Definitions of Certain Terms.
(a) The term "Common Stock" as used herein means the shares of
common stock, par value $.01 per share, of the Company as constituted on the
effective date of the Plan, and any other shares into which such common stock
shall thereafter be changed by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.
(b) Except as otherwise determined by the Committee in its
sole discretion, the "fair market value" as of any date and in respect of any
share of Common Stock shall be the mean between the high and low sales prices of
a share of Common Stock as reported on the New York Stock Exchange if shares of
Common Stock are then trading upon such exchange, or if not, then such average
on such other stock exchange or, if none, the NASDAQ National Market, on which
shares of the Common Stock are principally trading, on such date, if any, or if
none, then as otherwise determined by the Committee in its sole discretion. In
no event shall the fair market value of any share be less than its par value.
1.7 Agreements Evidencing Awards.
(a) Options granted under the Plan shall be evidenced by
written agreements. Any such written agreements shall (i) contain such
provisions not inconsistent with the terms of the Plan as the Committee may in
its sole discretion deem necessary or desirable and (ii) be referred to herein
as "Plan agreements."
(b) Each Plan agreement with respect to the granting of an
option shall set forth the number of shares of Common Stock subject to the
option granted thereby.
(c) Each Plan agreement with respect to the granting of an
option shall set forth the amount (the "option exercise price") payable by the
grantee
<PAGE> 6
4
to the Company in connection with the exercise of the option evidenced thereby.
Except as otherwise determined by the Committee with respect to nonqualified
stock options, the option exercise price per share shall not be less than the
fair market value of a share of Common Stock on the date the option is granted.
In the case of options intended to be incentive stock options, the option
exercise price per share shall not be less than the fair market value of a share
of Common Stock on the date the option is granted.
ARTICLE 2
STOCK OPTIONS
2.1 Grant of Stock Options. The Committee may grant options to
purchase shares of Common Stock in such amounts and subject to such terms and
conditions as the Committee shall from time to time in its sole discretion
determine, subject to the terms of the Plan.
2.2 Exercisability of Options. Subject to the other provisions of
this Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan
agreement shall set forth the period during which, and the conditions subject to
which, the option evidenced thereby shall be exercisable, as determined by the
Committee in its discretion.
(b) Default Provisions. Unless the applicable Plan agreement
otherwise specifies:
(i) the option exercise price per share shall be $10.00,
(ii) no option shall be exercisable prior to the first
anniversary of the date of grant,
(iii) each option granted under the Plan shall become
cumulatively exercisable with respect to 10% of the shares of Common Stock
subject thereto, rounded down to the next lower full share, on March 31,
1996 and with respect to 22.5% of the shares of Common Stock subject
thereto, rounded down to the next lower full share, on each of March 31,
1997, March 31, 1998, March 31, 1999 and March 31, 2000, provided that the
Company's cumulative EBITDA (as defined in Appendix A hereto) meets the
applicable "Target Amount" (as defined Appendix A) as of such March 31,
and that the grantee is employed by the Company on such March 31. If any
such increment which does not become vested on any such March 31 as a
result of the Target Amount for the period ended on such March 31 not
being
<PAGE> 7
5
met, such increment shall become vested on any such subsequent March 31
(through March 31, 2000) if the Target Amount for the period ended on such
subsequent March 31 is met during the period referred to in Appendix A
ending on such subsequent March 31, provided that the grantee is employed
by the Company on such subsequent March 31, and
(iv) subject to Section 2.5, each option shall, to the
extent it becomes exercisable, remain exercisable through the day prior to
the tenth anniversary of the date of grant, after which such option shall
terminate and cease to be exercisable.
(c) Partial Exercise Permitted. Unless the applicable Plan
agreement otherwise provides, an option granted under the Plan may be exercised
from time to time as to all or part of the shares as to which such option shall
then be exercisable.
(d) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion prescribe, and by
payment in accordance with Section 2.4.
(ii) Unless the applicable Plan agreement otherwise
provides or the Committee in its sole discretion otherwise determines, the
date of exercise of an option shall be the date the Company receives such
written notice of exercise.
(iii) For purposes of the Plan, the "option exercise
date," shall be deemed to be the sixth business day immediately following
the date written notice of exercise is received by the Company.
2.3 Limitation on Exercise. Notwithstanding any other provision of
the Plan, no Plan agreement shall permit an award to be exercisable more than
ten (10) years after the date of grant.
2.4 Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable
Plan agreement otherwise provides or the Committee in its sole discretion
otherwise determines, (i) any written notice of exercise of an option shall be
accompanied by payment of the full purchase price for the shares being
purchased, and (ii) the grantee shall have no right to receive shares of Common
Stock with respect to an option exercise prior to the option exercise date.
<PAGE> 8
6
(b) Manner of Payment. Payment of the option exercise price
shall be made in any combination of the following:
(i) by certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the Committee);
(ii) with the consent of the Committee in its sole
discretion, by personal check (subject to collection), which may in the
Committee's discretion be deemed conditional; and
(iii) if and to the extent provided in the applicable
Plan agreement and only if the Common Stock of the Company is traded on a
stock exchange, by delivery of previously acquired shares of Common Stock
owned by the grantee for at least six months (or such other period as the
Committee may prescribe) having a fair market value (determined as of the
option exercise date) equal to the portion of the option exercise price
being paid thereby, provided that the Committee may require the grantee to
furnish an opinion of counsel acceptable to the Committee to the effect
that such delivery would not result in the grantee incurring any liability
under section 16(b) of the Act and does not require any Consent (as
defined in Section 3.2.).
(c) Cashless Exercise. Payment in accordance with clause (i)
of Section 2.4(b) may be deemed to be satisfied, if and to the extent provided
in the applicable Plan agreement, (i) if the Common Stock of the Company is
traded on a stock exchange or admitted to trading on the NASDAQ National Market,
by delivery to the Company of an assignment of a sufficient amount of the
proceeds from the sale of Common Stock acquired upon exercise to pay for all of
the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, and (ii) if the Common Stock of the
Company is not traded on a stock exchange, by having the Company withhold a
sufficient number of shares of Common Stock otherwise issuable to the grantee
upon exercise of the option so that the value of such shares withheld will equal
the aggregate exercise price of the shares of Common Stock delivered to the
grantee and withheld by the Company. For purposes hereof, the value of the
shares of Common Stock delivered and withheld shall be determined in accordance
with the formula for determining the Purchase Price, as described in Appendix B
hereto. The Committee may require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such exercise would not result in
the grantee incurring any liability under section 16(b) of the Act and does not
require any Consent (as defined in Section 3.2).
<PAGE> 9
7
(d) Issuance of Shares. As soon as practicable after receipt
of full payment, the Company shall, subject to the provisions of Section 3.2,
deliver to the grantee one or more certificates for the shares of Common Stock
so purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5 Termination of Employment. Notwithstanding anything herein to
the contrary and unless the applicable Plan agreement otherwise provides:
(a) General Rule. All options granted to a grantee shall
terminate upon his termination of employment for any reason (including death)
except to the extent post-employment exercise of the vested portion of an option
is permitted in accordance with this Section 2.5. The "vested portion" of any
option shall mean the portion thereof which is vested immediately prior to the
grantee's termination of employment for any reason.
(b) Improper Activity; Quit. All options granted to a grantee
shall terminate and expire on the day the grantee's employment is terminated
following the occurrence of an event constituting cause or the grantee quits
employment (other than retirement in the normal course at retirement age (as
established by the Board of Directors)), whether or not he is a party to a
written employment contract. For purposes of this Section 2.5, the Company shall
only have "cause" to terminate the grantee's employment if (i) the grantee is
convicted of fraud, embezzlement or any other unlawful or tortious conduct,
whether or not it involves or is committed against the Company or Nebraska Book,
(ii) the grantee willfully engages in any act of misconduct that is materially
detrimental to the business or reputation of the Company or Nebraska Book;
provided, however, that if such misconduct does not involve illegal conduct and
has resulted in a detriment that is reasonably capable of being cured, the
Company shall give the grantee a reasonable period, not to exceed 48 hours, to
affect such cure or (iii) the grantee breaches or violates any of the covenants
set forth in Section 4 of his Salary Continuation Agreement.
(c) Regular Termination; Leaves of Absence. If the grantee's
employment terminates for reasons other than as provided in subsection (b) or
(d) of this Section 2.5, the portion of options granted to such grantee which
were vested and exercisable immediately prior to such termination of employment
may be exercised until the earlier of (a) 30 days after his termination of
employment or (b) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan agreement; provided, that the Committee may in its sole discretion
determine such other period for exercise in the case of an individual who
transfers his employment with the Company's consent to a purchaser of a business
disposed of by the Company. The Committee may in its discretion determine (i)
whether any leave of absence (including short-term
<PAGE> 10
8
or long-term disability or medical leave) shall constitute a termination of
employment for purposes of the Plan, and (ii) the impact, if any, of any such
leave on outstanding awards under the Plan.
(d) Death. If a grantee's employment terminates by reason of
death, or if a grantee's employment terminates in the manner described in
Section 2.5(c) and he dies within the period for exercise provided for therein,
the options vested and exercisable by him immediately prior to his death shall
be exercisable by the person to whom such options pass under the grantee's will
(or, if applicable, pursuant to the laws of descent and distribution) until the
earlier of (a) one year after the grantee's death or (b) the date on which such
options terminate or expire in accordance with the provisions of the Plan (other
than this Section 2.5) and the Plan agreement.
2.6 Call and Put Options. Unless the applicable Plan agreement
otherwise provides:
(a) Call Option. If a grantee shall no longer be employed by
the Company for any reason whatsoever, including, without limitation, by reason
of death, permanent disability, adjudicated incompetency or termination with or
without cause (each, a "termination" and the effective date of such termination
is hereinafter referred to as the "Termination Effective Date"), irrespective of
whether such grantee receives in connection with the termination any severance
or other payment from the Company, the Company, by written notice (the "Call
Notice") to such grantee or his estate, legal representative or committee, as
the case may be (the "Departing Employee"), given within sixty (60) days after
the later of (x) the Termination Effective Date, and (y) where applicable, the
expiration of the Post-Employment Exercise Period (as defined below), shall have
the right, but not the obligation, to purchase, and if the Company exercises
such right, the Departing Employee shall have the obligation to sell, such
number of shares of Common Stock specified in the Call Notice, which number may
be any or all of the shares of Common Stock held by the Departing Employee, at
an aggregate purchase price equal to the Purchase Price (as defined in Appendix
B attached hereto). The closing of the purchase of the Departing Employee's
shares shall occur in accordance with Section 2.6(d). The Post-Employment
Exercise Period shall mean the period following a grantee's termination of
employment during which he (or in the case of his death, the person to whom such
options pass in accordance with Section 2.5(d)) may exercise the vested portion
of an option granted hereunder in accordance with the provisions of Section
2.5(c) or (d).
(b) Put Option. In the event that, following the effective
date of a grantee's termination and the expiration of the grantee's
Post-Employment Exercise Period, if any, the Company does not timely exercise
its right under Section 2.6(a) to repurchase the shares of Common Stock held by
the Departing Employee and the Common Stock of the Company is not traded on a
stock exchange or admitted
<PAGE> 11
9
to trading on the NASDAQ National Market, then for a period of thirty (30) days
following the date on which the Company ceased to be entitled to purchase such
shares of Common Stock pursuant to Section 2.6(a) (or waived in writing its
right to do so), such Departing Employee shall have the right and option (the
"Put Option") to require the Company to purchase any or all of the shares of
Common Stock held by such Departing Employee by delivering written notice of
exercise (the "Put Exercise Notice") to the Company within ninety (90) days of
the date of termination of employment setting forth the number of such shares of
Common Stock subject to the Put Option; provided, however, that such Departing
Employee shall not have a Put Option if his employment is terminated for cause
(within the meaning of Section 2.5(b)) or he voluntarily quits employment (other
than retirement in the normal course at retirement age (as established by the
Board of Directors)). If the Departing Employee shall exercise the Put Option,
then the Company shall (subject to Section 2.6(c)) purchase and the Departing
Employee (and each Permitted Transferee of the Optionee as defined in Section
3.3) shall sell, such number of shares of Common Stock set forth in the Put
Exercise Notice held by such Departing Employee (and all shares of Common Stock
acquired by the Optionee under the Plan and transferred to each such Permitted
Transferee) at an aggregate purchase price equal to the Purchase Price. The
closing of the purchase of the Departing Employee's shares shall occur in
accordance with Section 2.6(d).
(c) Restrictions on Put and Call. Notwithstanding anything
herein to the contrary, if the Company exercises its Call Option or the grantee
exercises his Put Option and the Company is unable to repurchase the shares of
Common Stock set forth in the Call Notice or in the Put Exercise Notice for cash
(as a result of legal or contractual restrictions or otherwise), the Company
shall, at its option (i) pay the Purchase Price with a PIK Note or (ii) assign
its rights under this Section 2.6, on a pro rata basis, to the other holders of
the Common Stock. If the Company is not permitted to pay the Purchase Price with
a PIK Note and the other holders of the Common Stock do not wish to purchase the
shares set forth in the Call Notice or in the Put Exercise Notice, the Call
Notice or the Put Exercise Notice shall lapse and be deemed null and void and
the grantee will continue to own any such shares. For purposes hereof, a PIK
Note shall mean a promissory note of the Company which (i) is expressly
subordinated to all indebtedness for borrowed money of the Company and is on
terms satisfactory to all holders of such indebtedness, (ii) accrues interest,
compounded annually and payable at maturity, at a rate equal to 10% and (iii)
has a stated maturity date which is at least 90 days after the final maturity
date of the Company's 12% Senior Subordinated Notes.
(d) Closing. The closing of any purchase under this Section
2.6 shall, subject to Section 2.6(c), be held at the principal offices of the
Company at 11:00 a.m. local time on the 30th day after the date of the Call
Notice or Put Exercise Notice, as the case may be, or at such other time and
place as the Company and the Departing Employee agree upon. At such closing, the
Departing Employee (and each Permitted Transferee, if any) shall deliver or
cause the delivery
<PAGE> 12
10
of certificates representing the shares of Common Stock to be sold, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be free and clear of any liens, claims, options, charges,
encumbrances or rights of others arising through the action or inaction of the
Departing Employee, and the Departing Employee (and each such Permitted
Transferee) shall so represent and warrant, and further represent and warrant
that he or it is the beneficial owner of such shares. The Company shall deliver
at the closing payment in full, by certified or bank check for such shares.
2.7 Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an incentive stock option, grantee of such option must be, at all times
during the period beginning on the date of grant and ending on the day three
months before the date of exercise of such option, an employee of the Company or
any of the Company's parent or subsidiary corporations (within the meaning of
Code section 424), or of a corporation or a parent or subsidiary corporation of
such corporation issuing or assuming a stock option in a transaction to which
Code section 424(a) applies. No option intended to be an incentive stock option
shall be granted under the Plan unless the Plan is approved by the stockholders
of the Company, within 12 months before or after the date the Plan is adopted.
If an option granted under the Plan is intended to be an incentive stock option,
and if the grantee, at the time of grant, owns stock possessing 10 percent or
more of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (a) the
option exercise price per share shall in no event be less than 110 percent of
the fair market value of the Common Stock on the date of such grant and (b) such
option shall not be exercisable after the expiration of five years after the
date such option is granted. To the extent that the aggregate fair market value
of the Common Stock with respect to which incentive stock options are
exercisable for the first time by any grantee during any calendar year exceeds
$100,000, such options shall be treated as options which are not incentive stock
options.
ARTICLE 3
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder
approval, at any time and from time to time suspend, discontinue or amend the
Plan in any respect whatsoever, except that no such amendment shall impair any
rights under any award theretofore made under the Plan without the consent of
the grantee of such award. Furthermore, from and after the time the Plan is
initially approved by
<PAGE> 13
11
the stockholders, except as and to the extent otherwise permitted by Section 3.5
or 3.11, no such amendment shall, without stockholder approval:
(i) materially increase the benefits accruing to
grantees under the Plan;
(ii) increase, beyond the amounts set forth in Section
1.5, the total number of shares of Common Stock in respect of which
options may be issued under the Plan;
(iii) materially modify the designation in Section 1.3
of the class of persons eligible to receive awards under the Plan;
(iv) permit a stock option to be exercisable more than
10 years after the date of grant; or
(v) extend the term of the Plan beyond the period set
forth in Section 3.13.
(b) Award Modifications. With the consent of the grantee
(except with respect to the Committee's ability to substitute awards without the
consent of the grantee in accordance with Section 1.5(c)), and subject to the
terms and conditions of the Plan (including Section 3.1(a)), the Committee may
amend outstanding Plan agreements with such grantee, including, without
limitation, any amendment which would (i) accelerate the time or times at which
an award may vest or become exercisable and/or (ii) extend the scheduled
termination or expiration date of the award.
3.2 Restrictions.
(a) Consent Requirements. If the Committee shall at any time
determine that any Consent (as hereinafter defined) is necessary or desirable as
a condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Committee may make any payment in cash,
Common Stock or both, and (ii) the Committee determines that Consent is
necessary or desirable as a condition of, or in connection with, payment in any
one or more of such forms, then the Committee shall be entitled to determine not
to make any payment whatsoever until such Consent has been obtained.
<PAGE> 14
12
(b) Consent Defined. The term "Consent" as used herein with
respect to any Plan Action means (i) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or other
self-regulatory organization or under any federal, state or local law, rule or
regulation, (ii) the expiration, elimination or satisfaction of any
prohibitions, restrictions or limitations under any federal, state or local law,
rule or regulation or the rules of any securities exchange or other
self-regulatory organization, (iii) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (iv) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies or any parties to any loan agreements or other
contractual obligations of the Company.
3.3 Nontransferability. No award granted to any grantee under the
Plan or under any Plan agreement shall be assignable or transferable by the
grantee other than by will or by the laws of descent and distribution. During
the lifetime of the grantee, all rights with respect to any option granted to
the grantee under the Plan or under any Plan agreement shall be exercisable only
by him. Other than pursuant to Section 2.6 hereof, the grantee hereby covenants
and agrees that the grantee will not sell, assign, mortgage, pledge, encumber or
otherwise transfer any interest in the Shares of Common Stock acquired upon
exercise of any option without the prior written consent of the Company until
such time as the Call Option (as defined in Section 2.6(a)) shall have been
triggered and lapsed by non-exercise or any purchase pursuant thereto shall have
closed as contemplated under Section 2.6. Any purported sale, assignment,
mortgage, pledge, encumbrance or other transfer in violation of this Section 3.3
shall be null and void and of no force or effect.
3.4 Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be
delivered upon exercise of an option, the Company may require as a condition of
delivery that the grantee remit an amount sufficient to satisfy all federal,
state and other governmental withholding tax requirements related thereto.
Whenever cash is to be paid under the Plan, the Company may, as a condition of
its payment, deduct therefrom, or from any salary or other payments due to the
grantee, an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto or to the delivery of
any shares of Common Stock under the Plan.
<PAGE> 15
13
(b) Without limiting the generality of the foregoing, if and
to the extent provided in the applicable Plan agreement, (i) a grantee may elect
to satisfy all or part of the foregoing withholding requirements by delivery of
unrestricted shares of Common Stock owned by the grantee for at least six months
(or such other period as the committee may determine) having a fair market value
(determined as of the date of such delivery by the grantee) equal to all or part
of the amount to be so withheld, provided that the Committee may require, as a
condition of accepting any such delivery, that the grantee furnish an opinion of
counsel acceptable to the Committee to the effect that such delivery would not
result in the grantee incurring any liability under section 16b of the, Act; and
(ii) the Committee may permit any such delivery to be made by withholding shares
of Common Stock from the shares otherwise issuable pursuant to the award(s)
giving rise to the tax withholding obligation (in which event the date of
delivery shall be deemed the date the award(s) was exercised).
3.5 Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number or character of shares of Common Stock
which may be issued pursuant to awards under the Plan, the number of shares of
Common Stock subject to awards under the Plan, the option exercise price
theretofore granted under the Plan, and the amount payable by a grantee in
respect of an award (if any), may be appropriately adjusted (as the Committee
may determine) for any change in the number or character of issued shares of
common stock resulting from the subdivision or combination of shares of common
stock or other capital adjustments, or the payment of a stock dividend after the
effective date of this Plan, or other change in such shares of common stock
effected without receipt of consideration by the Company; provided, that any
awards covering fractional shares of common stock resulting from any such
adjustment shall be eliminated, and provided further, that each incentive stock
option granted under the Plan shall not be adjusted in a manner that causes such
option to fail to continue to qualify as an "incentive stock option" within the
meaning of Code section 422. Adjustments under this Section 3.5 shall be made by
the Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
3.6 Right of Discharge Reserved. Nothing in the Plan or in any Plan
agreement shall confer upon any person the right to continue in the employment
or service of the Company or affect any right which the Company may have to
terminate the employment or service of such person.
3.7 No Rights as a Stockholder. No grantee or other person shall
have any of the rights of a stockholder of the Company with respect to shares
subject to an option until the issuance of a stock certificate to him for such
shares. Except as otherwise provided in Section 3.5, no adjustment shall be made
for dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the record date is
prior to the date such stock
<PAGE> 16
14
certificate is issued. In the case of a grant of an award which has not yet
vested and/or become exercisable, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan agreement.
3.8 Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted,
issued or paid, as the case may be, in consideration of services performed for
the Company by the grantee.
(b) No such awards, issuances and payments shall, unless
otherwise determined by the Committee, be taken into account in computing the
amount of the grantee's salary or compensation for the purposes of determining
any pension, retirement, death or other benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Company or (ii) any
agreement between the Company and the grantee.
(c) By accepting an award under the Plan, the grantee shall
thereby waive any claim to continued exercise or vesting of an award or to
damages or severance entitlement related to non-continuation of the award beyond
the period provided herein or in the applicable Plan agreement.
3.9 Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan and (c) the
treatment of leaves of absence for purposes of Section 2.5(c).
3.10 Other Payments or Awards. Nothing contained in the Plan shall
be deemed in any way to limit or restrict the Company or the Committee from
making any award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
3.11 Reorganization.
(a) In the event that the Company is merged or consolidated
with another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of common stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a "change of control" (as defined in Section 3.11(c) below) after the date of
the adoption of this
<PAGE> 17
15
Plan, or in the event of a reorganization or liquidation of the Company (each
such event being hereinafter referred to as a "Reorganization Event") or in the
event that the Board shall propose that the Company enter into a Reorganization
Event, then the Committee may in its discretion take any or all of the following
actions:
(i) by written notice to each grantee, provide that his
options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the
date of such notice (without acceleration of the vesting and/or
exercisability of such awards); and/or
(ii) advance the dates upon which any or all outstanding
options shall be vested and/or exercisable.
(b) Whenever deemed appropriate by the Committee, any action
referred to in Section 3.11(a) may be made conditional upon the consummation of
the applicable Reorganization Event.
(c) For purposes of Section 3.11(a), the term "change of
control" means either (i) a person or "group" (within the meaning of section
13(d)(3) of the Act) acquiring or having beneficial ownership of securities
(including options, warrants, rights and convertible and exchangeable
securities) having a majority of the ordinary voting power of the capital stock
of the Company (assuming exercise or conversion solely of the securities held by
such person or group) or (ii) the election of a majority of the directors of the
Company who are not currently directors of the Company and are not designated or
approved by a majority of the Company's current directors or their designated or
approved successors. Notwithstanding the foregoing, the term "change of control"
shall not include an offering of any class of shares of common stock of the
Company registered under the Securities Act of 1933, as amended (or any
successor act).
3.12 Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.13 Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon
the approval thereof by the Board or on such other date as the Board shall
determine; provided that, notwithstanding any other provision of the Plan, if
any class of common equity securities of the Company is required to be
registered under section 12 of the Act, the Board shall, in its discretion, take
such action as it deems necessary to satisfy the requirement for shareholder
approval of Rule 16b-3 under the Act.
<PAGE> 18
16
(b) The Plan shall terminate 10 years after the earlier of the
date on which it becomes effective or the date on which it is approved by
shareholders, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to such
termination date shall remain in effect until such awards have been satisfied or
terminated in accordance with the terms and provisions of the Plan.
3.14 Governing Law. This Plan shall be governed by the laws of the
State of Nebraska applicable to agreements made and to be performed entirely
within such State.
<PAGE> 19
17
APPENDIX A
"Target Amount" shall equal the cumulative EBITDA performance goals
as set forth below:
<TABLE>
<CAPTION>
Cumulative EBITDA ($MM)
-----------------------
<S> <C>
12 months ended 3/31/96 19.0
24 months ended 3/31/97 39.5
36 months ended 3/31/98 62.0
48 months ended 3/31/99 86.0
60 months ended 3/31/2000 112.0
</TABLE>
For purposes hereof, EBITDA represents the Company's and Nebraska
Book's consolidated earnings before interest, taxes, depreciation and
amortization. The Committee may adjust EBITDA targets upward for subsequent
asset purchases and downward for asset sales, if any.
<PAGE> 20
18
APPENDIX B
"Purchase Price" means the purchase price equal to a number obtained
by the following formula:
(A-B) x C/D
where
A equals five and one-half (5.5) multiplied by EBITDA (as
defined in Appendix A attached hereto) for the latest twelve
months for which financial statements are available;
B equals the aggregate amount of consolidated Indebtedness (as
defined in the Securities Purchase Agreement entered into by
the Company as of August 30, 1995) of the Company and Nebraska
Book as of the date of the Put Notice or the Call Notice;
C equals the number of shares of Common Stock subject to the
Call Notice or Put Exercise Notice; and
D equals the number of shares of capital stock of the Company on
a fully-diluted basis (including the shares for which options
have been granted to the grantee);
provided, however, (a) in the event that the grantee's employment is terminated
for cause (within the meaning of Section 2.5(b)), the "Purchase Price" shall be
equal to the lower of (i) the amount determined by the foregoing formula and
(ii) $10.00 and (b) in the event the grantee voluntarily quits employment (other
than retirement in the normal course at retirement age (as established by the
Board of Directors)), the "Purchase Price" shall be equal to the lower of (i)
the amount determined by the foregoing formula and (ii) $10.00, plus interest
calculated at a rate of 10% per annum from the date that the shares subject to
the Call Notice or Put Exercise Notice were acquired by the grantee.
<PAGE> 1
Exhibit 10.7
FORM OF DEFERRED COMPENSATION AGREEMENT
This deferred compensation agreement is made and entered into [date
of agreement](1) and between Nebraska Book Company, Inc., a Kansas corporation,
and [name and address of executive].
W I T N E S S E T H
WHEREAS, [executive] is an employee of Nebraska Book Company, Inc.
and the parties wish to enter into an agreement providing for the deferment of a
portion of the annual compensation earned by [executive]; and
WHEREAS, the parties wish to reduce their agreement to a written
instrument, and
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby contract and agree as follows:
1. That Nebraska Book Company, Inc. shall reserve $[ ](2)
which would have been paid to [executive] as annual compensation with Nebraska
Book Company, Inc. beginning with the calendar year [year following year in
which agreement is signed]. All sums reserved shall be paid to [executive] on
the 1st day of January of the year following his resignation or other
termination, voluntary or involuntary, from Nebraska Book Company, Inc. or to
his heirs or assigns, upon his death, subject to the terms and conditions set
forth hereafter.
2. All sums reserved shall bear interest at the prime interest rate
at Boatmen's First National Bank of Kansas City, Missouri adjusted semi-annually
on January 1 and July 1, and interest computed under this Deferred Compensation
Agreement shall be compounded March 31, of each year.
3. Payments to [executive] upon his resignation or other
termination, voluntary or involuntary, or to his heirs or assigns upon his
death, of all sums reserved, plus interest, shall be paid in one annual
installment, plus accrued interest, on January 1 of the year following the date
of death, resignation or other termination, voluntary or involuntary.
- --------
(1) The agreement was entered into by Mark W. Oppegard on December 30, 1991;
by Bruce E. Nevius on December 23, 1991; by Larry R. Rempe on December 20,
1990 and by Thomas A. Hoff on December 18, 1992.
(2) The amount reserved by Mr. Oppegard is $5,000; by Mr. Nevius is $2,500; by
Mr. Rempe is $1,000 and by Mr. Hoff is $2,080.
<PAGE> 2
2
4. All decisions concerning the use or investment of all sums,
including interest, held by Nebraska Book Company, Inc. shall be made by the
Board of Directors of Nebraska Book Company, Inc. [executive] shall have no
control over said funds or interest in any manner whatsoever and shall totally
divest himself with reference to any and all control over said funds, including
interest, except as otherwise provided in this agreement.
5. Neither party shall have the right to amend this Deferred
Compensation Agreement; provided, however, that prior to January 1 of any year,
[executive] shall have the right to amend this agreement by increasing or
decreasing the amount reserved as of January 1 of such subsequent calendar year.
The decision to amend this agreement by increasing or decreasing such annual
compensation shall be in writing and be delivered to Nebraska Book Company, Inc.
prior to January 1 of the year for which such amendment shall be effective.
6. This agreement shall be irrevocable by either party and shall be
binding upon the heirs, administrators, executors, successors and assigns of all
parties hereto.
Executed the [date of agreement].
ATTEST: Nebraska Book Company, Inc.
by: by:
--------------------------- ---------------------------
Secretary Vice President
WITNESS:
by: by:
--------------------------- ---------------------------
[Executive]
<PAGE> 1
Exhibit 10.8
VANGUARD PROTOTYPE 401(k) SAVINGS PLAN
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
<PAGE> 2
VANGUARD PROTOTYPE 401(k) SAVINGS PLAN
TABLE OF CONTENTS
Page
----
ARTICLE 1 INTRODUCTION...............................................1
1.1 Introduction...............................................1
ARTICLE 2 DEFINITIONS................................................1
ARTICLE 3 PARTICIPATION IN THE PLAN..................................9
3.1 Eligibility to Participate.................................9
3.2 Commencement of Participation..............................9
3.3 Cessation of Participation.................................9
3.4 Year of Service for Eligibility Purposes..................10
3.5 Eligibility Computation Periods...........................10
3.6 Participation and Service upon Reemployment...............10
3.7 Transfers To or From Covered Status.......................11
ARTICLE 4 CONTRIBUTIONS.............................................11
4.1 Employee Pre-Tax Basic and Supplemental Contributions.....11
4.2 Salary Reduction Agreement................................12
4.3 Employee Pre-Tax Bonus Contributions......................14
4.4 Maximum Amount of Employee Pre-Tax Contributions..........14
4.5 Employee After-Tax Contributions..........................15
4.6 Employer Matching Contributions...........................16
4.7 Employer Nonelective Contributions........................16
4.8 Rollover Contributions....................................17
4.9 Manner of Making Contributions............................17
4.10 Transfer of Assets........................................17
ARTICLE 5 NONDISCRIMINATION REQUIREMENTS............................18
5.1 Definitions...............................................18
5.2 Average Actual Deferred Percentage Tests..................22
5.3 Special Rules.............................................23
5.4 Treatment of Qualified Matching Contributions and
Qualified Nonelective Contributions as Employee Pre-Tax
Contributions.............................................24
5.5 Correction of Excess Contributions........................24
5.6 Average Contribution Percentage Tests.....................26
5.7 Special Rules.............................................27
5.8 Treatment of Employee Pre-Tax Contributions and Qualified
Nonelective Contributions as Employer
Matching Contributions....................................28
5.9 Correction of Excess Aggregate Contributions..............28
i
<PAGE> 3
5.10 Multiple Use of Alternative Limitation....................31
5.11 Recordkeeping Requirements................................32
ARTICLE 6 ALLOCATIONS AND INVESTMENTS...............................33
6.1 Receipt of Contributions by Trustee.......................33
6.2 Establishment of Separate Accounts by Recordkeeper........33
6.3 Allocation of Employer Nonelective Contributions
under Integrated Plan.....................................34
6.4 Allocation of Forfeitures.................................36
6.5 Investment of Plan Assets.................................37
6.6 Allocation of Earnings and Losses.........................37
6.7 Insurance Contracts.......................................38
6.8 No Rights Created by Allocation...........................38
ARTICLE 7 VESTING...................................................38
7.1 Full Vesting in Employee Contributions and
Rollover Contributions....................................38
7.2 Vesting in Employer Contributions.........................38
7.3 Year of Service for Vesting Purposes......................39
7.4 Years of Service Upon Reemployment........................39
ARTICLE 8 DISTRIBUTION OF BENEFITS..................................40
8.1 Distribution Upon Separation from Service.................40
8.2 Distribution Upon Death...................................40
8.3 Optional Forms of Distribution; Participant Consent.......40
8.4 Distribution Upon Written Instructions; Valuation
of Distributions..........................................42
8.5 Forfeitures Upon Separation from Service..................43
8.6 Minimum Distribution Requirements.........................44
8.7 Joint and Survivor Annuity Requirement....................49
8.8 Preretirement Survivor Annuity Requirement................49
8.9 Notice and Explanation to Participants....................50
8.10 Waiver of Qualified Joint or Survivor Annuity
or Qualified Preretirement Survivor Annuity...............51
8.13 Former Spouse Under Qualified Domestic Relations Order....53
8.14 Purchase of Annuities; Nontransferability Provisions......53
8.15 Commencement of Benefits..................................53
8.16 Designation of Beneficiary................................53
8.17 Distributions Pursuant to Qualified Domestic
Relations Orders..........................................54
8.18 Direct Rollovers..........................................54
ARTICLE 9 WITHDRAWALS...............................................56
9.1 Withdrawals of Employee After-Tax Contributions...........56
9.2 Withdrawals of Rollover Contributions.....................56
9.3 Withdrawals on or After Age 59 1/2........................56
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<PAGE> 4
9.4 Hardship Withdrawals......................................56
9.5 Manner of Making Withdrawals..............................58
ARTICLE 10 LOANS.....................................................59
10.1 Amount of Loan............................................59
10.2 Security for Loan.........................................59
10.3 Interest Rate Charged.....................................59
10.4 Repayment of Loans........................................60
10.5 Default on Loan...........................................60
10.6 Set-off of Loan Upon Distributions........................60
10.7 Manner of Making Loans....................................61
10.8 Spousal Consent Required..................................61
10.9 Accounting for Loans......................................61
ARTICLE 11 LIMITATIONS ON CONTRIBUTIONS AND BENEFITS.................62
11.1 Definitions...............................................62
11.2 Employers Who Maintain No Other Qualified Plans...........66
11.3 Employers Who Maintain Other Qualified Master
or Prototype Defined Contribution Plans...................68
11.4 Employers Who Maintain A Qualified Defined
Contribution Plan Other Than A Master Or Prototype Plan...69
11.5 Employers Who Maintain A Qualified Defined Benefit Plan...69
ARTICLE 12 TOP-HEAVY PROVISIONS......................................70
12.1 Application...............................................70
12.2 Definitions...............................................70
12.3 Minimum Allocation........................................73
12.4 Minimum Vesting Schedules.................................74
ARTICLE 13 ADMINISTRATION............................................74
13.1 Duties and Responsibilities of Fiduciaries; Allocation
of Fiduciary Responsibility...............................74
13.2 Powers and Responsibilities of the Plan Administrator.....75
13.3 Allocation of Duties and Responsibilities.................76
13.4 Expenses..................................................77
13.5 Liabilities...............................................77
13.6 Claims Procedure..........................................77
ARTICLE 14 AMENDMENT, TERMINATION AND MERGER.........................78
14.1 Amendment of Plan.........................................78
14.2 Termination of Plan; Suspension of Contributions..........80
14.3 Successor Employer........................................80
14.4 Merger, Consolidation or Transfer.........................80
14.5 Distribution Upon Termination of Plan or Disposition
of Assets or Subsidiary...................................81
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ARTICLE 15 MISCELLANEOUS.............................................81
15.1 Exclusive Benefit of Participants and Beneficiaries.......81
15.2 Leased Employees..........................................82
15.3 Crediting Service With Predecessor Employer...............83
15.4 Special Requirements For Controlled Business
By Owner-Employees........................................83
15.5 Nonguarantee of Employment................................84
15.6 Right to Trust Assets.....................................84
15.7 Nonalienation of Benefits.................................84
15.8 Failure of Qualification..................................84
15.9 Applicable Law............................................84
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<PAGE> 6
Basic Plan Document 01
VANGUARD PROTOTYPE 401(k), SAVINGS PLAN
ARTICLE 1
INTRODUCTION
1.1 Introduction. This 401 (k) Savings Plan has been adopted by the
Employer for the exclusive benefit of eligible Employees and their
Beneficiaries. The Plan is to be maintained and administered according to the
terms and conditions of this instrument. The assets of the plan are held and
managed by the Trustee in accordance with the terms and conditions of the Trust
Agreement, which is considered to be an integral part of the Plan.
ARTICLE 2
DEFINITIONS
2.1 "Adoption Agreement" means the Adoption Agreement for the
Vanguard Prototype 401(k) Savings Plan as executed by the Employer for purposes
of adopting or amending the Plan. The provisions of the Adoption Agreement shall
be considered an integral part of the Plan as if set forth fully herein.
2.2 "Beneficiary" means a person or persons (natural or otherwise)
designated by a Participant in accordance with Article 8.16 to receive any
undistributed amounts credited to the Participant's separate accounts under the
Plan at the time of the Participant's death.
2.3 "Benefiting" means receiving an allocation under the Plan for a
Plan Year in accordance with IRS Regulation ss. 1.410(b)-3(a).
2.4 "Break in Service" means:
(a) for purposes of determining an Employee's eligibility to
participate in the Plan, an eligibility computation period (as determined under
Article 3.5) during which the Employee does not complete more than 500 Hours of
Service; and
(b) for all other purposes under the Plan, including the
determination of the Employee's vested percentage under Article 7.4, a Plan Year
during which an Employee does not complete more 500 Hours of Service.
<PAGE> 7
An Employee shall not be deemed to have incurred a Break in Service
during any leave of absence granted in writing by the Employer.
2.5 "Code" means the Internal Revenue Code of 1986, including any
amendments thereto.
2.6 "Compensation" means, for purposes of determining the amounts of
contributions to the Plan by or on behalf of any Participant for a Plan Year,
the total amount of Compensation (as that term is defined in Section 3 of the
Adoption Agreement) which is actually paid by the Employer to the Participant
while participating in the Plan during the Plan Year, adjusted as follows:
(a) the Compensation of each Participant for a Plan Year shall
include all Employee Pre-Tax Contributions made to the Plan on behalf of the
Participant for the Plan Year and all pre-tax elective contributions made to any
other plan by the Employer for the Plan Year pursuant to a salary reduction
agreement with the Participant which are not includible in the Participant's
gross income under Section 125, 402(e)(3), 402(h) or 403(b) of the Code,
provided that the Employer has elected to treat all such pre-tax elective
contributions as compensation with respect to all employees under all plans of
the Employer; and
(b) in no event shall the amount of Compensation of any Participant
taken into account for any Plan Year exceed the Annual Compensation Limit. For
these purposes, the Annual Compensation Limit for Plan Years beginning on or
after January 1, 1994, is $150,000, as adjusted by the Commissioner of Internal
Revenue for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for any
calendar year shall apply to any Plan Year beginning in such calendar year. For
Plan Years beginning on or after January 1, 1989, but before January 1, 1994,
the Annual Compensation Limit is $200,000, as adjusted by the Commissioner of
Internal Revenue at the same time and in the same manner as under Section 415(d)
of the Code, with the exception that the adjustment in effect on January 1 of
any calendar year is effective for any Plan Year beginning in such calendar year
and the first adjustment to the $200,000 rotation is effective on January 1,
1990. If a Plan Year consists of fewer than 12 months, the Annual Compensation
Limit for such Plan Year shall be multiplied by a fraction, the numerator of
which is the number of months in such Plan Year and the denominator of which is
12.
For purposes of the Annual Compensation Limit, the family
aggregation rules of Section 414(q)(6) of the Code shall apply, with the
exception that in applying such rules the term "family" shall include only the
spouse of the Participant and any lineal descendants of the Participant who have
not attained age 19 before the close of the Plan Year. If, as a result of the
application of such family aggregation rules, the Annual Compensation Limit is
exceeded, then the Annual Compensation Limit shall be prorated among the
affected individuals in proportion to
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<PAGE> 8
each such individual's Compensation as otherwise determined under this Article
2.2 prior to the application of the Annual Compensation Limit (with the
exception that such proration shall not apply for purposes of determining the
portion of Compensation up to the Integration Level designated by the Employer
in the Adoption Agreement if the Plan is an Integrated Plan). In the case of a
Self-Employed Individual who is treated as employed by the Employer under
Section 401(c) of the Code, Compensation shall include the individual's Earned
Income as defined in Article 2.8.
2.7 "Disability" means an inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which 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
permanence and degree of impairment shall be supported by medical evidence.
2.8 "Earned Income" means the net earnings derived by an Employee
from self-employment in the trade or business with respect to which the Plan is
established and for which the personal services of the Employee are a material
income-producing factor, determined without regard to any items not included in
the Employee's gross income and the deductions allocable to such items. Net
earnings shall be reduced by contributions by the Employer to a qualified plan
to the extent deductions are allowed to the Employee for such contributions
under Section 404 of the Code. Net Earnings shall be determined by taking into
account any deduction allowed to the taxpayer under Section 164(f) of the Code.
2.9 "Effective Date" means the date designated by the Employer in
the Adoption Agreement as the date on which the provisions of the Plan, as
originally adopted or as amended and restated by the Employer (whichever is
applicable) shall apply.
2.10 "Employee" means any individual who is employed (or treated as
employed under Section 401(c)(1) of the Code) by the Employer or by any other
employer required to be aggregated with the Employer under Section 414(b), (c),
(m) or (o) of the Code, and shall include any leased employee as described in
Article 15.2 who is deemed to be an employee of the Employer or of any employer
required to be aggregated with the Employer as provided under Section 414(n) or
(o) of the Code.
2.11 "Employee After-Tax Contribution" means an after-tax
contribution to the Plan by a Participant in accordance with Article 4.5 which
is includible in the Participant's gross income for federal income tax purposes
in the year of contribution.
2.12 "Employee After-Tax Contribution Account" means the separate
account established in the name of a Participant pursuant to Article 6.2(a)(ii)
to record
3
<PAGE> 9
the Employee After-Tax Contributions by the Participant and the earnings, losses
and expenses allocated thereto.
2.13 "Employee Pre-Tax Basic Contribution" means an Employee Pre-Tax
Contribution to the Plan on behalf of a Participant in accordance with Article
4.1(a).
2.14 "Employee Pre-Tax Bonus Contribution" means an Employee Pre-Tax
Contribution to the Plan on behalf of a Participant in accordance with Article
4.3.
2.15 "Employee Pre-Tax Contribution" means a pre-tax contribution to
the Plan by the Employer on behalf of a Participant in accordance with the
Participant's election under Article 4.1 or 4.3 to have the amount contributed
to the Plan rather than paid to the Participant as current-year Compensation.
2.16 "Employee Pre-Tax Contribution Account" means the separate
account established in the name of a Participant pursuant to Article 6.2(a)(i)
to record the Employee Pre-Tax Contributions on behalf of the Participant and
the earnings, losses and expenses allocated thereto.
2.17 "Employee Pre-Tax Supplemental Contribution" means an Employee
Pre-Tax Contribution to the Plan on behalf of a Participant in accordance with
Article 4.1(b).
2.18 "Employer" means the corporation, partnership or other employer
which has adopted the Plan by executing the Adoption Agreement.
2.19 "Employer Matching Contribution" means a contribution to the
Plan by the Employer on behalf of a Participant in accordance with Article 4.6
on account of the Employee Pre-Tax Contributions or Employee After-Tax
Contributions by the Participant to the Plan.
2.20 "Employer Matching Contribution Account" means the separate
account established in the name of a Participant pursuant to Article 6.2(a)(iii)
to record the Employer Matching Contributions on behalf of the Participant and
the earnings, losses, and expenses allocated thereto.
2.21 "Employer Nonelective Contribution" means a contribution to the
Plan by the Employer on behalf of a Participant for a Plan Year in accordance
with Article 4.7.
2.22 "Employer Nonelective Contribution Account" means the separate
account established in the name of a Participant pursuant to Article 6.2(a)(iv)
4
<PAGE> 10
to record the Employer Nonelective Contributions on behalf of the Participant
and the earnings, losses, and expenses allocated thereto.
2.23 "Entry Date" means the date designated by the Employer in the
Adoption Agreement on which an Employee who has otherwise satisfied the
participation requirements selected by the Employer in the Adoption Agreement
shall be eligible to commence participation in the Plan. If no event shall the
initial Entry Date for any Employee be later than the earlier of:
(a) the first day of the Plan Year coinciding with or next following
the date the Employee otherwise satisfies the participation requirements
selected by the Employer in the Adoption Agreement; or
(b) the date that is six months after the date the Employee
satisfies such participation requirements.
2.24 "Excess Elective Deferral" means the amount of a Participant's
pre-tax elective deferrals (as defined in Article 4.4(a)) for a taxable year
which are includible in the Participant's gross income for the taxable year for
the reason they exceed the dollar limitation in effect under Section 402(g) of
the Code.
2.25 "Forfeiture" means the portion of a Participant's Employer
Matching Contribution Account or Employer Nonelective Contribution Account which
is forfeited, in accordance with the provisions of Article 8.5, on account of
the Participant's termination of employment prior to full vesting under Article
7.2. Forfeitures shall also include any Employer Matching Contributions on
behalf of Highly Compensated Employees (as defined in Article 5.1(j)) which are
forfeited in accordance with the provisions of Article 4.6 and any Excess
Aggregate contributions on behalf of Highly Compensated Employees which are
forfeited in accordance with the provisions of Article 5.9(c).
2.26 "Hour of Service" means:
(a) Each hour for which the individual is paid or entitled to be
paid for the performance of duties for the Employer. Hours of Service under this
paragraph shall be credited to the individual for the computation period in
which the duties are performed.
(b) Each hour for which the individual is paid or entitled to be
paid by the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence; provided, however, that no more
than 501 Hours of Service shall be credited under this paragraph for any single
continuous period (whether or not such period occurs in a single computation
period) during which the individual performed
5
<PAGE> 11
no duties. Hours of Service under this paragraph shall be calculated and
credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations
which are incorporated herein by reference.
(c) Each hour for which back pay, irrespective of mitigation or
damages, is either awarded or agreed to by the Employer; provided, however, that
Hours of Service credited under paragraphs (a) or (b) above shall not be
re-credited by operation of this paragraph. Hours of Service under this
paragraph shall be credited to the individual for the computation period or
periods to which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
Hours of Service shall be credited to an Employee in a manner
consistent with the rules of (a), (b) and (c) above for employment with any
other employer required to be aggregated with the Employer in an affiliated
service group under Section 414(m) of the Code, a controlled group of
corporations under Section 414(b) of the Code, or a group of trades or
businesses under common control under Section 414(c) of the Code, or with any
other employer required to be aggregated with the Employer pursuant to Section
414(o) of the Code and the regulations thereunder. Hours of Service shall also
be credited to any leased employee as described in Article 15.2 who is deemed to
be an Employee for purposes of the Plan as required under Section 414(n) or (o)
of the Code and the regulations thereunder.
Solely for purposes of determining whether a Break in Service has
occurred for participation and vesting purposes, an individual who is absent
from work for maternity or paternity reasons shall receive credit for the Hours
of Service which would otherwise normally have been credited to such individual
but for such absence, or in any case in which such Hours of Service cannot be
determined, eight Hours of Service per day of such absence. For purposes of this
paragraph,.an absence from work for maternity or paternity reasons means an
absence: (i) by reason of the pregnancy of the individual; (ii) by reason of the
birth of a child of the individual; (iii) by reason of the placement of a child
with the individual in connection with the adoption of such child by such
individual; or (iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this paragraph shall be credited: (i) in the eligibility computation
period or Plan Year in which the absence begins if the crediting is necessary to
prevent a Break in Service in that period; or (ii) in all other cases, in the
following eligibility computation period or Plan Year.
In lieu of determining Hours of Service on the basis of the actual
hours for which an individual is paid or entitled to be paid under subsections
(a) through (c) above, the Employer may elect under the Adoption Agreement to
credit Hours of Service in accordance with an equivalency method prescribed by
regulations issued by the Department of Labor.
6
<PAGE> 12
2.27 "Integrated Plan" means the Plan the Employer has so selected
under Section 7 of the Adoption Agreement allowing either: (1) the Permitted
Disparity (Integration with Social Security) Contribution Formula for Employer
Nonelective Contributions; or (2) the Permitted Disparity (Integration with
Social Security) Allocation Formula for Employer Nonelective Contributions. The
Employer may not adopt this Plan as an Integrated Plan if the Employer maintains
any other integrated plan providing for permitted disparity which covers any of
the same Participants under this Plan.
2.28 "Normal Retirement Age" means the date a Participant attains
age 65, unless the Employer designates a different Normal Retirement Age in the
Adoption Agreement. If the Employer enforces a mandatory retirement age, the
Normal Retirement Age shall not exceed such mandatory retirement age.
2.29 "Owner-Employee" means: (1) if the Employer is a sole
proprietorship, the proprietor of the sole proprietorship; or (2) if the
Employer is a partnership, a partner who owns more than 10 percent of either the
capital interest or the profits interest of the partnership.
2.30 "Participant" means an Employee who is participating in the
Plan in accordance with the provisions of Article 3.
2.31 "Plan" means the Vanguard Prototype 401(k) Savings Plan as set
forth herein and as adopted by the Employer under the Adoption Agreement, as
each such document may be amended from time to time.
2.32 "Plan Administrator" means the individual(s) or committee
designated by the Employer in the Adoption Agreement or subsequent written
resolution furnished to the Trustee to be solely responsible for the
administration of the Plan, as more fully described in Article 13.2. If no such
designation is made, the Employer shall be deemed to be the Plan Administrator.
2.33 "Plan Year" means the 12 consecutive month period designated by
the Employer in the Adoption Agreement.
2.34 "Recordkeeper" means the individual(s) or firm selected by the
Employer to provide record-keeping and participant accounting services for the
Plan, including the maintenance of separate accounts for Participants in
accordance with the provisions of Article 6.
2.35 "Rollover Contribution Account" means the separate account
established in the name of a Participant pursuant to Article 6.2(a)(v) to record
any rollover contributions to the Plan by or on behalf of the Participant under
Article 4.8 and the earnings, losses and expenses allocated thereto.
7
<PAGE> 13
2.36 "Self-Employed Individual" means an individual who has Earned
Income for the taxable year from the trade or business with respect to which the
Plan is established or who would have had such Earned Income but for the fact
that the trade or business had no net profits for the taxable year.
2.37 "Sponsor" means Vanguard Fiduciary Trust Company, a trust
company incorporated under Pennsylvania banking laws. Vanguard Fiduciary Trust
Company is a wholly-owned subsidiary of The Vanguard Group, Inc., Vanguard
Financial Center, Valley Forge, Pennsylvania 19482.
2.38 "Straight Life Annuity" means an annuity payable in equal
installments for the life of the Participant that terminates upon the death of
the Participant.
2.39 "Trust" means the trust maintained by the Trustee to hold the
assets of the Plan in accordance with the terms and conditions of the Trust
Agreement.
2.40 "Trust Agreement" means the agreement between the Employer and
Trustee which governs the management and administration of the Trust. The
provisions of the Trust Agreement shall be considered an integral part of this
Plan as if set forth fully herein.
2.41 "Trustee" means the individual(s) or qualified corporate
fiduciary designated by the Employer in the Adoption Agreement to serve as
Trustee for the Plan and any successor thereto.
2.42 "Valuation Date" means any business day that the New York Stock
Exchange is open for trading.
2.43 "Vanguard Fund(s)" means one or more of the regulated
investment companies, collective investment funds or other investments offered
by The Vanguard Group, Inc. as funding vehicles for employee benefit plans. The
Employer shall have the authority to designate the Vanguard Funds available for
investment under the Plan in accordance with the provisions of the Trust
Agreement.
2.44 "Year of Service" means a 12-consecutive month period during
which an Employee completes at least 1,000 Hours of Service as determined under
Article 3.4 for purposes of determining the Employee's eligibility to
participate in the Plan and Article 7.3 for purposes of determining the
Employee's vested percentage under the Plan.
ARTICLE 3
8
<PAGE> 14
PARTICIPATION IN THE PLAN
3.1 Eligibility to Participate. An Employee shall be eligible to
participate in the Plan when the Employee satisfies the participation
requirements designated by the Employer in Section 2 of the Adoption Agreement.
3.2 Commencement of Participation.
(a) An Employee who satisfies the participation requirements
designated by the Employer in Section 2 of the Adoption Agreement as of the
Effective Date of the Plan shall become a Participant on the Effective Date.
(b) An Employee who satisfies the participation requirements
designated by the Employer in Section 2 of the Adoption Agreement after the
Effective Date of the Plan shall become a Participant on the next Entry Date.
3.3 Cessation of Participation. An Employee shall cease to
participate in the Plan on the date on which the Employee's employment with the
Employer terminates for any reason or the Employee no longer satisfies the
participation requirements designated by the Employer in Section 2 of the
Adoption Agreement.
3.4 Year of Service for Eligibility Purposes.
(a) General Rule. For purposes of determining the eligibility
of an Employee to participate in the Plan, the Employee shall be credited with
one Year of Service for each eligibility computation period (as determined under
Article 3.5) during which the Employee completes 1,000 or more Hours of Service.
All Years of Service by an Employee (including Years of Service completed prior
to the Effective Date of the Plan) shall be counted for purposes of determining
the Employee's eligibility to participate in the Plan, except as specifically
provided otherwise in Article 3.6(b).
(b) Service With Predecessor Employer. If so designated by the
Employer in the Adoption Agreement, an Employee's Years of Service for
eligibility purposes shall include all years of service (determined in a manner
consistent with subsection (a) above) with any predecessor employer of the
Employer; provided, however, that if the Employer is maintaining the Plan as the
plan of a predecessor employer, an Employee's Years of Service shall
automatically include years of service with such predecessor employer without
regard to any designation in the Adoption Agreement.
3.5 Eligibility Computation Periods. For purposes of determining the
eligibility of an Employee to participate in the Plan, the Employee's initial
9
<PAGE> 15
eligibility computation period which Employee to participate in the Plan, the
Employee's initial shall be used to measure the Employee's Years of Service and
Breaks in Service shall be the 12-consecutive month period beginning on the date
the Employee first performs an Hour of Service for the Employer (the Employee's
"employment commencement date"). The Employee's subsequent eligibility
computation periods shall be the 12-consecutive month periods beginning on each
anniversary of the Employee's employment commencement date.
3.6 Participation and Service upon Reemployment.
(a) Participation. A Participant who terminates employment
with the Employer shall be eligible to resume participation in the Plan
immediately upon reemployment by the Employer (provided that, upon reemployment,
the former Participant satisfies the participation requirements designated by
the Employer in Section 2 of the Adoption Agreement).
(b) Years of Service. An Employee who terminates employment
with the Employer prior to becoming a Participant in the Plan shall have all
Years of Service which the Employee completed for eligibility purposes
automatically reinstated upon reemployment by the Employer, unless the Employee
incurs a Break in Service, in which case the Employee's prior Years of Service
shall be reinstated only if the number of the Employee's consecutive one-year
Breaks in Service is less than the greater of five or the aggregate number of
the Employee's Years of Service prior to the Break in Service. For these
purposes, the Employee's aggregate number of Years of Service prior to the
period of consecutive one-year Breaks in Service shall exclude any Years of
Service which were not reinstated under this Article 3.6(b) by reason of any
prior period of consecutive one-year Breaks in Service. If an Employee's Years
of Service are disregarded pursuant to this Article 3.6(b), the Employee shall
be treated as a new Employee for eligibility purposes upon reemployment by the
Employer.
3.7 Transfers To or From Covered Status.
(a) In the event a Participant ceases participation in the
Plan because he or she is no longer a member of the category of Employees who
are eligible to participate in the Plan as designated by the Employer in Section
2 of the Adoption Agreement, the former Participant shall be eligible to resume
participation in the Plan immediately upon his or her return to such category of
eligible Employees.
(b) Any Employee who is not a member of the category of
Employees who are eligible to participate in the Plan (as designated by the
Employer in Section 2 of the Adoption Agreement) shall be eligible to
immediately commence participation in the Plan if the Employee becomes such a
member and has otherwise
10
<PAGE> 16
satisfied the participation requirements designated by the Employer in the
Adoption Agreement.
ARTICLE 4
CONTRIBUTIONS
4.1 Employee Pre-Tax Basic and Supplemental Contributions.
(a) Employee Pre-Tax Basic Contributions. A Participant may
elect under a salary reduction agreement as described in Article 4.2 to have the
Employer make Employee Pre-Tax Basic Contributions to the Plan on the
Participant's behalf in an amount not to exceed the maximum amount permitted
under the Adoption Agreement, subject to the limitations of Article 4.4 and
Article 11.
(b) Employee Pre-Tax Supplemental Contributions. If so
designated by the Employer in the Adoption Agreement, a Participant who has
elected to have the Employer make Employee Pre-Tax Basic Contributions to the
Plan in the maximum amount permitted under the Adoption Agreement may also elect
under the Participant's salary reduction agreement to have the Employer make
Employee Pre-Tax Supplemental Contributions to the Plan on the Participant's
behalf, subject to the limitations of Article 4.4 and Article 11.
4.2 Salary Reduction Agreement.
(a) Nature of Agreement. The salary reduction agreement
referred to in Article 4.1 shall be on a form prescribed by the Plan
Administrator whereby the Participant agrees to reduce his or her Compensation
by specified amounts for purposes of having the Employer contribute the reduced
Compensation amount to the Plan as Employee Pre-Tax Contributions on behalf of
the Participant under Article 4.1.
(b) Commencement of Agreement. Every Employee who is eligible
to participate in the Plan under Article 3.1 shall be afforded a reasonable
opportunity by the Plan Administrator to enter into a salary reduction agreement
and to elect to have Employee Pre-Tax Contributions made to the Plan on his or
her behalf under Article 4.1. A Participant's salary reduction agreement shall
be effective as soon as practicable following the date the agreement is received
in executed form by the Plan Administrator, provided such effective date shall
be no earlier than the date the participant would otherwise commence
participation in the plan under Article 3.2. Under no circumstances shall a
Participant's salary reduction agreement be adopted retroactively. A
Participant's salary reduction agreement shall remain in
11
<PAGE> 17
effect until amended or terminated by the participant in accordance with (f) or
(g) below.
(c) Timing of Reduction and Contribution. The reduction in a
Participant's Compensation which is used for purposes of funding the
Participant's Employee Pre-Tax Contributions under Article 4.1 shall be done on
a monthly, semimonthly, biweekly, weekly or other periodic basis in accordance
with the Participant's regular payroll period and, if applicable under (h)
below, at the time any bonus is payable to the Participant. The Employee Pre-Tax
Contributions on behalf of a Participant for a payroll period shall be
contributed to the Trust as of the earliest date on which such amounts Can
reasonably be segregated from the Employer's general assets, and in no, event
later than 90 days following the date on which such amounts would otherwise have
been payable to the Participant as Compensation.
(d) Cut-Back in Employee Pre-Tax Contributions. If the Plan
Administrator reasonably determines that all or any part of the Participant's
reduced Compensation amount for any Plan Year may not be contributed to the Plan
as Employee Pre-Tax Contributions under Article 4.1 without causing the Plan to
fail the nondiscrimination requirements of Article 5 or the contribution
limitations of Article 11, the Employer shall not be required to make such
contributions to the Plan and shall instead pay such reduced Compensation amount
directly to the Participant.
(e) Amendment of Agreement. A Participant shall be permitted
to amend his or her salary reduction agreement at any time with respect to
Compensation not yet received to provide a new amount which will be used to
determine the Employee Pre-Tax Contributions to the Plan on the Participant's
behalf under Article 4. 1. A Participant's amended salary reduction agreement
shall be effective as soon as practicable following the date the amended
agreement is received in executed form by the Plan Administrator. The Plan
Administrator may prescribe uniform and nondiscriminatory rules limiting the
number of times a Participant may amend his or her salary reduction agreement
during a Plan Year, provided that Participants are afforded a reasonable
opportunity at least once each Plan Year to amend their salary reduction
agreements.
(f) Termination of Agreement. A Participant may terminate his
or her reduction agreement at any time with respect to Compensation not yet
received by delivering written notice of termination to the Plan Administrator.
Any Participant who terminates his or her salary reduction agreement may be
permitted, in accordance with uniform and nondiscriminatory rules prescribed by
the Plan Administrator, to execute a new salary reduction agreement and resume
having Employee Pre-Tax Contributions made to the Plan on his or her behalf
under Article 4.1.
(g) Transfer to or from Non-Covered Employment. A
Participant's salary reduction agreement shall automatically terminate if the
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<PAGE> 18
Participant is no longer a member of the category of Employees who are eligible
to participate in the Plan as designated by the Employer in Section 2 of the
Adoption Agreement. If such a Participant subsequently returns to the category
of eligible Employees, the Participant shall be permitted to execute a new
salary reduction agreement and resume having Employee Pre-Tax Contributions made
to the Plan on his or her behalf under Article 4.1.
(h) Coordination with Employee Pre-Tax Bonus Contributions. If
the Employer has elected under the Adoption Agreement to allow Participants to
make Employee Pre-Tax Bonus Contributions, any designated bonus payable to a
Participant shall be eligible for reduction as Employee Pre-Tax Bonus
Contributions under Article 4.3 (and not as Employee Pre-Tax Basic or
Supplemental Contributions under Article 4.1).
4.3 Employee Pre-Tax Bonus Contributions.
(a) Bonus Reduction Agreement. If so designated by the
Employer in the Adoption Agreement, a Participant may elect to have the Employer
make Employee Pre-Tax Bonus Contributions to the Plan on the Participant's
behalf by executing a bonus reduction agreement. Such agreement shall be on a
form prescribed by the Plan Administrator whereby the Participant agrees to
reduce the amount of any designated bonus payable to the Participant by the
Employer by an amount specified by the Participant (not to exceed the maximum
amount permitted under the Adoption Agreement) for purposes of having the
Employer contribute the bonus reduction amount to the Plan as an Employee
Pre-Tax Bonus Contribution on behalf of the Participant, subject to the
limitations of Article 4.4 and Article 11.
(b) Timing of Contribution. Any Employee Pre-Tax Bonus
Contribution on behalf of a Participant shall be contributed to the Trust by the
Employer as of the earliest date on which such amount can reasonably be
segregated from the Employer's general assets, and in no event later than 90
days following the date on which such amount would otherwise have been payable
to the Participant as Compensation.
4.4 Maximum Amount of Employee Pre-Tax Contributions.
(a) Limitation on Employee Pre-Tax Contributions. No
Participant shall be permitted to have aggregate elective deferrals made to this
Plan or any other qualified plans maintained by the Employer during any taxable
year in excess of the dollar limitation of Section 402(g) of the code in effect
at the beginning of such taxable year. For these purposes, a Participant's
"elective deferrals" include: (i) the Participant's Employee Pre-Tax
Contributions to this Plan (excluding any Employee Pre-Tax Contributions
returned to the Participant as an Excess Amount under Article 11); (ii) Employer
contributions made on behalf of the Participant Pursuant to an election to defer
under any other plan with a qualified cash or deferred
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<PAGE> 19
arrangement under Section 401(k) of the Code, any simplified employee pension as
described in Section 402(h)(1)(B) of the Code, any eligible deferred
compensation plan as described in Section 457 of the Code, or any plan as
described in Section 501(c)(18) of the Code; and (iii) Employer contributions
made on behalf of the Participant pursuant to a salary reduction agreement to
purchase an annuity contract under Section 403(b) of the Code.
(b) Allocation of Excess Elective Deferrals. If a Participant
has made Excess Elective Deferrals for any taxable year, the Participant may
assign to this Plan any portion of such Excess Elective Deferrals by notifying
the Plan Administrator in writing no later than the first March let following
the close of the taxable year. Such written notification shall certify that the
Participant has made Excess Elective Deferrals for the taxable year, and shall
specify the amount of such Excess Elective Deferrals to be allocated to this
Plan for the taxable year. A Participant shall be deemed to have notified the
Plan Administrator of the existence of any Excess Elective Deferrals which arise
by taking into account only those elective deferrals on behalf of the
Participant to this Plan and any other plans maintained by the Employer, and to
have assigned those Excess Elective Deferrals to such plans maintained by the
Employer.
(c) Distribution of Excess Elective Deferrals. Notwithstanding
any provision of the Plan to the contrary, if a Participant has assigned Excess
Elective Deferrals to this Plan for a taxable year, the amount of such Excess
Elective Deferrals, plus any income or minus any loss allocable thereto, shall
be distributed to the Participant from the Participant's Employee Pre-Tax
Contribution Account no later than the first April 15th following the close of
the taxable year.
(d) Income or Loss Allocable to Excess Elective Deferrals. The
income or loss allocable to the amount of Excess Elective Deferrals referred to
in subsection (c) above shall include all allocable income or loss for the
taxable year of the Excess Elective Deferral and shall be calculated using any
reasonable method for computing income or loss, provided such method is used
consistently for all Participants and for all corrective distributions under the
Plan for the relevant year, and is used by the Plan for allocating income or
loss to Participants' Employee Pre-Tax Contribution Accounts.
(e) Alternative Method for Calculating Income or Loss
Allocable to Excess Elective Deferrals. Notwithstanding (d) above, the Plan may
elect to calculate the income or loss allocable to the amount of Excess Elective
Deferrals referred to in subsection (c) above by multiplying the total
investment income or loss (including dividends, interest, realized gains or
losses, and unrealized appreciation or depreciation) allocated to the
Participant's Employee Pre-Tax Contribution Account for the taxable year of the
Excess Elective Deferrals by a fraction, the numerator of which is the Excess
Elective Deferral amount to be distributed to the Participant by the Plan for
the taxable year, and the denominator of
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<PAGE> 20
which is the total account balance attributable to the Participant's Employee
Pre-Tax Contributions as of the end of the taxable year, reduced by the
investment gain or increased by the investment loss allocated to such total
amount for the taxable year.
4.5 Employee After-Tax Contributions. If so designated by the
Employer in the Adoption Agreement, a Participant shall be permitted to make
Employee After-Tax Contributions to the Plan in an amount not to exceed the
maximum amount permitted under the Adoption Agreement, subject to the
limitations of Article 11. All Employee After-Tax Contributions for a Plan Year
shall be made to the Trust no later than the last day of the Plan Year.
4.6 Employer Matching Contributions. If so designated by the
Employer in the Adoption Agreement, the Employer shall make Employer Matching
Contributions to the Plan for each Plan Year in an amount determined under the
provisions of the Adoption Agreement, subject to the limitations of Article 11.
All Employer Matching Contributions for any Plan Year shall be made to the Trust
no later than the end of the 12-month period immediately following the close of
the Plan Year. Notwithstanding the preceding, if any Employer Matching
Contribution on behalf of any Highly Compensated Employee (as defined in Article
5.1(j)) relates to an Excess Elective Deferral, Excess Contribution (as defined
in Article 5.1(g)) or an Excess Aggregate Contribution (as defined in Article 5.
1(h)) which is distributed to the Highly Compensated Employee, such Employer
Matching Contribution shall be forfeited no later than the end of the 12-month
period immediately following the close of the Plan Year.
4.7 Employer Nonelective Contributions.
(a) If so designated by the Employer in the Adoption
Agreement, the Employer shall make Employer Nonelective Contributions to the
Plan for each Plan Year in an amount determined under the provisions of the
Adoption Agreement, subject to the limitations of Article 11. All Employer
Nonelective Contributions for any Plan Year shall be made to the Trust no later
than the end of the 12-month period immediately following the close of the Plan
Year.
(b) For any Plan Year in which the Plan does not satisfy one
of the Average Actual Deferral Percentage tests of Article 5.2 or one of the
Average Contribution Percentage tests of Article 5.6, the Employer shall be
permitted, in its sole discretion by resolution duly adopted on or before the
last day of the following Plan Year, to make Employer Nonelective Contributions
which qualify as Qualified Nonelective Contributions (as defined in Article
5.1(m)) to the Plan on behalf of Eligible Employees who are Non-Highly
Compensated Employees (as defined in Article 5.1(k)) for the Plan Year in an
amount sufficient to enable the Plan to satisfy one of the Average Actual
Deferral Percentage tests or one of the Average Contribution Percentage Tests
for the Plan Year. Any such Qualified Nonelective Contributions for a Plan Year
shall be allocated to the Employer Nonelective
15
<PAGE> 21
Contribution Accounts of Non-Highly Compensated Employees in the proportion that
each such Employee's Compensation for the Plan Year bears to the total
Compensation of all such Employees for the Plan Year. All Qualified Nonelective
Contributions for a Plan Year shall be made to the Trust no later than the end
of the 12-month period immediately following the close of the Plan Year.
4.8 Rollover Contributions.
(a) An Employee who has participated in any other qualified
plan described in Section 401(a) of the Code or in a qualified annuity plan
described in Section 403(a) of the Code shall be permitted, subject to the
approval of the Plan Administrator, to make a rollover contribution to the Plan
of an amount received by the Employee which is attributable to participation in
such other plan (reduced by any employee after-tax contributions made to the
plan), provided that the rollover contribution complies with all applicable
requirements of the Code and the regulations and rulings thereunder.
(b) Any Employee who is permitted to make a rollover
contribution to the Plan, but who has not otherwise commenced participation in
the Plan under Article 3.2, shall be considered a Participant for all purposes
under the Plan except Articles 4.1, 4.3, 4.5, 4.6 and 4.7.
(c) The Sponsor, Trustee and Recordkeeper shall not be liable
for any adverse consequences which may result to any Employee, the Employer, the
Plan or the Trust should any rollover contribution pursuant to this Article 4.8
which is duly authorized by the Plan Administrator be determined not to
constitute a proper rollover contribution under the Code, and the Employer
specifically agrees to hold the Sponsor, Trustee and Recordkeeper harmless from
any and all such liability.
4.9 Manner of Making Contributions. All contributions to the Trust
shall be paid directly to the Trustee. Contributions may be made by check, bank
wire or money order. The Plan Administrator shall furnish the Recordkeeper with
allocation instructions with respect to each contribution which: (i) identify
each Participant on whose behalf the contribution is being made and the amount
thereof; (ii) identify whether the amount contributed on behalf of the
Participant represents an Employee Pre-Tax Contribution, Employee After-Tax
Contribution, Employer Matching Contribution, Employer Nonelective Contribution,
or rollover contribution; and (iii) direct the investment of the amount
contributed on behalf of the Participant in accordance with the provisions of
Article 6.5.
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<PAGE> 22
4.10 Transfer of Assets.
(a) If so authorized by the Plan Administrator, the Trustee
may accept a transfer of assets from the trustee of any other qualified plan
described in Section 401(a) of the Code or from a qualified annuity plan
described in Section 403(a) of the Code on behalf of any one or more Employees
to the extent permitted by the Code and the regulations and rulings thereunder.
(b) In the event assets are transferred to this Plan on behalf
of any Employee in accordance with (a) above, the transferred assets shall be
accounted for separately under Article 6.2, and any optional forms of benefit
available to the Employee under the transferor plan shall be preserved with
respect to the transferred assets of the Employee under this Plan to the extent
required by the Code and the regulations and rulings thereunder.
(c) The Sponsor, Trustee and Recordkeeper shall not be liable
for any adverse consequences which may result to any Employee, the Employer, the
Plan or the Trust should any transfer of assets that is duly authorized by the
Plan Administrator pursuant to this Article 4.10 be determined not to constitute
a proper transfer under the Code, and the Employer specifically agrees to hold
the Sponsor, Trustee and Recordkeeper harmless from any and all such liability.
ARTICLE 5
NONDISCRIMINATION REQUIREMENTS
5.1 Definitions. For purposes of this Article 5, the following terms
shall be defined as follows:
(a) "Actual Deferral Percentage" means the ratio, expressed as
a percentage calculated to the nearest one-hundredth of one percent, of the
amount of Employee Pre-Tax Contributions on behalf of an Eligible Employee for a
Plan Year to the Employee's Compensation for the Plan Year, whether or not the
Employee was a Participant in the Plan for the entire Plan Year. For these
purposes, an Eligible Employee's Employee Pre-Tax Contributions shall include
any Qualified Nonelective Contributions and Qualified Matching Contributions on
behalf of the Eligible Employee for the Plan Year which the Employer elects to
treat as Employee Pre-Tax Contributions under Article 5.4, but shall not include
any Employee Pre-Tax Contributions on behalf of the Eligible Employee for the
Plan Year which the Employer elects to treat as Employer Matching Contributions
under Article 5.8. A Highly Compensated Employee's Employee Pre-Tax
Contributions shall include any Excess Elective Deferrals on behalf of the
Highly Compensated Employee for the Plan Year. Any Eligible Employee who does
not elect to make Employee Pre-Tax
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<PAGE> 23
Contributions and who does not receive any allocation of Qualified Nonelective
Contributions or Qualified Matching Contributions which are as Employee Pre-Tax
Contributions for a Plan Year shall have a zero Actual Deferral Percentage for
the Plan Year. An Eligible Employee's Actual Deferral Percentage for a Plan Year
shall be calculated by disregarding any Employee Pre-Tax Contributions on behalf
of the Eligible Employee for the Plan Year which are properly returned to the
Eligible Employee as an Excess Amount under Article 11.
(b) "Average Actual Deferral Percentage" means, for the group
of Eligible Employees who are Highly Compensated Employees for a Plan Year or
the group of Eligible Employees who are Non-Highly Compensated Employees for the
Plan Year, the average of the Actual deferral Percentages of all Eligible
Employees in such group for the Plan Year.
(c) "Average Contribution Percentage" means, for the group of
Eligible Employees who are Highly Compensated Employees for a Plan Year or the
group of Eligible Employees who are Non-Highly Compensated Employees for the
Plan Year, the average of the Contribution Percentages of all Eligible Employees
in such group for the Plan Year.
(d) "Contribution Percentage" means the ratio, expressed as a
percentage calculated to the nearest one-hundredth of one percent, of the sum of
Employer Matching Contributions (other than Qualified Matching Contributions
treated as Employee Pre-Tax Contributions under Article 5.4), Employee After-Tax
Contributions, and any Employee Pre-Tax Contributions and Qualified Nonelective
Contributions treated as Employer Matching Contributions under Article 5.8, on
behalf of an Eligible Employee for a Plan Year to the Employee's Compensation
for the Plan Year, whether or not the Employee was a Participant in the Plan for
the entire Plan Year. For these purposes, an Eligible Employee's Contribution
Percentage for any Plan Year shall be calculated by excluding any Employer
Matching Contributions which are forfeited either to correct Excess Aggregate
Contributions or because the contributions to which they relate are Excess
Elective Deferrals, Excess Contributions, or Excess Aggregate Contributions. An
Eligible Employee's Contribution Percentage for a Plan Year shall be calculated
by disregarding any Employee After-Tax Contributions or Employee Pre-Tax
Contributions on behalf of the Eligible Employee for the Plan Year which are
properly returned to the Eligible Employee as an Excess Amount under Article 11.
(e) "Compensation" means the total amount of compensation (as
defined in Article 11.1(b) of the Plan) received by an Employee from the
Employer while an Eligible Employee under the Plan during the Plan Year. An
Eligible Employee's Compensation for a Plan Year shall include all Employee Pre-
Tax Contributions made to the Plan on behalf of the Employee for the Plan Year,
and all elective contributions made by the Employer for the Plan Year to any
other plan on behalf of the Employee which are not currently includible in the
gross income of
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<PAGE> 24
the Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the Code,
provided that the Employer has elected to treat all such elective contributions
as compensation with respect to all employees under all plans of the Employer.
(f) "Eligible Employee" means, with respect to any Plan Year,
any Employee who is eligible to commence participation in the Plan under Article
3.2 and to have Employee Pre-Tax Contributions made to the Plan under Article
4.1 for the Plan Year, regardless of whether any contributions are made to the
Plan on behalf of the Employee for the Plan Year.
(g) "Excess Contributions" means, with respect to any Plan
Year, the excess of the aggregate amount of Employee Pre-Tax Contributions,
including any Qualified Nonelective Contributions and Qualified Matching
Contributions treated as Employee Pre-Tax Contributions under Article 5.4,
actually made to the Plan on behalf of Highly Compensated Employees for the Plan
Year over the maximum amount of such contributions permitted under Article 5.2.
(h) "Excess Aggregate Contributions" means, with respect to
any Plan Year, the excess of the aggregate amount of Employer Matching
Contributions, Employee After-Tax Contributions, and any Employee Pre-Tax
Contributions and Qualified Nonelective Contributions treated as Employer
Matching Contributions under Article 5.8, actually made to the Plan on behalf of
Highly Compensated Employees for the Plan Year over the maximum amount of such
contributions permitted under Article 5.6.
(i) "Family Member" means, with respect to any Eligible
Employee, an individual described in Section 414(q)(6)(B) of the Code.
(j) "Highly Compensated Employee" includes, for any Plan Year,
all Highly Compensated Active Employees and all Highly Compensated Former
Employees:
(1) A Highly Compensated Active Employee includes any
Employee who performs service for the Employer during the Determination
Year and who during the Look-Back Year:
(i) received Compensation from the Employer in
excess of the $75,000 indexed amount of Section 414(q)(1)(B) of the
Code in effect for the Look-Back Year;
(ii) received Compensation from the Employer in
excess of the $50,000 indexed amount of Section 414(q)(1)(C) of the
Code in effect for the Look-Back Year and was a member of the
top-paid group within the meaning of Section 414(q)(4) of the Code
for such year; or
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<PAGE> 25
(iii) was an officer of the Employer as described
in Section 414(q)(1)(D) of the Code for such year.
(2) A Highly Compensated Active Employee also includes:
(i) any Employee who is described in (1) above if
the term "Determination Year" is substituted for the term "Look-Back
Year" and the Employee is one of the 100 Employees who received the
most Compensation from the Employer during the Determination Year;
and
(ii) any Employee who is a five percent owner of
the Employer at any time during the Look-Back Year or Determination
Year.
(3) A Highly Compensated Former Employee includes any
Employee who separated from service with the Employer (or was deemed to
have separated from service) prior to the Determination Year, performs no
service for the Employer during the Determination Year, and was a Highly
Compensated Active Employee for either the year of separation from service
or any Determination Year ending on or after the employee's 55th birthday.
(4) For purposes of this Article 5.1(j), the term
"Determination Year" shall mean the Plan Year, and the term "Look-Back
Year" shall mean the twelve-month period immediately preceding the
Determination Year (unless the Employer elects, in accordance with the
regulations under Section 414(q) of the Code, to make the Look-Back Year
the calendar year ending with or within the applicable Determination
Year).
(5) If during a Determination Year or Look-Back Year an
Employee is a family member of either (i) a five percent owner who is an
active or former Employee, or (ii) a Highly Compensated Employee who is
one of the 10 most highly compensated Employees ranked on the basis of
Compensation paid by the Employer during such year, then the family member
and the five percent owner or top-ten Highly Compensated Employee shall be
treated as a single Employee receiving aggregate Compensation and Plan
contributions equal to the sum of the Compensation and Plan contributions
on behalf of the family member and five percent owner or top-ten Highly
Compensated Employee. For these purposes, family members shall include the
spouse, lineal ascendant and descendants of the Employee and the spouses
of such lineal ascendant and descendants.
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<PAGE> 26
(6) The determination of Highly Compensated Employees,
including the determination of the number and identity of Employees in the
top-paid group, the top-100 Employees, the number of Employees treated as
officers and the Compensation that is taken into account with respect to
each Employee shall be made in accordance with Section 414(q) of the code
and the regulations thereunder.
(k) "Non-Highly Compensated Employee" means, for any Plan
year, an Employee who is not a Highly Compensated Employee.
(l) "Qualified Matching Contributions" means any Employer
Matching Contributions to this Plan on behalf of Eligible Employees, and any
matching contributions (as defined in Section 401(m)(4)(A) of the Code) by the
Employer to any other plan or plans on behalf of Eligible Employees, which are
nonforfeitable (fully vested) when made and which are subject to the
distribution restrictions of Section 401(k)(2)(B) of the Code, provided that
amounts attributable to such contributions are not distributable solely on
account of the Employee's hardship. A Qualified Matching Contribution is not
treated as forfeitable merely because under the Plan it is forfeited when the
contribution to which it relates is treated as an Excess Elective Deferral,
Excess Contribution or Excess Aggregate Contribution.
(m) "Qualified Nonelective Contributions" means any Employer
Matching contributions to this Plan on behalf of Eligible Employees, and any
qualified nonelective contributions (as defined in Section 401(m)(4)(C) of the
Code) by the Employer to any other plan or plans on behalf of Eligible Employees
that Eligible Employees may not elect to receive in cash until distributed from
the plan, which are nonforfeitable (fully-vested) when made, and which are
subject to the distribution restrictions of Section 401(k)(2)(B) of the Code,
provided that amounts attributable to such contributions are not distributable
merely on account of the Employee's hardship.
5.2 Average Actual Deferred Percentage Tests. For each Plan Year,
the Plan shall satisfy one of the following Average Actual Deferral Percentage
tests with respect to the Employee Pre-Tax Contributions, and any Qualified
Nonelective Contributions and Qualified Matching Contributions treated as
Employee Pre-Tax Contributions under Article 5.4, made to the Plan for the Plan
Year:
(a) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the group of Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year multiplied
by 1.25; or
(b) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
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<PAGE> 27
not exceed the Average Actual Deferral Percentage for the group of Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year multiplied
by two, provided that the Average Actual Deferral Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year does
not exceed the Average Actual Deferral Percentage for the group of Eligible
Employees who are Non-Highly Compensated Employees by more than two percentage
points.
5.3 Special Rules.
(a) Aggregation of Family Members. For purposes of determining
the Actual Deferral Percentage of any Eligible Employee who is a Highly
Compensated Employee and who is subject to the family aggregation rule of
Section 414(q)(6) of the Code because the Employee is either a five-percent
owner or one of the ten most highly-paid Highly Compensated Employees, the
Employee Pre-Tax Contributions (and any Qualified Matching Contributions and
Qualified Nonelective Contributions treated as Employee Pre-Tax Contributions
under Article 5.4) made on behalf of any Family Member of the Highly Compensated
Employee for the Plan Year shall, to the extent required by regulations of the
Secretary of Treasury, be treated as made on behalf of the Highly Compensated
Employee, and any Compensation of such Family Member for the Plan Year shall, to
the extent required by regulations of the Secretary of Treasury, be treated as
Compensation of the Highly Compensated Employee. In such a case, the Family
Member of the Highly Compensated Employee shall not be considered a separate
employee for purposes of calculating Average Actual Deferral Percentages for the
Plan Year.
(b) Highly Compensated Employees Under Multiple Cash or
Deferred Arrangements. In the case of any Eligible Employee who is a Highly
Compensated Employee for a Plan Year and who is eligible to participate in more
than one cash or deferred arrangement described in Section 401(k) of the Code
maintained by the Employer during the Plan Year, the Actual Deferral Percentage
of the Employee for the Plan Year shall be calculated by treating all such cash
or deferred arrangements in which the Employee is eligible to participate as one
arrangement. If the Highly Compensated Employee participates in two or more such
cash or deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement.
(c) Aggregation of Plans. In the event that this Plan
satisfies the requirements of Section 401(a)(4), 401(k) or 410(b) of the Code
only if aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of such sections of the Code only if aggregated with
this Plan, then this Article 5 shall be applied by determining the Actual
Deferral Percentages of Employees as if all such plans were a single plan. For
plan years beginning after
22
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December 31, 1989, plans may be aggregated in order to satisfy Section 401 (k)
of the Code only if they have the same plan year.
5.4 Treatment of Qualified Matching Contributions and Qualified
Nonelective Contributions as Employee Pre-Tax Contributions. If any Qualified
Matching Contributions or Qualified Nonelective Contributions are made on behalf
of Eligible Employees for a Plan Year, the Employer may elect, in accordance
with the regulations of the Secretary of Treasury under Section 401(k) of the
Code, to treat all or a portion of such Qualified Matching Contributions or
Qualified Nonelective Contributions as Employee Pre-Tax Contributions for
purposes of calculating the Actual Deferral Percentages of Eligible Employees
for the Plan Year. Any such Qualified Nonelective Contributions or Qualified
Matching Contributions for a Plan Year must be made no later than the end of the
12-month period immediately following the close of the Plan Year.
5.5 Correction of Excess Contributions.
(a) General Rule. If the Plan does not satisfy one of the
Average Actual Deferral Percentage tests of Article 5.2 as of the end of a Plan
Year, the Excess Contributions for the Plan Year shall be corrected if the
Employer makes Qualified Nonelective Contributions to the Plan on behalf of
Non-Highly Compensated Employees in accordance with Article 4.7(b) in an amount
sufficient to enable the Plan to satisfy one of the Average Actual Deferral
Percentage tests of Article 5.2 for the Plan Year, or if the Excess
Contributions for the Plan Year are timely distributed to Highly Compensated
Employees in accordance with subsection (c) below.
(b) Allocation of Excess Contributions. In the event Excess
Contributions are made to the Plan for a Plan Year, the Actual Deferral
Percentage for the Highly Compensated Employee with the highest Actual Deferral
Percentage for the Plan Year shall be reduced to the minimum extent necessary
either:
(i) to enable the Plan to satisfy one of the Average
Actual Deferral Percentage tests of Article 5.2 for the Plan Year; or
(ii) to cause the Employee's Actual Deferral Percentage
to equal the next highest Actual Deferral Percentage of any Highly
Compensated Employee for the Plan Year.
This process shall be repeated until the Average Actual Deferral
Percentage for the group of Eligible Employees who are Highly Compensated
Employees is sufficiently reduced to enable the Plan to satisfy one of the
Average Actual Deferral Percentage tests of Article 5.2 for the Plan Year. The
amount of Excess Contributions to be allocated to each Highly Compensated
Employee for the Plan Year shall equal the total Employee
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<PAGE> 29
Pre-Tax Contributions, including Qualified Matching Contributions
and Qualified Nonelective Contributions treated as Employee Pre-Tax
Contributions under Article 5.4, on behalf of the Highly Compensated Employee
for the Plan Year minus the amount determined by multiplying the Highly
Compensated Employee's reduced Actual Deferral Percentage (as determined above)
by the Employee's Compensation for the Plan Year. Excess Contributions shall be
allocated to Employees who are subject to the family aggregation rule of Section
414(q)(6) of the Code in the manner prescribed by regulations of the Secretary
of Treasury.
(c) Distribution of Excess Contributions. If any Excess
Contributions allocated to Highly Compensated Employees for a Plan Year are not
corrected by Qualified Nonelective Contributions under Article 4.7(b), such
Excess Contributions plus any income and minus any loss allocable thereto, shall
be distributed to Highly Compensated Employees no later than 12 months following
the close of the Plan Year. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each such Highly Compensated Employee. Excess
Contributions of Highly Compensated Employees who are subject to the family
member aggregation rules of Article 5.3(a) shall be allocated among the Family
Members of the Highly Compensated Employee in proportion to the Employee Pre-Tax
Contributions (and amounts treated as Employee Pre-Tax Contributions) of each
Family Member which are combined to determine the Highly Compensated Employee's
Actual Deferral Percentage.
(d) Income or Loss Allocable to Excess Contributions. The
income or loss allocable to the Excess Contributions referred to in subsection
(c) above shall include the allocable income or loss for the Plan Year of the
Excess Contributions and shall be calculated using any reasonable method for
computing income or loss, provided such method is used consistently for all
Participants and for all corrective distributions under the Plan for the Plan
Year, and is used by the Plan for allocating income or loss to Participants'
separate accounts under the Plan.
(e) Alternative Method for Calculating Income or Allocable to
Excess Contributions. Notwithstanding (d) above, the Plan may elect to calculate
the income or loss allowable to the amount of Excess Contributions referred to
in subsection (c) above by multiplying the total investment income or loss
(including dividends, interest, realized gains or losses, and unrealized
appreciation or depreciation) allocable to the Participant's Employee Pre-Tax
Contributions and amounts treated as Employee Pre-Tax Contributions under
Article 5.4 for the Plan Year by a fraction, the numerator of which is the
Excess Contributions allocated to the Participant for the Plan Year, and the
denominator of which is the total account balance attributable to the
Participant's Employee Pre-Tax Contributions and amounts treated as Employee
Pre-Tax Contributions under Article 5.4 as of the end of the Plan Year, reduced
by the investment gain (or increased by the investment loss) allocated to such
total amount for the Plan Year.
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(f) Coordination with Excess Elective Deferrals. The amount of
any Excess Contributions to be distributed under subsection (c) above with
respect to any Highly Compensated Employee for a Plan Year shall be reduced by
any Excess Elective Deferrals previously distributed to the Highly Compensated
Employee under Article 4.4(c) for the Employee's taxable year ending with or
within the Plan Year.
(g) Accounting for Excess Contributions. The amount of Excess
Contributions allocated to a Highly Compensated Employee for a Plan Year which
is distributed under subsection (c) above shall be attributed first to the
Participant's Employee Pre-Tax Contributions for the Plan Year and then, to the
extent such Excess Contributions exceed the Participant's Employee Pre-Tax
Contributions for the Plan Year, attributed to amounts treated as Employee
Pre-Tax Contributions under Article 5.4 in proportion to the amounts of such
contributions on behalf of the Participant for the Plan Year.
(h) Excise Tax. If any Excess Contributions for a Plan Year
are not distributed to Highly Compensated Employees in accordance with
subsection (c) above within 2 1/2 months after the close of the Plan Year, the
Employer shall be subject to the 10 percent excise tax of Section 4979 of the
Code, unless Qualified Nonelective Contributions are made to the Plan on behalf
of Non-Highly Compensated Employees in accordance with Article 4.7(b) prior to
the end of the 12- month period immediately following the close of the Plan Year
in an amount sufficient to enable the Plan to satisfy one of the Average Actual
Deferral Percentage tests of Article 5.2 for the Plan Year.
5.6 Average Contribution Percentage Tests. For each Plan Year for
which any Employer Matching Contributions are made to the Plan (other than
Qualified Matching Contributions treated as Employee Pre-Tax Contributions for
the Plan Year under Article 5.4) or any Employee After-Tax Contributions are
made to the Plan, the Plan shall satisfy one of the following Average
Contribution Percentage tests for the Plan Year:
(a) the Average Contribution Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Contribution Percentage for the group of Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year multiplied
by 1.25; or
(b) the Average Contribution Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Contribution Percentage for the group of Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year multiplied
by two, provided that the Average Contribution Percentage for the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year does
not
25
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exceed the Average Contribution Percentage for the group of Eligible Employees
who are Non-Highly Compensated Employees by more than two percentage points.
5.7 Special Rules.
(a) Aggregation of Family Members. For purposes of determining
the Contribution Percentage of any Eligible Employee who is a Highly Compensated
Employee and who is subject to the family aggregation rule of Section 414(q)(6)
of the Code because the Employee is either a five-percent owner or one of the
ten most highly paid Highly Compensated Employees, the Employee After-Tax
Contributions and Employer Matching Contributions (and any Employee Pre-Tax
Contributions and Qualified Nonelective Contributions treated as Employer
Matching Contributions under Article 5.8) made on behalf of any Family Member of
the Highly Compensated Employee for the Plan Year shall, to the extent required
by regulations of the Secretary of Treasury, be treated as made on behalf of the
Highly Compensated Employee, and any Compensation of such Family Member for the
Plan Year shall, to the extent required by regulations of the Secretary of
Treasury, be treated as Compensation of the Highly Compensated Employee. In such
a case, the Family Member of the Highly Compensated Employee shall not be
considered a separate employee for purposes of calculating Average Contribution
Percentages for the Plan Year.
(b) Highly Compensated Employees Under Multiple Plans. In the
case of any Eligible Employee who is a Highly Compensated Employee for a Plan
Year and who is eligible to participate in more than one plan maintained by the
Employer during the Plan Year, all matching contributions (as defined in Section
401(m)(4)(A) of the Code), all employee contributions, and any elective
deferrals and qualified nonelective contributions taken into account under
Section 401(m)(3) of the Code with respect to the Employee for the Plan Year,
shall be aggregated for purposes of determining the Employee's Contribution
Percentage for the Plan Year. If the Highly Compensated Employee participates in
two or more cash or deferred arrangements described in Section 401(k) of the
Code maintained by the Employer that have different plan years, all such cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement.
(c) Aggregation of Plans. In the event that this Plan
satisfies the requirements of Section 401(a)(4), 401(m) or 410(b) of the Code
only if aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of such sections of the Code only if aggregated with
this Plan, then this Article 5 shall be applied by determining the Contribution
Percentages of Employees as if all such plans were a single plan. For plan years
beginning after December 31, 1989, plans may be aggregated to satisfy Section
401(m) of the Code only if they have the same plan year.
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(d) Collectively Bargained Plans. If this Plan (or any portion
of the Plan) is a collectively bargained plan which automatically satisfies
Section 410(b) of the Code, the requirements of Article 5.6 shall be treated as
satisfied with respect to the Employee After-Tax Contributions and Employer
Matching Contributions to the Plan (or portion of the Plan).
5.8 Treatment of Employee Pre-Tax Contributions and Qualified
Nonelective Contributions as Employer Matching Contributions. The Employer may
elect, in accordance with the regulations of the Secretary of Treasury under
Section 401(m) of the Code, to treat all or a portion of the Employee Pre-Tax
Contributions and any Qualified Nonelective Contributions on behalf of Eligible
Employees for a Plan Year as Employer Matching Contributions for purposes of
calculating the Contribution Percentages of Eligible Employees for the Plan
Year. Any such Employee Pre-Tax Contributions or Qualified Nonelective
Contributions for a Plan Year must be made no later than the end of the 12-month
period immediately following the close of the Plan Year. Notwithstanding the
preceding, the Employer may elect to treat Employee Pre-Tax Contributions as
Employer Matching Contributions for purposes of calculating Contribution
Percentages only if one of the Average Actual Deferral Percentage Tests of
Article 5.2 is satisfied before the Employee Pre-Tax Contributions are treated
as Employer Matching Contribution for the Plan Year, and one of the Average
Actual Deferral Percentage Tests of Article 5.2 continues to be satisfied for
the Plan Year excluding the Employee Pre-Tax Contributions treated as Employer
Matching Contributions for the Plan Year.
5.9 Correction of Excess Aggregate Contributions.
(a) General Rule. If the Plan does not satisfy one of the
Average Contribution Percentages tests of Article 5.6 as of the end of a Plan
Year, the Excess Aggregate Contributions for the Plan Year shall be corrected if
the Employer makes Qualified Nonelective Contributions to the Plan on behalf of
Non-Highly Compensated Employees in accordance with Article 4.7(b) in an amount
sufficient to enable the Plan to satisfy one of the Average Contribution
Percentage tests of Article 5.6 for the Plan Year, or if the Excess Aggregate
Contributions for the Plan Year are forfeited or timely distributed to Highly
Compensated Employees in accordance with subsection (c) below.
(b) Allocation of Excess Contributions. In the event Excess
Aggregate Contributions are made to the Plan for a Plan Year, the Contribution
Percentage for the Highly Compensated Employee with the highest Contribution
Percentage for the Plan Year shall be reduced to the minimum extent necessary
either:
(i) to enable the Plan to satisfy one of the Average
Contribution Percentage tests of Article 5.6 for the Plan Year, or;
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<PAGE> 33
(ii) to cause the Highly Compensated Employee's
Contribution Percentage to equal the next highest Contribution Percentage
of any Highly Compensated Employee for the Plan Year.
This process shall be repeated until the Average Contribution
Percentage for the group of Eligible Employees who are Highly Compensated
Employees for the Plan Year is sufficiently reduced to enable the Plan to
satisfy one of the Average Contribution Percentage tests of Article 5.6 for the
Plan Year. The amount of Excess Aggregate Contributions to be allocated to each
Highly Compensated Employee for the Plan Year, shall equal the total Employee
After-Tax Contributions and Employer Matching Contributions, including Employee
Pre-Tax Contributions and Qualified Nonelective Contributions treated as
Employer Matching Contributions under Article 5.8, on behalf of the Highly
Compensated Employee for the Plan Year minus the amount determined by
multiplying the Highly Compensated Employees reduced Contribution Percentage (as
determined above) by the Employee's Compensation for the Plan Year. Excess
Aggregate Contributions shall be allocated to Employees who are subject to the
family aggregation rules of Section 414(q)(6) of the Code in the manner
prescribed by regulations of the Secretary of Treasury.
(c) Forfeiture or Distribution of Excess Aggregate
Contributions. If any Excess Aggregate Contributions allocated to Highly
Compensated Employees for a Plan Year are not corrected by Qualified Nonelective
Contributions under Article 4.7(b), such Excess Aggregate Contributions, plus
any income or minus any loss allocable thereto, must be forfeited to the extent
attributable under subsection (g) below to Employer Matching Contributions that
are not vested under Article 7.2, and otherwise distributed to Highly
Compensated Employees no later than 12 months following the close of the Plan
Year. Such distributions shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess Aggregate Contributions
attributable to each such Highly Compensated Employee. Excess Aggregate
Contributions of Highly Compensated Employees who are subject to the family
member aggregation rules of Article 5.7(a) shall be allocated among the Family
Members of the Highly Compensated Employee in proportion to the Employee
After-Tax Contributions and Employer Matching Contributions of each Family
Member which are combined to determine the Highly Compensated Employee's Average
Contribution Percentage.
(d) Income or Loss Allocable to Excess Aggregate
Contributions. The income or loss allocable to the Excess Aggregate
Contributions referred to in subsection (c) above shall include the allocable
income or loss for the Plan Year of the Excess Aggregate Contributions and shall
be calculated using any reasonable method for computing income or loss, provided
such method is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income or loss to Participants' separate accounts under the Plan.
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<PAGE> 34
(e) Alternative Method for Calculating Income or Loss
Allocable to Excess Aggregate Contributions. Notwithstanding (d) above, the Plan
may elect to calculate the income or loss allocable to the amount of Excess
Aggregate Contributions referred to in subsection (c) above by multiplying the
total investment income or loss (including dividends, interest, realized gains
or losses, and unrealized appreciation or depreciation) allocable to the
Participant's Employee After-Tax Contributions, Employer Matching Contributions,
and amounts treated as Employer Matching Contributions under Article 5.8 for the
Plan Year by a fraction, the numerator of which is the Excess Aggregate
Contributions allocated to the Participant for the Plan Year, and the
denominator of which is the total account balance attributable to the
Participant's Employee After-Tax Contributions, Employer Matching Contributions
and amounts treated as Employer Matching Contributions under Article 5.8 as of
the end of the Plan Year, reduced by the investment gain (or increased by the
investment loss) allocated to such total amount for the Plan Year.
(f) Coordination with Excess Contributions. The determination
of the amount of Excess Aggregate Contributions for a Plan Year shall be made
after the determination of the amount of any Excess Contributions for the Plan
Year.
(g) Accounting for Excess Aggregate Contributions.
(i) Non-Matched Employee After-Tax Contributions. If the
Plan provides for Employee After-Tax Contributions which are not matched
by Employer Matching Contributions under Article 4.6, the amount of Excess
Aggregate Contributions allocated to a Highly Compensated Employee for a
Plan Year shall be attributed first to the Employee After-Tax
Contributions by the Participant for the Plan Year. To the extent such
Excess Aggregate Contributions exceed the Participant's Employee After-Tax
Contributions for the Plan Year, such Excess Aggregate Contributions shall
be attributed to the Employer Matching Contributions and any amounts
treated as Employer Matching Contributions under Article 5.8 in proportion
to the amounts of such contributions on behalf of the Participant for the
Plan Year.
(ii) Other Situations. If subsection (a) above does not
apply, the amount of Excess Aggregate Contributions allocated to a Highly
Compensated Employee for a Plan Year shall be attributed to the Employee
After-Tax Contributions, Employer Matching Contributions and any amounts
treated as Employer Matching Contributions under Article 4.6 in proportion
to the amounts of such contributions on behalf of the Participant for the
Plan Year.
(h) Excise Tax. If any Excess Aggregate Contributions for a
Plan Year are not forfeited or distributed to Highly Compensated Employees in
accordance with subsection (c) above within 2 1/2 months after the close of the
Plan
29
<PAGE> 35
Year, the Employer shall be subject to the 10 percent excise tax of Section 4979
of the Code, unless Qualified Nonelective Contributions are made to the Plan on
behalf of Non-Highly Compensated Employees in accordance with Article 4.7(b)
prior to the end of the 12-month period immediately following the close of the
Plan Year in an amount sufficient to enable the Plan to satisfy one of the
Average Contribution Percentage Tests of Article 5.6 for the Plan Year.
5.10 Multiple Use of Alternative Limitation.
(a) In General. This Article 5.10 shall apply for any Plan
Year if:
(i) any Eligible Employee who is a Highly Compensated
Employee is eligible to participate in a plan maintained by the Employer
(including this Plan) which is subject to the requirements of Section
401(m) of the Code because such plan accepts matching contributions or
employee contributions for the plan's plan year beginning with or within
the Plan Year;
(ii) this Plan does not pass the 1.25 Average Actual
Deferral Percentage Test of Article 5.2(a) for the Plan Year, and the
Employer's plan which is subject to the requirements of Section 401(m) of
the Code does not pass the 1.25 contribution percentage test of Section
401(m)(2)(A)(i) of the Code for the plan's plan year beginning with or
within the Plan Year; and
(iii) the sum of the Average Actual Deferral Percentage
for all Eligible Employees who are Highly Compensated Employees for the
Plan Year, and the average contribution percentage (as defined in Section
401(m)(3) of the Code) for all Highly Compensated Employees who are
eligible to participate in the Employer's plan which is subject to Section
401(m) of the Code for the plan's plan year beginning with or within the
Plan Year, exceeds the aggregate limit of subsection (b) below.
For purposes of this Article 5.10, the Average Actual Deferral
Percentage of Highly Compensated Employees for the Plan Year shall be determined
after any corrective measures as described in Article 5.5 are undertaken for the
Plan Year. The average contribution percentage for all Highly Compensated
Employees under the Employer's plan that is subject to Section 401(m) of the
Code shall be determined after any corrective measures (including those
described in Article 5.9) are undertaken to satisfy the average contribution
percentage tests of Section 401(m)(2) of the Code for the plan's plan year
beginning with or within the Plan Year.
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(b) Aggregate Limit. For purposes of this Article 5.10, the
term "aggregate limit" shall mean the sum of:
(i) 125 percent of the greater of: (1) the Average
Actual Deferral Percentage for Eligible Employees who are Non-Highly
Compensated Employees for the Plan Year or (2) the average contribution
percentage (as defined in Section 401(m)(3) of the Code) for Non-Highly
Compensated Employees who are eligible to participate in the Employer's
plan that is subject to Section 401(m) of the Code for the plan's plan
year beginning with or within the Plan Year; plus
(ii) two plus the lesser of (1) or (2) above, provided
that in no event shall this amount exceed 200 percent of the lesser of (1)
or (2) above.
(c) Required Correction. In the event that the aggregate limit
of subsection (b) is exceeded as of the end of any Plan Year, the Employer shall
reduce the Average Actual Deferral Percentage of those Highly Compensated
Employees who also participate in the Employer's plan which is subject to
Section 401(m) of the Code (beginning with such Highly Compensated Employees
whose Actual Deferral Percentage is the highest) so that the aggregate limit is
not exceeded. The amount by which each such Highly Compensated Employee's
Average Actual Deferral Percentage is reduced shall be determined in accordance
with the procedures of Article 5.5, by treating the excess amount as Excess
Contributions.
5.11 Recordkeeping Requirements.
(a) Average Actual Deferral Percentage Tests. The Employer
shall maintain records sufficient to demonstrate satisfaction of the Average
Actual Deferral Percentage tests of Article 5.2 for each Plan Year and the
extent to which any Qualified Nonelective Contributions and Qualified Matching
Contributions are treated as Employee Pre-Tax Contributions under Article 5.4
for purposes of such tests. The determination of Eligible Employees' Actual
Deferral Percentages, and the disposition of all Employee Pre-Tax Contributions
(and any Qualified Nonelective Contributions and Qualified Matching
Contributions treated as Employee Pre-Tax Contributions under Article 5.4) on
behalf of Participants, shall satisfy such other requirements as may be
prescribed by the Secretary of Treasury.
(b) Average Contribution Percentage Tests. The Employer shall
maintain records sufficient to demonstrate satisfaction of the Average
Contribution Percentage tests of Article 5.6 for each Plan Year and the extent
to which any Employee Pre-Tax Contributions and Qualified Nonelective
Contributions are treated as Employer Matching Contributions under Article 5.8
for purposes of such tests. The determination of Eligible Employees' Average
Contribution Percentages, and the disposition of all Employer Matching
Contributions and
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Employee After-Tax Contributions (and any Employee Pre-Tax Contributions and
Qualified Nonelective Contributions treated as Employer Matching Contributions
under Article 5.8) on behalf of Participants, shall satisfy such other
requirements as may be prescribed by the Secretary of Treasury.
ARTICLE 6
ALLOCATIONS AND INVESTMENTS
6.1 Receipt of Contributions by Trustee. All contributions to the
Plan which are paid to the Trustee under Article 4.9 shall be held in trust and
managed by the Trustee in accordance with the terms and conditions of the Trust
Agreement.
6.2 Establishment of Separate Accounts by Recordkeeper.
(a) In accordance with the directions of the Plan
Administrator, the Recordkeeper shall establish and maintain the following
separate accounts in the name of each Participant:
(i) an Employee Pre-Tax Contribution Account to record
the Employee Pre-Tax Contributions to the Plan on behalf of the
Participant under Articles 4.1 and 4.3, and the earnings, losses and
expenses allocated thereto;
(ii) an Employee After-Tax Contribution Account to
record any Employee After-Tax Contributions to the Plan by the Participant
under Articles 4.5 and the earnings, losses and expenses allocated
thereto;
(iii) an Employer Matching Contribution Account to
record any Employer Matching Contributions to the Plan under Article 4.6
on behalf of the Participant and the earnings, losses and expenses
allocated thereto;
(iv) an Employer Nonelective Contribution Account to
record any Employer Nonelective Contributions to the Plan on behalf of the
Participant under Article 4.7 and the earnings, losses and expenses
allocated thereto;
(v) a Rollover Contribution Account to record any
rollover contributions to the Plan on behalf of the Participant under
Article 4.8 and the earnings, losses and expenses allocated thereto; and
32
<PAGE> 38
(vi) such other accounts as the Plan Administrator shall
direct in accordance with the provisions of the Plan or the requirements
of the Code.
If the Employer makes both Employer Nonelective Contributions under
Article 4.7(a) which do not qualify as Qualified Nonelective Contributions and
Qualified Nonelective Contributions under Article 4.7(b), separate sub-accounts
shall be established within the Participant's Employer Nonelective Contribution
Account to record separately such contributions and the earnings, losses and
expenses allocated thereto.
(b) The Plan Administrator shall certify to the Recordkeeper
the name, address and social security number of each Participant for whom a
separate account is to be established under the Plan. The Plan Administrator
shall furnish the Recordkeeper with instructions in accordance with Article 4.9
allocating all contributions to the Plan to Participants' separate accounts. In
crediting amounts to Participants' separate accounts, the Recordkeeper shall be
fully entitled to rely on the instructions furnished by the Plan Administrator,
and shall be under no duty to make any inquiry or investigation with respect
thereto.
(c) The maintenance of separate accounts under subsection (a)
above shall be for accounting purposes only. Any amount distributed to a
Participant or Beneficiary under Article 8, or any amount withdrawn by a
Participant under Article 9, shall be charged to the appropriate separate
accounts of the Participant as of the applicable Valuation Date for such
distribution or withdrawal under Article 8.4 or 9.5.
6.3 Allocation of Employer Nonelective Contributions under
Integrated Plan. If the Employer has adopted an Integrated Plan by selecting the
Permitted Disparity (Integration with Social Security) Allocation Formula under
Section 6(b) of the Adoption Agreement, the Employer Nonelective Contributions
to the Plan for any Plan Year plus any Forfeitures (if applicable under Article
6.4) shall be allocated to Participants' Employer Nonelective Contribution
Accounts in accordance with the Steps One through Four outlined below, subject
to the Overall Permitted Disparity Limits set forth in (e) below:
(a) Step One (Top Heavy Plans). First, for any Plan Year that
the Plan is a Top-Heavy Plan as defined in Article 12.2(b), the Employer
Nonelective Contributions and Forfeitures, if applicable, shall be allocated to
the Employer Nonelective Contribution Accounts of all Participants in the
proportion that each such Participant's total Compensation for the Plan Year
bears to the total Compensation of all Participants for the Plan Year; provided,
however, that the amount allocated to any Participant's Employer Nonelective
Contribution Account for the Plan Year under this paragraph shall not exceed
three percent of the Participant's Compensation for the Plan Year.
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<PAGE> 39
(b) Step Two (Top Heavy Plans). Second, for any Plan Year that
the Plan is a Top-Heavy Plan as defined in Article 12.2(b), any Employer
Nonelective Contributions and Forfeitures, if applicable, remaining after Step
One shall be allocated to the Employer Nonelective Contribution Accounts of all
Participants in the proportion that each such Participant's Compensation in
excess of the Integration Level designated in the Adoption Agreement for the
Plan Year bears to the total compensation in excess of said Integration Level of
all such Participants; provided, however, that the amount allocated to any
Participant's Employer Nonelective Contribution Account for the Plan Year under
this paragraph shall not exceed three percent of the Participant's Compensation.
In the case of any Participant who has exceeded the Cumulative Permitted
Disparity Limit set forth in (e)(ii) below, such Participant's total
Compensation for the Plan Year shall be taken into account for purposes of this
Paragraph.
(c) Step Three. Third, any Employer Nonelective Contributions
and Forfeitures, if applicable, remaining after Steps One and Two shall be
allocated to the Employer Nonelective Contribution Accounts of all Participants
in the proportion that the sum of each such Participant's total Compensation
plus Compensation in excess of the Integration Level designated in the Adoption
Agreement bears to the sum of the total Compensation plus Compensation in excess
of said Integration Level for all such Participants for the Plan Year; provided,
however, that the amount allocated to any Participant's Employer Nonelective
Contribution Accounts for the Plan Year under this paragraph shall not exceed
the Maximum Disparity Rate designated in the Adoption Agreement multiplied by
the sum of the Participant's total Compensation plus Compensation in excess of
the Integration Level designated in the Adoption Agreement. In the case of any
Participant who has exceeded the Cumulative Permitted Disparity Limit set forth
in (e)(ii) below, two times such Participant's total Compensation for the Plan
Year shall be taken into account for purposes of this paragraph.
(d) Step Four. Fourth, any remaining Employer Nonelective
Contributions and Forfeitures, if applicable, shall be allocated to the Employer
Nonelective Contribution Accounts of all Participants in the proportion that
each such Participant's total Compensation for the Plan Year bears to the total
Compensation of all eligible Participants for the Plan Year.
(e) Overall Permitted Disparity Limits.
(i) Annual Overall Permitted Disparity Limit. If for any
Plan Year the Plan benefits any Participant who also benefits under
another qualified plan or simplified employee pension maintained by the
Employer that provides for permitted disparity (or imputes disparity), the
Employer Nonelective Contributions and Forfeitures shall be allocated to
the Employer Nonelective Contribution Accounts of each Participant
eligible to share in Employer Nonelective Contributions for the Plan Year
in the
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<PAGE> 40
proportion that each such Participant's total Compensation for the Plan
Year bears to the total Compensation of all eligible Participants for the
Plan Year.
(ii) Cumulative Permitted Disparity Limit. Effective for
Plan Years beginning on or after January 1, 1995, the Cumulative Permitted
Disparity Limit for a Participant is 35 total cumulative permitted
disparity years. Total cumulative permitted disparity years means the
number of years credited to the Participant for allocation or accrual
purposes under this Plan or any other qualified plan or simplified
employee pension (whether or not terminated) ever maintained by the
Employer. For purposes of determining a Participant's Cumulative Permitted
Disparity Limit, all years ending in the same calendar year are treated as
the same year. If the Participant has not benefited under a defined
benefit plan or target benefit plan for any year beginning on or after
January 1, 1994, the Cumulative Permitted Disparity Limit shall be
satisfied with respect to such Participant.
6.4 Allocation of Forfeitures. Any Forfeitures which have become
available for allocation under Article 4.6, Article 5.9(c) or Article 8.5 during
a Plan Year shall be used to reduce the amount of contributions thereafter
required to be made to the Plan by the Employer.
6.5 Investment of Plan Assets.
(a) Unless otherwise designated by the Employer in the
Adoption Agreement, all amounts which are allocated to the separate accounts of
a Participant under the Plan shall be invested and reinvested in the Vanguard
Funds or other investments authorized under the Trust Agreement in accordance
with the Participant's investment directions. All such investment directions by
a Participant shall be made in accordance with rules and procedures prescribed
by the Plan Administrator. To the extent that any Participant fails to provide
investment directions in accordance with such rules and procedures, the Plan
Administrator or other named fiduciary for the Plan which the Employer
identifies in the Adoption Agreement shall be responsible for directing the
investment of amounts allocated to the Participant's separate accounts under the
Plan. A Participant shall be permitted to change investment directions both as
to existing amounts credited to his or her separate accounts under the Plan and
future contributions by or on behalf of the Participant under the Plan. Any such
change in investment directions shall be made in accordance with rules and
procedures prescribed by the Plan Administrator.
(b) To the extent that the Employer provides in the Adoption
Agreement that the investment of the assets of the Plan shall not be subject to
participant direction, such Plan assets shall be invested and reinvested in the
Vanguard Funds or other investments authorized under the Trust Agreement as
directed by the Plan Administrator or other named fiduciary for the Plan which
the Employer identifies in the Adoption Agreement to be responsible for Plan
35
<PAGE> 41
investments. All such investment directions by the Plan Administrator or other
named fiduciary for the Plan shall uniformly and ratably apply to all
Participants similarly situated.
6.6 Allocation of Earnings and Losses.
(a) The dividends, capital gains distributions, and other
earnings received on any shares or units of the Vanguard Funds or on any other
Plan investments which are specifically credited or earmarked to a Participant's
separate account under the Plan shall be allocated to such separate account and
immediately reinvested, to the extent practicable, in additional shares or units
of such Vanguard Funds or other earmarked Plan investments.
(b) Any Plan earnings or losses attributable to the investment
of a Participant's separate account under the Plan in a loan to the Participant
under Article 10 shall be allocated to the Participant's separate account in
accordance with the provisions of Article 10.9.
(c) To the extent not otherwise provided in subsection (a) or
(b) above, the assets of the Plan shall be valued at their current fair market
value on periodic Valuation Dates as determined by the Recordkeeper, which shall
occur no less frequently than once each calendar quarter. On each such periodic
Valuation Date, the earnings or losses of the Plan since the immediately
preceding periodic Valuation Date shall be allocated to the separate accounts of
all Participants and former Participants under the Plan in the ratio that the
fair market value of each such account as of that immediately preceding
Valuation Date, reduced by any distributions or withdrawals therefrom since such
preceding Valuation Date, bears to the total fair market value of all separate
accounts as of the immediately preceding Valuation Date, reduced by any
distributions or withdrawals therefrom since such preceding Valuation Date.
6.7 Insurance Contracts. Any insurance contract purchased on behalf
of a Participant under the Plan shall provide that all proceeds payable upon the
death of the Participant shall be paid to the Plan. The Plan shall be required
to distribute all such proceeds in accordance with the Plan's distribution
provisions (including the provisions of Article 8.8(a) requiring in certain
cases a qualified preretirement survivor annuity to be distributed to the
Participant's surviving spouse). Under no circumstances shall the Plan retain
any part of the proceeds. In the event of any conflict between the term of the
Plan and the terms of any insurance contract purchased hereunder, the provisions
of the Plan shall control.
6.8 No Rights Created by Allocation. Any allocation of contributions
or earnings to the separate account of a Participant under this Article 6 shall
not cause the Participant to have any right, title or interest in any assets of
the
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Plan except at the time and under the terms and conditions expressly provided
for in the Plan.
ARTICLE 7
VESTING
7.1 Full Vesting in Employee Contributions and Rollover
Contributions. A Participant shall be fully vested at all times in all Employee
Pre-Tax Contributions, Employee After-Tax Contributions, and Rollover
Contributions made to the Plan on the Participant's behalf and all earnings on
such contributions.
7.2 Vesting in Employer Contributions.
(a) General Rule. Except as otherwise provided below, the
vested amounts in a Participant's Employer Matching Contribution Account and
Employer Nonelective Contribution Account shall be determined by the number of
Years of Service completed by the Participant for vesting purposes (as
determined under Article 7.3) and the vesting schedules designated by the
Employer in the Adoption Agreement.
(b) Full Vesting Upon Normal Retirement Age, Disability or
Death. Notwithstanding the vesting schedules designated by the Employer in the
Adoption Agreement, all amounts allocated to a Participant's Employer Matching
Contribution Account and Employer Nonelective Contribution Account shall
automatically become fully vested if the Participant attains Normal Retirement
Age, incurs a Disability or dies while employed by the Employer.
(c) Vesting After In-Service Withdrawals. If a Participant
makes an in-service withdrawal under Article 9.2 or 9.3 from the Participant's
Employer Matching Contribution Account or Employer Nonelective Contribution
Account at a time when the Participant is not fully-vested, the Participant's
vested amount in such account on any date thereafter shall be an amount ("X")
determined by the following formula: X=P(AB+D)-D. For purposes of this formula,
"P" is the Participant's vested percentage under the Plan's vesting schedule on
the relevant date, "AB" is the account balance on the relevant date, and "D" is
the amount of the Participant's in-service withdrawal.
7.3 Year of Service for Vesting Purposes.
(a) General Rule. For vesting purposes, a Participant shall be
credited with one Year of Service for each Plan Year during which the
Participant completes 1,000 or more Hours of Service. All Years of Service
completed by the
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Participant, including Years of Service completed prior to the Effective Date of
the Plan or prior to the Participant's commencement of participation in the
Plan, shall be counted for vesting purposes except as otherwise provided in
Article 7.4.
(b) Service With Predecessor Employer. If so designated in the
Adoption Agreement, a Participant's Years of Service shall include years of
service (determined in a manner consistent with (a) above) with any predecessor
employer of the Employer; provided, however, that if the Employer is maintaining
the Plan as the plan of a predecessor employer, an Employee's Years of Service
shall automatically include years of service with such predecessor employer
without regard to any designation in the Adoption Agreement.
7.4 Years of Service Upon Reemployment. If a participant incurs five
or more consecutive one-year Breaks in Service, any Years of Service completed
by the Participant after the Breaks in Service shall be disregarded for purposes
of determining the Participant's vested amounts in his or her Employer Matching
Contribution Account and Employer Nonelective Contribution Account prior to the
date the Participant incurred the Breaks in Service (although both pre-Break and
post-Break Years of Service shall count for purposes of determining the
Participant's vested percentage in his or her Employer Matching Contribution
Account and Employer Nonelective Contribution Account after the date the
Participant incurred the Breaks in Service). To the extent necessary, separate
sub-accounts shall be established by the Recordkeeper within the Participant's
Employer Matching Contribution Account and Employer Nonelective Contribution
Account to reflect the Participant's pre-Break and post-Break amounts derived
from Employer Matching Contributions and Employer Nonelective Contributions,
which sub-accounts shall share in the allocation of earnings and losses under
Article 6.6. In the case of any Participant who incurs a Break in Service of
less than five consecutive one-year Breaks in Service, all pre-Break Years of
Service and any post-Break Years of Service completed by the Participant shall
count for purposes of determining the Participant's vested percentage in his or
her Employer Matching Contribution Account and Employer Nonelective Contribution
Account both before and after the date the Participant incurred the Break in
Service.
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ARTICLE 8
DISTRIBUTION OF BENEFITS
8.1 Distribution Upon Separation from Service. A Participant shall
be entitled to receive the vested amounts (as determined under Articles 7.1 and
7.2) credited to the Participant's separate accounts under the Plan when the
Participant separates from service with the Employer.
8.2 Distribution Upon Death. In the event of a Participant's death,
the Participant's Beneficiary under Article 8.16 shall be entitled to receive
the vested amounts (as determined under Article 7.1 and 7.2) credited to the
Participant's separate accounts under the Plan, which amounts shall be
determined after the payment of any preretirement survivor annuity required
under Article 8.8.
8.3 Optional Forms of Distribution; Participant Consent.
(a) Amounts Not Greater Than $3,500. If the total vested
amount which a Participant is entitled to receive under Article 8.1 does not
exceed (or at the time of any prior distribution did not exceed) $3,500, such
amount shall be distributed to the Participant in a lump-sum payment as soon as
practicable following the date of the Participant's separation from service. For
purposes of this Article 8.3(a), a Participant's vested account balance shall
not include any accumulated deductible employee contributions within the meaning
of Section 72(o)(5)(B) of the Code for Plan Years beginning prior to January 1,
1989.
(b) Amounts Greater than $3,500. If the total vested amount
which a Participant is entitled to receive under Article 8.1 exceeds (or at the
time of any prior distribution exceeded) $3,500, such amount shall not be
distributed to the Participant prior to his or her required beginning date under
Article 8.6(b) unless the Participant consents to such distribution within 90
days before the date of distribution. If the vested amount which the Participant
is entitled to receive is not required to be distributed in the form of a
qualified joint and survivor annuity under Article 8.7, the Participant shall be
permitted to elect to have such amount distributed:
(i) in a single-sum payment; or
(ii) if so designated by the Employer in the Adoption
Agreement, in monthly, quarterly or annual installment payments over a
period not to exceed the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated Beneficiary.
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The method (if applicable) and timing of distribution shall be
selected by the Participant on a form prescribed for these purposes by the Plan
Administrator. If no such selection is made by the Participant and the
Participant's distribution is not required to be made in the form of a qualified
joint and survivor annuity under Article 8.7, the Participant's distribution
shall be automatically made in a lump-sum payment no later than the
Participant's required beginning date under Article 8.6(b). Notwithstanding the
preceding, if the Plan is terminated under Article 14.2 and if the Employer (or
any entity within the same controlled group as the Employer) maintains another
defined contribution plan (other than an employee stock ownership plan as
defined in Section 4975(e)(7) of the Code), then the amounts which a Participant
is entitled to receive under the Plan shall be transferred without the
Participant's consent directly to the other plan if the Participant does not
consent to an immediate distribution.
(c) Explanation to Participants. No more than 90 days and no
less am 30 days prior to the date of any distribution to a Participant under (b)
above, the Plan Administrator shall furnish the Participant with a notice of the
material features and relative values of the optional forms of distribution
available under the Plan and the Participant's right to defer such distribution
to the Participant's required beginning date. However, distribution to the
Participant may commence less than 30 days after the notice in the preceding
sentence is given to the Participant, provided that the following conditions are
satisfied:
(i) the distribution is one to which Sections 401(a)(11)
and 417 of the Internal Revenue Code do not apply;
(ii) 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
(iii) the Participant, after receiving the notice,
affirmatively elects to receive a distribution from the Plan (or to make a
direct rollover under Article 8.18).
If the Participant elects to defer the distribution of all or any
portion of the amount which the participant is entitled to receive, such
deferred amount shall remain in the plan and continue to receive allocations of
earnings and losses pursuant to Article 6.6 until the Participant elects or is
otherwise required to receive such deferred amount.
(d) Payments to Death Beneficiaries. Any amount which a
Participant's Beneficiary is entitled to receive under Article 8.2 upon the
death of the Participant shall be distributed in a lump-sum payment or in
monthly, quarterly or annual installment payments over a specified period as
selected by the Beneficiary in
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<PAGE> 46
accordance with the minimum distribution requirements of Article 8.6(e). The
method and timing of distribution shall be selected by the Beneficiary on a form
prescribed for these purposes by the Plan Administrator. If the Beneficiary does
not select a method of distribution, the entire amount which the Beneficiary is
entitled to receive under Article 8.2 shall be distributed to the Beneficiary in
a lump-sum payment no later than the December 31st of the calendar year
containing the fifth anniversary of the Participant's death. If the Beneficiary
dies before receiving a complete distribution of any amount which the
Beneficiary is entitled to receive under Article 8.2, such remaining amount
shall be distributed as soon as practicable in a lump-sum payment to the
Beneficiary's estate.
8.4 Distribution Upon Written Instructions; Valuation of
Distributions. All distributions from the Plan shall be made by the Trustee as
soon as practicable following receipt of proper instructions furnished by the
Plan Administrator setting forth the name and address of the recipient and the
amount and form of distribution. In the case of a single-sum payment, the amount
of the distribution shall be determined by the value of the amounts credited to
the Participant's separate accounts under the Plan as of the Valuation Date on
which the Trustee receives instructions in good order from the Plan
Administrator to make the distribution. In the case of installment payments, the
amount of each distribution shall be determined by the value of the amounts
credited to the Participant's separate accounts under the Plan as of the
Valuation Date on which the installment payment is to be made in accordance with
the Plan Administrator's instructions. In making any distribution from the Plan,
the Trustee shall be fully entitled to rely on instructions furnished to it by
the Plan Administrator, and shall be under no duty to make any inquiry or
investigation with respect thereto.
8.5 Forfeitures Upon Separation from Service.
(a) If a Participant separates from service with the Employer
prior to becoming fully vested in the Participant's Employer Matching
Contribution Account or Employer Nonelective Contribution Account (the "Employer
Contribution Accounts") under Article 7.2 and the Participant elects or is
otherwise required to receive a distribution of the entire vested amounts
credited to the Participant's Employer Contribution Accounts, the total
non-vested amount of the Participant's Employer Contribution Accounts shall be
treated as a Forfeiture. For these purposes, a Participant who separates from
service at a time when the vested amount credited to the Participant's Employer
Contribution Accounts is zero shall be deemed to have received a distribution of
the vested amount credited to the Participant's Employer Contribution Accounts
and the entire non-vested amount of the Participant's Employer Contribution
Accounts shall be treated as a Forfeiture. All Forfeitures by Participants under
this Article 8.5 shall be available for allocation in accordance with the
provisions of Article 6.4.
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(b) If a Participant who separates from service with the
Employer prior to becoming fully vested in the Participant's Employer
Contribution Accounts under Article 7.2 elects at any time under Article 8.4 to
receive less than the entire vested amount credited to the Participant's
Employer Contribution Accounts, the non-vested amount of the Participant's
Employer Contribution Accounts which shall be treated as a Forfeiture upon such
distribution shall equal the total non-vested amount credited to the
Participant's Employer Contribution Accounts prior to the distribution
multiplied by a fraction, the numerator of which is the amount of the
Participant's distribution from the Employer Contribution Accounts, and the
denominator of which is the total vested amount credited to the Employer
Contribution Accounts immediately prior to the distribution.
(c) Any amount forfeited by a Participant under (a) or (b)
above (unadjusted for gains or losses) shall be restored to the Participant's
Employer Contribution Accounts if the Participant returns to the service of the
Employer and repays the amount of any distribution the Participant received from
the Participant's Employer Contribution Accounts upon the Participant's prior
separation from service before the earlier of:
(i) five years after the first date the Participant is
subsequently reemployed by the Employer; or
(ii) the date the Participant incurs five consecutive
one-year Breaks in Service for vesting purposes following the date of the
Participant's distribution.
The amount of any such Forfeiture shall be restored to the
Participant's Employer Contribution Accounts from other Forfeiture amounts by
Participants and the Plan earnings attributable thereto, or by additional
Employer contributions to the Plan on behalf of the Participant. If a
Participant is deemed to have received a distribution under (a) above because
the Participant separated from service at a time when the vested amount credited
to the Participant's Employer Contribution Accounts was zero and the Participant
resumes employment covered under the Plan before the date the Participant incurs
five consecutive one-year Breaks in Service, the amount forfeited by the
Participant under (a) above shall be restored to the Participant's Employer
Contribution Accounts upon the Participant's reemployment by the Employer.
8.6 Minimum Distribution Requirements.
(a) Application. Subject to the joint and survivor annuity
requirements of Article 8.7, all minimum distributions required to be made to
the Participants and Beneficiaries under this Article 8.6 shall be determined in
accordance with the U.S. Department of Treasury regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental benefit
requirement of Treasury
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<PAGE> 48
Regulation ss. 1.401(a)(9)-2. Unless otherwise specified, the provisions of this
Article 8.6 shall apply to calendar years beginning after December 31, 1984, and
shall take precedence over any inconsistent provisions of the Plan.
(b) Required Beginning Date. All amounts which a Participant
is entitled to receive under Article 8.1 shall be distributed or begin to be
distributed to the Participant no later than the Participant's required
beginning date. For purposes of this requirement, a Participant's required
beginning date shall be the first day of April of the calendar year following
the calendar year in which the Participant attains age 70 1/2. However, in the
case of any Participant who attained age 70 1/2 before January 1, 1988, the
Participant's required beginning date shall be determined in accordance with (i)
or (ii) below:
(i) In General. If the participant is not a five-percent
owner of the Employer (as defined in (ii) below), the Participant's
required beginning date shall be the first day of April of the calendar
year following the calendar year in which the later of the Participant's
retirement or attainment of age 70 1/2 occurs.
(ii) Five-Percent Owners. If the Participant is a five-
percent owner of the Employer during any year beginning after December 31,
1979, the Participant's required beginning date shall be the first day of
April following the later of: (1) the calendar year in which the
Participant attains age 70 1/2 or (2) the earlier of the calendar year
with or within which ends the Plan Year in which the Participant becomes a
five-percent owner or the calendar year in which the Participant retires.
Once minimum distributions have commenced to a five-percent owner under
this Article 8.6, they must continue to be made even if the Participant
ceases to be a five-percent owner in a subsequent year. For purposes of
this Article 8.6, a Participant is treated as a five-percent owner if such
Participant is a five-percent owner as defined in Section 416(i) of the
Code (without regard to whether the Plan is a top-heavy plan) at any time
during the Plan Year ending with or within the calendar year in which such
owner attains age 66 1/2 or any subsequent Plan Year.
(c) Limits on Distribution Periods. The method of distribution
selected by a Participant under Article 8.3 shall satisfy the minimum
distribution requirements of this Article 8.6 for each calendar year beginning
with the calendar year immediately preceding the calendar year which contains
the Participant's required beginning date (the "first distribution calendar
year"). As of the first distribution calendar year, distributions, if not made
in a single-sum, shall be made over one of the following periods (or combination
thereof):
(i) the life of the Participant;
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<PAGE> 49
(ii) the life of the Participant and his or her
designated Beneficiary;
(iii) a period certain not extending beyond the life
expectancy of the Participant; or
(iv) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and his or her designated
Beneficiary.
(d) Minimum Distribution Amounts. The minimum distribution
amount for the first distribution calendar year shall be made on or before the
Participant's required beginning date. The minimum distribution amount for each
distribution calendar year thereafter, including the calendar year in which the
Participant's required beginning date occurs, shall be made on or before
December 31st of that calendar year. Such minimum distribution amounts shall be
calculated as follows:
(i) For calendar years beginning after December 31,
1988, the minimum distribution amount for each distribution calendar year
shall be determined by dividing the Participant's account balance under
the Plan for the distribution calendar year by the lesser of: (1) the life
expectancy of the Participant or joint life and last survivor expectancy
of the Participant and his or her designated Beneficiary for the calendar
year; or (2) if the Participant's designated Beneficiary under the Plan is
not the Participant's spouse, the applicable divisor for the distribution
calendar year determined from the table set forth in Treasury Regulation
ss. 1.401(a)(9)-2, Q&A-4.
(ii) For calendar years beginning before January 1,
1989, the minimum distribution amount for each distribution calendar year
shall be determined by dividing the Participant's vested account balance
under the Plan for the distribution calendar year by the life expectancy
of the Participant or joint and last survivor expectancy of the
Participant and his or her designated Beneficiary for the distribution
calendar year; provided however, that if the Participant's designated
Beneficiary under the Plan is not the Participant's spouse, the method of
distribution selected by the Participant under Article 8.3 must provide
for at least 50 percent of the amount available for distribution under the
Plan at the time of selection to be paid within the life expectancy of the
Participant.
For purposes of these minimum distribution requirements, a
Participant's account balance under the Plan for any distribution calendar year
shall mean the total vested amount credited to the Participant's separate
accounts under the Plan as of the last Valuation Date of the preceding calendar
year (the "valuation calendar year"), increased by the amount of any
contributions or Forfeitures allocated
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<PAGE> 50
to the Participant's accounts in the valuation calendar year after such
Valuation Date, and decreased by any distributions made from the Participant's
accounts in the valuation calendar year after such Valuation Date. If any
minimum distribution for the Participant's first distribution calendar year is
made in the following calendar year but on or before the Participant's required
beginning date, the amount of such minimum distribution shall be treated as if
it had been made in the Participant's first distribution calendar year.
(e) Death Distribution Provisions. Any amount which a
Participant's designated Beneficiary shall be entitled to receive under Article
8.2 upon the death of the Participant shall be distributed in accordance with
the following rules:
(i) Where Distribution Had Already Commenced. If the
Participant died after minimum distributions had already commenced, all
amounts payable to the Participant's designated Beneficiary shall be
distributed at least as rapidly as under the method of distribution in
effect prior to the Participant's death. For these purposes, a
Participant's minimum distributions shall be considered to have commenced
no earlier than the Participant's required beginning date. If distribution
in the form of an annuity as described in Article 8.6(f) has irrevocably
commenced prior to the Participant's required beginning date, the
Participant's minimum distributions shall be considered to have commenced
on the date distributions actually commenced under the annuity contract.
(ii) Five-Year Rule. If the Participant died before
minimum distributions had already commenced in accordance with (a) above,
all amounts payable to the Participant's designated Beneficiary shall be
distributed by December 31st of the calendar year which contains the fifth
anniversary of the date of the Participant's death.
(iii) Exception to Five-Year Rule. Notwithstanding
subsection (ii) above, all amounts payable to the Participant's designated
Beneficiary may (if subsection (a) does not apply) be distributed in
installment payments over a period not extending beyond the Beneficiary's
life expectancy, provided such distribution commences by December 31st of
the calendar year following the calendar year of the Participant's death.
If the designated Beneficiary is the surviving spouse of the Participant,
the date that distributions are required to commence in accordance with
the preceding sentence shall be the later of: (1) December 31st of the
calendar year following the calendar year of the Participant's death, or
(2) December 31st of the calendar year in which the Participant would have
attained age 70 1/2.
(iv) Calculation of Minimum Installment Payments. In the
case of installment payments over the Beneficiary's life expectancy under
(iii) above, the minimum distribution amount for each calendar year
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<PAGE> 51
shall be determined by dividing the Beneficiary's account balance under
the Plan for the calendar year by the Beneficiary's life expectancy for
the calendar year. For these purposes, a Beneficiary's account balance
under the Plan for any calendar year shall mean the total vested amount
credited to the deceased Participant's separate accounts under the Plan
which the Beneficiary is entitled to receive under Article 8.2 as of the
last Valuation Date of the preceding calendar year (the "valuation
calendar year"), increased by the amount of any contributions or
Forfeitures allocated to the deceased Participant's accounts in the
valuation calendar year after such Valuation Date, and decreased by any
distributions made from the deceased Participant's accounts in the
valuation calendar year after such Valuation Date.
(f) Applicable Life Expectancy. For purposes of this Article
8.6, the life expectancy of the Participant or his or her designated
Beneficiary, or the joint life and last survivor expectancy of the Participant
and his or her designated Beneficiary, shall be determined by the following
rules:
(i) Life expectancy or joint life and last survivor
expectancy shall be computed by using the expected return multiples
contained in Tables V and VI of Treasury Regulation ss. 1.72-9. The life
expectancies of the Participant and his or her spouse (if the spouse is
designated Beneficiary) shall be recalculated annually unless otherwise
elected by the Participant or by the spouse in the case of distributions
referred to in (d)(iii) above on or before the date minimum distributions
are required to begin. Any such election by the Participant or spouse
shall be irrevocable and shall apply to all subsequent years. The life
expectancy of a non-spouse Beneficiary shall not be recalculated.
(ii) For purposes of determining the minimum
distribution amounts to be paid to the Participant for each distribution
calendar year under (c)(i) or (ii) above, the life expectancy of the
Participant, or the joint life and last survivor expectancy of the
Participant and his or her designated Beneficiary, shall be calculated
based on the attained age of the Participant or Beneficiary as of the
Participant's or Beneficiary's birthday in the first distribution calendar
year. If life expectancy is being recalculated, the life expectancy of the
Participant, or the joint life and last survivor expectancy of the
Participant and his or her spouse (if the spouse is the designated
Beneficiary), shall be calculated based on the attained age of the
Participant and spouse as of the Participant's and spouse's birthday in
each succeeding distribution calendar year.
(iii) For purposes of determining the minimum
distribution amounts to be paid to the Beneficiary for each calendar year
under (d)(iv) above, the life expectancy of the designated Beneficiary
shall be calculated based on the attained age of the Beneficiary as of the
Beneficiary's
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<PAGE> 52
birthday in the calendar year in which distributions are required to
commence under (d)(iii). If life expectancy is being recalculated, the
life expectancy of the Participant's surviving spouse (if the spouse is
designated Beneficiary) shall be calculated based on the attained age of
the spouse as of the spouse's birthday in each succeeding calendar year.
(iv) For purposes of determining the joint life and last
survivor expectancy of the Participant and his or her designated
Beneficiary under (c)(i) or (ii) above, or the life expectancy of the
Participant's designated Beneficiary under (d)(iii) above, the
Participant's designated Beneficiary shall mean the appropriate individual
(if any) designated as Beneficiary under Article 8.16 as determined in
accordance with the Department of Treasury regulations under Section
401(a)(9) of the Code.
(g) Annuity Distributions. If distributions to any Participant
or Beneficiary from the Plan are to be made in the form of an annuity contract
purchased from an insurance company, such contract shall provide for
distributions to be made in accordance with Section 401(a)(9) of the Code and
the Treasury Regulations thereunder.
8.7 Joint and Survivor Annuity Requirement.
(a) General Rule. Notwithstanding any provision of the Plan to
the contrary, any amount which a Participant is entitled to receive from the
Plan (including any withdrawal under Article 9) shall be distributed in the form
of a qualified joint and survivor annuity in the absence of a qualified waiver
under Article 8.10, or except as otherwise provided in Article 8.11 or 8.12. The
requirement for a qualified joint and survivor annuity shall apply to all vested
amounts payable to the Participant under the Plan (whether derived from Employer
or Employee contributions) as of the earliest date upon which the Participant is
entitled to receive a distribution under the Plan.
(b) Definition of Qualified Joint and Survivor Annuity. For
purposes of this Article 8, the term "qualified joint and survivor annuity"
means, in the case of a married participant, an immediate annuity payable for
the life of the Participant with a survivor annuity payable for the life of the
Participant's surviving spouse which is not less than 50 percent nor more than
100 percent of the annuity payable for the life of the Participant, as
designated by the Participant during his or her lifetime; provided that if no
such designation is made by the Participant, the percentage shall be 50 percent.
In the case of an unmarried participant, the term "qualified joint and survivor
annuity" means an annuity payable for the life of the Participant. The qualified
joint and survivor annuity shall be purchased with the total amount available
for distribution from the Participant's separate accounts under the Plan at the
time of distribution.
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8.8 Preretirement Survivor Annuity Requirement.
(a) General Rule. Notwithstanding any provision of the Plan to
the contrary, in the case of any vested Participant who dies before his or her
annuity starting date, a qualified preretirement survivor annuity shall be
payable to the surviving spouse of the Participant in the absence of a qualified
waiver under Article 8.10, or except as otherwise provided in Article 8.11 or
8.12. For these purposes, the Participant's "annuity starting date" means the
first day of the first period for which an amount is paid to the Participant
under the Plan as an annuity or any other form of benefit. The surviving spouse
may elect to have the preretirement survivor annuity distributed within a
reasonable time after the Participant's death.
(b) Definition of Qualified Preretirement Survivor Annuity.
For purposes of this Article 8, the term "qualified preretirement survivor
annuity" means an annuity payable for the life of the Participant's surviving
spouse which is purchased with 50 percent of the Participant's vested account
balance under the Plan at the time of the Participant's death. For these
purposes, the Participant's "vested account balance" shall mean the aggregate
vested amount (as determined under Article 7) credited to the Participant's
separate accounts under the Plan derived from all Employer and Employee
contributions (including rollover contributions) at the time of death.
8.9 Notice and Explanation to Participants.
(a) Explanation of Joint and Survivor Annuity. The Plan
Administrator shall provide each Participant with a written explanation at least
30 days, but no more than 90 days, prior to the Participant's annuity starting
date (as defined in Article 8.8(a)) setting forth: (i) the term and conditions
of the qualified joint and survivor annuity under Article 8.7; (ii) the
Participant's right to make, and the effect of, an election to waive the
qualified joint and survivor annuity form of distribution in accordance with
Article 8.10; (iii) the rights of the Participant's spouse; and (iv) the right
to make, and the effect of, a revocation of a previous election to waive the
qualified joint and survivor annuity method of distribution.
(b) Explanation of Preretirement Survivor Annuity. The Plan
Administrator shall provide each Participant within 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 in which the Participant attains age 35 a
written explanation of the qualified preretirement survivor annuity of Article
8.8 in such terms and in such a manner as would be comparable to the explanation
required under subsection (a) above with respect to the qualified joint and
survivor annuity. If a Participant commences participation in the Plan after the
first day of the Plan Year in which the Participant attains age 32, the Plan
Administrator shall provide the written explanation required by the preceding
sentence no later than the end of the one-year period beginning on the date the
Participant commences participation in the Plan. If a
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Participant terminates employment with the Employer before attaining age 35, the
Plan Administrator shall provide the required written explanation during the
period beginning one year before the Participant's termination of employment and
ending one year after such termination of employment; provided that if the
Participant thereafter resumes employment with the Employer, the Plan
Administrator shall provide the required written explanation during the period
otherwise required above.
8.10 Waiver of Qualified Joint or Survivor Annuity or Qualified
Preretirement Survivor Annuity.
(a) General Rule. A Participant may elect at any time during
the applicable election period to waive the qualified joint and survivor annuity
form of distribution or the qualified preretirement survivor annuity (or both),
and may revoke any such election at any time during the applicable election
period.
(b) Spousal Consent Required. Any election by a Participant to
waive the qualified joint and survivor annuity form of distribution or the
qualified preretirement survivor annuity under (a) above shall not be effective
unless:
(i) the Participant's spouse consents in writing to the
Participant's election;
(ii) the Participant's election designates the specific
non-spouse Beneficiary (including any class of Beneficiaries or contingent
Beneficiaries) to receive the Participant's benefits under the Plan upon
the Participant's death, which Beneficiary designation shall not be
thereafter changed by the Participant without further spousal consent
(unless the spouse expressly permits subsequent Beneficiary designations
by the Participant without further spousal consent);
(iii) the spouse's consent acknowledges the effect of
the Participant's election; and
(iv) the spouse's consent is witnessed by a Plan
representative or a notary public.
In addition, in the case of a waiver of the qualified joint and
survivor annuity, the Participant's election shall specify the optional form of
distribution elected by the Participant under Article 8.3 which may not be
thereafter changed without further spousal consent (unless the spouse expressly
permits subsequent changes by the Participant without further spousal consent).
Notwithstanding the preceding, if the Participant establishes to the
satisfaction of the Plan Administrator that there is no spouse or the spouse
cannot be located, the Participant's election to waive the qualified joint and
survivor annuity form of distribution or the qualified
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preretirement survivor annuity shall be deemed a qualified election for which no
spousal consent is required.
Any consent by a spouse, or establishment that the consent of a
spouse may not be obtained, shall not be effective with respect to any other
spouse. Any spousal consent which permits subsequent changes by the Participant
to the Beneficiary designation or optional form of distribution without the
requirement of further spousal consent shall acknowledge that the spouse has the
right to limit such consent to a specific Beneficiary or optional form of
distribution, and that the spouse voluntarily elects to relinquish such right. A
Participant may revoke any prior waiver of the qualified joint and survivor
annuity or qualified preretirement survivor annuity at any time prior to the
commencement of benefits without the consent of his or her spouse, and the
number of such revocations shall not be limited. Any new waiver of the qualified
joint and survivor annuity or qualified preretirement survivor annuity, or any
change to an existing Beneficiary designation by a Participant under Article
8.16 which was in effect at the time of a waiver of the qualified joint and
survivor annuity or qualified preretirement survivor annuity, shall require a
new spousal consent in accordance with this Article 8.10(b). No consent obtained
under this Article 8.10(b) shall be valid unless the Participant has received
the appropriate notice and written explanation as provided in Article 8.9.
(c) Applicable Election Period Defined. For purposes of this
Article 8.10, the term "applicable election period" means: (i) in the case of an
election to waive the qualified joint and survivor annuity form of distribution,
the 90- day period ending on the Participant's annuity starting date (as defined
in Article 8.8(a)); or (ii) in the case of an election to waive the qualified
preretirement survivor annuity, the period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the first
**[Missing Page 8-15 from Master]**
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(b) Distributions In Excess of $3,500 Only With Consent. If
the total amount otherwise required to be distributed in the form of a qualified
joint and survivor annuity or a qualified preretirement survivor annuity to a
Participant or his or her surviving spouse under Article 8.7 or 8.8 exceeds
$3,500, such distribution shall be made in the form of a lump-sum payment if the
Participant and his or her spouse (or the Participant's surviving spouse if the
Participant has died) consent in writing to such distribution.
8.13 Former Spouse Under Qualified Domestic Relations Order. For
purposes of the qualified joint and survivor annuity requirement and the
qualified preretirement survivor annuity requirement of this Article 8, a former
spouse of a Participant shall be treated as the spouse or surviving spouse of
the Participant, and any current spouse of a Participant shall not be treated as
the spouse or surviving spouse of the Participant, to the extent provided for in
any qualified domestic relations order as described in Section 414(p) of the
Code.
8.14 Purchase of Annuities; Nontransferability Provisions. The Plan
Administrator shall be responsible for arranging the purchase of any annuity
contract required to be distributed by the Plan under this Article 8 and
directing the Trustee to transfer Plan funds for purposes of making any such
purchase. Any annuity contract distributed by the Plan to a Participant or his
or her surviving spouse shall be nontransferable and comply with all
requirements of this Plan.
8.15 Commencement of Benefits. Unless a Participant elects
otherwise, distribution of the Participant's benefits under the Plan shall
commence no later than 60 days after the close of the Plan Year in which the
latest of the following events occurs: (i) the Participant attains age 65 (or
Normal Retirement Age, if earlier); (ii) the 10th anniversary of the Plan Year
in which the Participant commenced participation in the Plan; or (iii) the
Participant's termination of employment with the Employer. Notwithstanding the
foregoing, the failure of any Participant to consent to a distribution of
benefits under Article 8.3(b) shall be deemed to be an election by the
Participant to defer the distribution of his benefits for purposes of this
Article 8.15.
8.16 Designation of Beneficiary. A Participant may designate from
time to time any person or persons, who may be designated contingently or
successively and who may be an entity other than a natural person, as the
Participant's Beneficiary who shall be entitled to receive, except as otherwise
required under Article 8.7 or 8.8, any undistributed vested amounts credited to
the Participant's separate accounts under the Plan at the time of the
Participant's death. Notwithstanding the preceding, to the extent that the
Employer elects to satisfy the exception of Article 8.11 to the survivor annuity
requirements with respect to all Participants in the Plan, the Employer may
require that the sole Beneficiary of every Participant be the Participant's
spouse, unless the Participant has no spouse or the Participant's spouse has
consented, in a manner conforming to the requirements of
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Article 8.10(b), to the designation by the Participant of another Beneficiary
who shall be entitled to receive any undistributed vested amounts credited to
the Participant's separate accounts under the Plan at the time of the
Participant's death. Any Beneficiary designation by a Participant shall be made
on a form prescribed by the Plan Administrator and shall be effective only when
filed with the Plan Administrator during the Participant's lifetime. A
Participant may change or revoke his or her Beneficiary designation at any time
by filing a new instrument with the Plan Administrator (except where the
Participant's spouse is required to be the Beneficiary). If the designated
Beneficiary predeceases the Participant, the Participant's Beneficiary
designation shall be ineffective. If no Beneficiary designation is in effect at
the time of the Participant's death, the Participant's Beneficiary shall be the
Participant's estate.
8.17 Distributions Pursuant to Qualified Domestic Relations Orders.
(a) In General. Notwithstanding any provision of the Plan to
the contrary, the Plan Administrator may direct the Trustee to distribute all or
any portion of a Participant's benefits under the Plan to an alternate payee in
accordance with the terms and conditions of a qualified domestic relations order
as defined in Section 414(p) of the Code (a "QDRO"). The Plan hereby
specifically permits and authorizes distribution of a Participant's benefits
under the Plan to an alternate payee in accordance with a QDRO prior to the date
the Participant separates from service with the Employer or attains the
Participant's earliest retirement age as defined in Section 414(p)(4)(B) of the
Code.
(b) Plan Procedures. The Plan Administrator shall be
responsible for establishing reasonable procedures for determining whether any
domestic relations order received with respect to the Plan qualifies as a QDRO
and for administering distributions in accordance with the term and conditions
of a QDRO. If any domestic relations order is received with respect to the Plan,
the Plan Administrator shall promptly notify the Participant and each alternate
payee identified in the order. The Plan Administrator shall determine within a
reasonable period after receipt of the domestic relations order whether the
order qualifies as a QDRO, and notify the Participant and each alternate payee
of such determination. In making any distribution to an alternate payee pursuant
to the Plan Administrator's directions under this Article 8.17, the Trustee
shall be fully entitled to rely on such directions furnished by the Plan
Administrator and shall be under no duty to make any inquiry or investigation
with respect thereto.
8.18 Direct Rollovers. This Article applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary which would otherwise limit a distributee's election under this Article
8.18, a distributes may elect, at the time and in the manner prescribed by the
Plan Administrator, to have all or any portion of an eligible rollover
distribution paid
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directly in the form of a direct rollover to any eligible retirement plan
specified by the distributes. For purposes of this Article 8.18, the following
definitions shall apply:
(a) Eligible Rollover Distribution. An eligible rollover
distribution includes any distribution of all or any portion of the balance to
the credit of the distributes, except than an eligible rollover distribution
does not include:
(1) any distribution which is one of a series of
substantially equal periodic payments made (not less frequently than
annually) for (i) the life or life expectancy of the distributee, (ii) the
joint lives or joint life expectancies of the distributee and the
distributee's designated beneficiary, or (iii) a specified period of ten
years or more;
(2) any distribution to the extent that such
distribution is required under Section 401(a)(9) of the Code;
(3) the portion of any distribution which is not
includible in the distributee's gross income (determined without regard to
the exclusion for net unrealized appreciation with respect to employer
securities); and
(4) any other distribution(s) that is reasonably
expected to total less than $200 during a year.
(b) Eligible Retirement Plan. Any eligible retirement plan
includes an individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408(b) of the Code,
or a qualified trust described in Section 401(a) of the Code which accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to an Employee's surviving spouse, an eligible
retirement plan is limited to an individual retirement account or individual
retirement annuity.
(c) Distributee. A distributes includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
(d) Direct Rollover. A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
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ARTICLE 9
WITHDRAWALS
9.1 Withdrawals of Employee After-Tax Contributions. A Participant
be permitted to withdraw at any time all or any portion of the total amount
credited to the Participant's Employee After-Tax Contribution Account. The Plan
Administrator may prescribe uniform and nondiscriminatory rules and procedures
limiting the number of times that any Participant may make withdrawals under
this Article 9.1 during any Plan Year and the minimum amount that a Participant
may withdraw on any single occasion. No forfeitures or penalties shall apply
under the Plan solely as a result of a Participant's withdrawal of Employee
After-Tax Contributions.
9.2 Withdrawals of Rollover Contributions. A Participant shall be
permitted to withdraw at any time all or any portion of the total amount
credited to the Participant's Rollover Contribution Account. The Plan
Administrator may prescribe uniform and nondiscriminatory rules and procedures
limiting the number of times that any Participant may make withdrawals under
this Article 9.2 during any Plan Year and the minimum amount that a Participant
may withdraw on any single occasion.
9.3 Withdrawals on or After Age 59 1/2. If so designated by the
Employer in the Adoption Agreement, a Participant who has attained age 59 1/2
shall be entitled to withdraw all or any portion of the total vested amount (as
determined under Article 7) credited to the Participant's separate accounts
under the Plan. The Plan Administrator may prescribe uniform and
nondiscriminatory rules and procedures limiting the number of times that a
Participant may make withdrawals under this Article 9.3 during any Plan Year and
the minimum amount that a Participant may withdraw on any single occasion.
9.4 Hardship Withdrawals.
(a) Immediate and Heavy Financial Need. If so designated by
the Employer in the Adoption Agreement, a Participant shall be permitted to make
a hardship withdrawal from the Plan, subject to the joint and survivor annuity
requirements of Article 8.7, if the Participant certifies that he or she has
incurred an immediate and heavy financial need for funds. For these purposes, an
immediate and heavy financial need shall include a need:
(1) to pay expenses incurred or necessary for medical
care, described in Section 213(d) of the Code, of the Participant or the
Participant's spouse, children or dependents;
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(2) to purchase the principal residence of the
Participant (excluding mortgage payments);
(3) to pay tuition and related educational fees for the
next 12 months of post-secondary education for the Participant or the
Participant's spouse, children, or dependents; or
(4) to prevent the eviction of the Participant from his
or her principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) Necessary to Satisfy Financial Need. The amount of any
hardship withdrawal by a Participant under subsection (a) above shall not exceed
the amount which is necessary to satisfy the Participant's immediate and heavy
financial need and which is not reasonably available from other resources of the
Participant. For these purposes, a hardship withdrawal will be treated as
necessary to satisfy an immediate and heavy financial need under subsection (a)
above if:
(1) the Participant has obtained all distributions,
other than hardship distributions, and all nontaxable loans from the Plan
and any other plans maintained by the Employer;
(2) all plans maintained by the Employer provide that,
if the hardship withdrawal is made from the Participant's Employee Pre-
Tax Contribution Account under subsection (c) below, the Participant's
elective deferrals (as defined in Article 4.4) and employee after-tax
contributions will be suspended for twelve months after the receipt of the
hardship distribution;
(3) the distribution is not in excess of the amount of
the Participant's immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes or penalties
anticipated to result the distribution); and
(4) all plans maintained by the Employer provide that,
if the hardship withdrawal is made from the Participant's Employee Pre-
Tax Contribution Account under subsection (c) below, 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 Section 402(g) of the Code for such taxable year
less the amount of the Participant's elective deferrals for the taxable
year of the hardship distribution.
(c) Limitations on Hardship Withdrawals. Any hardship
withdrawal by a Participant under subsection (a) above shall be made from:
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(1) the Participant's Employee Pre-Tax Contributions to
the Plan, including any earnings attributable thereto which were allocated
to the Participant's Employee Pre-Tax Contribution Account as of the end
of the last Plan Year ending before July 1, 1989 (but not the earnings
allocated thereafter);
(2) the Participant's Employer Matching Contribution
Account, unless the Employer Matching Contributions allocated thereto
qualify as Qualified Matching Contributions under Article 5.1(1) in which
case only the amount allocated to the Participant's Employer Matching
Contribution Account as of the end of the last Plan Year ending before
July 1, 1989, shall be eligible for hardship withdrawal by the
Participant; and
(3) the Participant's Employer Nonelective Contribution
Account, unless the Employer Nonelective Contributions allocated thereto
qualify as Qualified Nonelective Contributions under Article 5.1(m) in
which case only the amount allocated to the Participant's Employer
Nonelective Contribution Account as of the end of the last Plan Year
ending, before July 1, 1989, shall be eligible for hardship withdrawal by
the Participant.
(d) Prior Withdrawal of Employee After-Tax and Rollover
Contributions Required. A Participant shall not be permitted to make a hardship
withdrawal under subsection (a) above unless the Participant has already
withdrawn, in accordance with Articles 9.1 and 9.2, all available amounts
credited to the Participant's Employee After-tax Contribution Account and
Rollover Contribution Account.
9.5 Manner of Making Withdrawals. Any withdrawal by a Participant
under the Plan shall be made only after the Participant files a written request
with the Plan Administrator specifying the nature of the withdrawal (and the
reasons therefor, if a hardship withdrawal), the amount of funds requested to be
withdrawn, and the separate accounts from which the withdrawal should be made.
Upon approving any withdrawal, the Plan Administrator shall furnish the Trustee
with instructions directing the Trustee to make the withdrawal from the
Participant's separate accounts under the Plan in a lump-sum payment to the
Participant, unless such withdrawal is required to be paid in the form of a
qualified joint and survivor annuity under Article 8.7. The amount of any
withdrawal shall be determined by the value of the amounts credited to the
Participant's separate accounts under the Plan as of the Valuation Date on which
the Trustee receives instructions in good order from the Plan Administrator to
make the withdrawal payment. In making any such withdrawal payment, the Trustee
shall be fully entitled to rely on the instructions shed by the Plan
Administrator, and shall be under no duty to make any inquiry or investigation
with respect thereto.
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ARTICLE 10
LOANS
10.1 Amount of Loan. If so designated by the Employer in the
Adoption Agreement, the Plan Administrator may direct the Trustee to make a loan
to a Participant from the vested amounts (as determined under Article 7)
credited to the Participant's separate accounts under the Plan. The total amount
of any such loan, when added to the outstanding balance of all other loans to
the Participant from the Plan, shall not exceed the lesser of:
(a) 50 percent of the total vested accrued benefits of the
Participant under the Plan as of the date of the loan; or
(b) $50,000 reduced by the excess (if any) of the highest
outstanding balance of all loans to the Participant from the Plan during the
one-year period ending on the day before the loan was made over the outstanding
balance of all loans to the Participant from the Plan on the date on which the
loan was made.
For purposes of the above limitation, all loans to the Participant
from all qualified plans maintained by the Employer and other members of a group
of employers described in Section 414(b), 414(c), or 414(m) of the Code which
includes the Employer shall be aggregated. In no event shall any loan be made
from the Plan to any Participant who is an Owner-Employee or a
shareholder-employee. For these purposes, a "shareholder-employee" means any
employee or officer of an electing small business (Subchapter S) corporation who
owns (or is considered as owning within the meaning of Section 318(a)(1) of the
Code) on any day during the taxable year of such corporation more than 5 percent
of the outstanding stock of the corporation.
10.2 Security for Loan. Any loan to a Participant under the Plan
shall be adequately secured within the meaning of Section 4975(d) of the Code.
Such security shall include the pledge of all the Participant's right, title and
interest in the Plan, which pledge shall be evidenced by the execution of a
legally binding promissory note by the Participant. The Participant shall
further authorize the Employer to deduct specified amounts from the wages or
salary thereafter payable to the Participant by the Employer and to transmit
such amounts to the Trustee as the periodic repayments of the Participant's
loan.
10.3 Interest Rate Charged. Any loan to a Participant under the plan
shall bear a reasonable rate of interest which is commensurate with the
prevailing interest rate charged by professional lenders for similarly secured
personal loans, as determined by the Plan Administrator. The Plan Administrator
shall not discriminate among Participants in the matter of interest rates, but
loans granted at different times
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may bear different interest rates if, in the opinion of the Plan Administrator,
the difference in rates reflects prevailing interest rates.
10.4 Repayment of Loans.
(a) Any loan to a Participant under the Plan shall by its
terms be required to be repaid within five years of the date on which the loan
is made, with the exception that a loan which is used to acquire a dwelling unit
which within a reasonable period of time (determined at the time the loan is
made) will be used as the principal residence of the Participant may be repaid
over a longer, reasonable period of time as determined by the Plan
Administrator. Repayments on any loan shall be made in regular periodic
installments on a schedule prescribed by the Plan Administrator with payments
not less frequently than quarterly, and shall be applied on a substantially
level amortization basis to reduce the principal as well as the accrued interest
of the loan.
(b) The Plan Administrator shall have the sole responsibility
for assuring that a Participant timely makes all loan repayments and notifying
the Trustee in the event of any default by a Participant on a loan repayment.
Loan repayments shall be paid to the Trustee and shall be accompanied by
instructions from the Plan Administrator which identify each Participant on
whose behalf a loan repayment is being made and the amount thereof.
10.5 Default on Loan. In the event of a default by a Participant on
any loan repayment, all remaining payments on the loan shall be immediately due
and payable. The Plan Administrator shall take any and all actions necessary and
appropriate to enforce collection of the unpaid loan, although foreclosure on
the Participant's promissory note and attachment of the Plan's security shall
not occur until a distributable event occurs under the Plan.
10.6 Set-off of Loan Upon Distributions. Prior to making any
distribution of benefits from a Participant's separate accounts under Article 8
upon the Participant's separation from service or death, the Plan Administrator
shall direct the Trustee to deduct the total amount of any outstanding Plan
loans to the Participant, plus any unpaid interest due thereon, from the
Participant's separate accounts under the Plan in order to satisfy the amounts
due on the Participant's loans. If, upon a Participant's death, a preretirement
survivor annuity is payable under Article 8.8 from 50 percent of the total
vested amount credited to the Participant's separate accounts under the Plan,
such 50 percent amount shall be determined after reducing the total vested
amount credited to the Participant's separate accounts at the time of the
Participant's death by the amount of any outstanding Plan loans to the
Participant, plus any unpaid interest due thereon.
10.7 Manner of Making Loans. A request by a Participant for a loan
shall be made in writing to the Plan Administrator and shall specify the amount
of the
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loan and the separate accounts of the Participant from which the loan should be
made. The terms and conditions on which the Plan Administrator shall approve
loans under the Plan shall be applied on a uniform and reasonably equivalent
basis with respect to all Participants and Beneficiaries who are "parties in
interest" as defined in Section 3(14) of ERISA. Loans shall not be made
available to Participants who are highly compensated employees (within the
meaning of Section 414(q) of the Code) in an amount greater than the amount made
available to other employees. If a Participant's request for a loan is approved
by the Plan Administrator, the Plan Administrator shall furnish the Trustee with
written instructions directing the Trustee to make the loan in a lump sum
payment to the Participant. In making any loan under this Article 10.7, the
Trustee shall be fully entitled to rely on the instructions furnished by the
Plan Administrator, and shall be under no duty to make any inquiry or
investigation with respect thereto.
10.8 Spousal Consent Required. No loan shall be made to a
Participant from the Plan unless within the 90-day period before the making of
the loan the Participant's spouse consents in writing to the pledge of the
participant's interest in the Plan as security for the loan under Article 10.2.
Any such consent by the Participant's spouse shall be in writing, shall
acknowledge the effect of the loan, and shall be witnessed by a Plan
representative or notary public. The spouse's consent shall be thereafter
binding on the consenting spouse or any subsequent spouse with respect to the
Participant's loan. A new spousal consent shall be required for any
renegotiation, extension, renewal or other revision of the Participant's loan.
Notwithstanding the preceding, spousal consent shall not be required under this
Article 10.8 if the qualified joint and survivor annuity requirement of Article
8.8 and the qualified preretirement survivor annuity requirement of Article 8.9
do not apply with respect to the Participant by reason of Article 8.11.
10.9 Accounting for Loans. A loan to a Participant from the Plan
shall be considered an investment of the separate accounts of the Participant
from which the loan is made, and all loan repayments by the Participant shall be
credited to such separate accounts and reinvested in the Vanguard Funds and
other investments authorized under the Trust Agreement in accordance with the
investment provisions of Article 6.5.
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ARTICLE 11
LIMITATIONS ON CONTRIBUTIONS AND BENEFITS
11.1 Definitions. For purposes of this Article 11 only, the
following terms shall be defined as follows:
(a) Annual Additions. The sum of the following amounts that
are allocated to a Participant's separate accounts under the Plan for any
Limitation Year:
(i) Employer contributions including Employee Pre-Tax
Contributions, Employer Matching Contributions and Employer Nonelective
Contributions (regardless of whether any amounts attributable to such
contributions are distributed to the Participant, recharacterized or
forfeited as Excess Elective Deferrals, Excess Contributions or Excess
Aggregate Contributions);
(ii) Employee After-Tax Contributions;
(iii) Forfeitures;
(iv) any amounts allocated after March 31, 1984, to an
individual medical account (as defined in Section 415(l)(2) of the Code)
which is part of a pension or annuity plan maintained by the Employer
shall be treated as Annual Additions;
(v) any amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date,
which are attributable to postretirement medical benefits allocated to the
separate account of a key employee (as defined in Section 419A(d)(3) of
the Code) under a welfare benefit fund (as defined in Section 419(e) of
the Code) maintained by the Employer; and
(vi) allocations under a simplified employee pension
maintained by the Employer.
For purposes of this definition, any Excess Amount, plus any
investment gain or other income or less any investment losses attributable
thereto, that is applied under Article 11.2(c) or 11.3(e) to reduce the Employer
contributions on behalf of a Participant for a Limitation Year shall be
considered Annual Additions for such Limitation Year.
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(b) Compensation. A Participant's earned income, wages,
salaries, fees for professional services and other amounts received (without
regard to whether an amount is paid in cash) 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, bonuses, fringe benefits, and reimbursements or other expense
allowances under a non-accountable plan as described in IRS Reg. ss.1.62-2(c)),
excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not includible in the gross income of the
Participant for the taxable year in which contributed, or Employer
contributions under a simplified employee pension plan, or any
distributions from a plan of deferred compensation;
(ii) amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or property) held by
the Participant either becomes freely transferable or is no longer subject
to a substantial risk of forfeiture;
(iii) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) other amounts which receive special tax benefits,
such as contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract under
Section 403(b) of the Code (whether or not the contributions are
excludable from the gross income of the Participant).
For purposes of applying the limitations of this Article 11,
Compensation for a Limitation Year shall be the Compensation annually paid to a
Participant or includible in his gross income 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) shall be 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; provided that such imputed Compensation for
the disabled Participant may be taken into account only if the Participant is
not a highly compensated employee (as defined in Article 5.1(j)) of the Plan)
and contributions made on behalf of such Participant to the defined contribution
plan are nonforfeitable when made.
(c) Defined Benefit Plan Fraction. A fraction, the numerator
of which is the sum of a Participant's Projected Annual Benefits under all
defined benefit plans (whether or not terminated) maintained by the Employer,
and
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the denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Sections 415(b) and (d) of the Code or
140 percent of the Participant's Highest Average Compensation, including any
adjustments under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a participant as
of the first day of the 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 the Defined Benefit Plan Fraction
shall not be less than 125 percent of the sum of the annual benefits under all
such plans which the Participant had accrued as 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
shall apply only if the Employer's defined benefit plan individually and in the
aggregate satisfied the requirements of Section 415 of the Code for all
Limitation Years beginning before January 1, 1987.
(d) Defined Contribution Dollar Limitation. The greater of
$30,000 or one-fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the Limitation Year.
(e) Defined Contribution Plan Fraction. A fraction, the
numerator of which is the sum of the Annual Additions credited to a
Participant's accounts under all defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior Limitation
Years (including any Annual Additions attributable to nondeductible employee
contributions to any defined benefit plans, whether or not terminated,
maintained by the Employer and any Annual Additions attributable to any welfare
benefit funds, individual medical accounts and simplified employee pensions
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 for any Limitation
Year is the lesser of 125 percent of the dollar !imitation determined under
Sections 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the
Code or 35 percent of the Participant's Compensation for such year.
Notwithstanding the above, if the Participant 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 6, 1986, the numerator of the Defined
Contribution Plan Fraction shall be adjusted if the sum of such fraction and the
Defined Benefit Plan Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under this adjustment, an amount equal to the product of (i) the excess of
the sum of the Defined Benefit and Defined Contribution Plan Fractions over 1.0
times (ii) the denominator of the Defined Contribution Plan Fraction shall be
permanently subtracted from the
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numerator of the Defined Contribution Plan Fraction. This adjustment shall be
calculated using the Defined Benefit and Defined Contribution Plan Fractions as
they would have been calculated as of the end of the last Limitation Year
beginning before January 1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the Section 415
limitation applicable to the first Limitation Year beginning on or after January
1, 1987.
The Annual Additions for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all employee contributions as
Annual Additions.
(f) Employer. For purposes of this Article 11, the Employer
shall mean the Employer that adopts this Plan and all members of a controlled
group of corporations (as defined in Section 414(b) of the Code, as modified by
Section 41(5)(h)) of the Code), all commonly controlled trades or businesses (as
defined in Section 414(c) of the Code, as modified by Section 415(h) of the
Code) or affiliated service groups (as defined in Section 414(m) of the Code) of
which the adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to regulations under Section 414(o) of the
Code.
(g) Excess Amount. The excess of a Participant's Annual
Additions for a Limitation Year over the Maximum Permissible Amount for the
Limitation Year.
(h) Highest Average Compensation. A Participant's average
annual Compensation for the three consecutive Years of Service (as defined in
Article 7.3) that produces the highest average annual compensation.
(i) Limitation Year. The Plan Year or other 12-consecutive
month period designated 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 shall begin on a date within the Limitation Year in which the
amendment is made.
(j) Master or Prototype Plan. A qualified plan the form of
which is the subject of a favorable opinion letter from the Internal Revenue
Service.
(k) Maximum Permissible Amount. The maximum amount of Annual
Additions that may be contributed or allocated to any Participant's accounts
under the Plan for any Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
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(b) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation limitation referred to in (b) above shall not apply
to any contribution for medical benefits (within the meaning of Section 401(h)
or 419A(f)(2) of the Code) which is otherwise treated as Annual Additions under
Section 415(l)(2) or 419A(d)(2) of the Code. If a short Limitation Year is
created because of an amendment changing the Limitation Year to a different
12-consecutive month period, then the Maximum Permissible Amount shall not
exceed the Defined Contribution Dollar Limitation multiplied by the following
fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(l) Projected Annual Benefit. 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 a Participant would be entitled under the terms of
the plan assuming:
(i) the Participant will continue employment until
normal retirement age under the plan (or current age, if later), and
(ii) 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.
11.2 Employers Who Maintain No Other Qualified Plans.
(a) If a 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 Section 419(e) of the Code, maintained by the
Employer, or an individual medical account, as defined in Section 415(l)(2) of
the Code, maintained by the Employer, or a simplified employee pension, as
defined in Section 408(k) of the Code, maintained by the Employer, which
provides an Annual Addition, as defined in Article 11.1(a), the amount of Annual
Additions which may be credited to the Participant's separate accounts under the
Plan for any Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in the Plan. If the
Employer Contributions that would otherwise be contributed or allocated to the
Participant's separate accounts under the Plan would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible Amount, then the
amount contributed or allocated shall be reduced so that the Annual Additions
for the Limitation Year shall equal to the Maximum Permissible Amount.
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(b) Prior to determining a Participant's actual Compensation
for any Limitation Year, the Plan Administrator may determine the Participant's
Maximum Permissible Amount for the Limitation Year on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation Year, uniformly
determined for all Participants similarly situated. 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 the Limitation Year.
(c) If, pursuant to (b) above or as a result of the allocation
of Forfeitures or a reasonable error in determining the amount of Employee
Pre-Tax Contributions which may be made by a Participant, there exists an Excess
Amount with respect for the Participant as of the end of a Limitation Year, such
Excess Amount shall be disposed of as follows:
(i) Any Employee After-Tax Contributions or Employee
Pre-Tax Contributions by the Participant, to the extent they would reduce
the Excess Amount, shall be returned to the Participant.
(ii) If, after the application of subparagraph (i)
above, an Excess Amount still exists and the Participant is covered by the
Plan at the end of the Limitation Year, then such Excess Amount, plus any
investment gains or other income or less any investment losses
attributable thereto, shall be used to reduce the Employer contributions
on behalf of the Participant for the next Limitation Year and each
succeeding Limitation Year, if necessary.
(iii) If, after the application of subparagraph (i)
above, an Excess Amount still exists and the Participant is not covered by
the Plan at the end of a Limitation Year, then such Excess Amount shall be
held unallocated in a suspense account and applied to reduce future
Employer contributions to the Plan 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 Article 11.2, such account shall
participate in the allocation of the Trust's 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
may be made to the Plan for that Limitation Year. Except as otherwise
provided in (i) above, Excess Amounts may not be distributed to
Participants or former Participants.
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11.3 Employers Who Maintain Other Qualified Master or Prototype
Defined Contribution Plans.
(a) This Article 11.3 applies if, in addition to this Plan, a
Participant is covered under another qualified Master or Prototype defined
contribution plan maintained by the Employer, a welfare benefit fund maintained
by the Employer, an individual medical account maintained by the Employer, or a
simplified employee pension maintained by the Employer which provides an Annual
Addition during any Limitation Year. The Annual Additions which may be credited
to the Participant's separate accounts under this Plan for any such Limitation
Year shall not exceed the Maximum Permissible Amount reduced by the total Annual
Additions credited to the Participant's accounts under all such other defined
contribution plans, welfare benefit funds, individual medical accounts, and
simplified employee pensions for the Limitation Year. If the Annual Additions
with respect to the Participant under all other defined contribution plans,
welfare benefit funds, individual medical accounts, and simplified employee
pensions maintained by the Employer are less than the Maximum Permissible Amount
and the Employer Contributions that would otherwise be contributed or allocated
to the Participant's separate accounts under this Plan would cause the Annual
Additions for the Limitation Year to exceed the Maximum Permissible Amount, then
the amount contributed or allocated under this Plan shall be reduced so that the
Annual Additions under all such plans and funds for the Limitation Year shall
equal the Maximum Permissible Amount. If the Annual Additions with respect to
the Participant under such other defined contribution plans, welfare benefit
funds, individual medical accounts, and simplified employee pensions in the
aggregate are equal to or greater than the Maximum Permissible Amount, then no
amount, shall be contributed or allocated to the Participant's separate accounts
under this Plan for the Limitation Year.
(b) Prior to determining a Participant's actual Compensation
for any Limitation Year, the Plan Administrator may determine the Maximum
Permissible Amount for the Participant in the manner described in Article
11.2(b). As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the Limitation Year.
(c) If, pursuant to Article 11.3(b) or as a result of the
allocation of forfeitures, a Participant's Annual Additions under this Plan and
such other defined contribution plans maintained by the Employer that are Master
or Prototype Plans would result in an Excess Amount for a Limitation Year, then
the Excess Amount shall be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a simplified employee
pension shall be deemed to have been allocated first, followed by Annual
Additions attributable to a welfare benefit fund or individual medical account,
regardless of the actual allocation date.
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(d) If an Excess Amount was allocated to a Participant's
account under this Plan on an allocation date which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan shall 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's separate accounts under this Plan for the Limitation
Year as of such date to (2) the total Annual Additions allocated to the
Participant's accounts for the Limitation Year as of such date under this
Plan and all other qualified defined contribution Master or Prototype
Plans maintained by the Employer.
(e) Any Excess Amount attributable to this Plan shall be
disposed of in the manner described in Article 11.2(c).
11.4 Employers Who Maintain A Qualified Defined Contribution Plan
Other Than A Master Or Prototype Plan. If a Participant is covered under another
qualified defined contribution plan maintained by the Employer which is not a
Master or Prototype Plan, the Annual Additions which may be credited to the
Participant's separate accounts under this Plan for any Limitation Year shall be
limited in accordance with Article 11.3 as though the other plan were a Master
or Prototype Plan unless the Employer designates other limitations in the
section on "Limitations on Allocations" in the Adoption Agreement.
11.5 Employers Who Maintain A Qualified Defined Benefit Plan. If the
Employer maintains, or has at any time maintained, a qualified defined benefit
plan covering any Participant in this Plan, then the sum of the Participant's
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction shall not
exceed 1.0 for any Limitation Year. The Annual Additions which may be credited
to the Participant's separate accounts under this Plan for any Limitation Year
shall be limited in accordance with the limitations designated by the Employer
in the section on "Limitations on Allocations" in the Adoption Agreement.
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ARTICLE 12
TOP-HEAVY PROVISIONS
12.1 Application. If the Plan is or becomes a Top-Heavy Plan in any
Plan Year, the provisions of this Article 12 shall supersede any conflicting
provision in the Plan or Adoption Agreement.
12.2 Definitions. For purposes of this Article 12, the following
terms shall be defined as follows:
(a) Key Employee. Any Employee or former Employee (and the
Beneficiary of any such Employee) who at any time during the determination
period was an officer of the Employer whose annual compensation exceeds 50
percent of the dollar limitation under Section 415(b)(1)(A) of the Code, an
owner (or considered an owner under Section 318 of the Code) of one of the ten
largest interests in the Employer if such individual's annual compensation
exceeds 100 percent of the dollar limitation under Section 415(c)(1)(A) of the
Code, a 5-percent owner of the Employer, or a 1-percent owner of the Employer
who has annual compensation of more than $150,000. For the purposes of this
definition, the term "annual compensation" means compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by the Employer
pursuant to a reduction agreement which are excludable from the Employee's gross
income under Section 125, Section 402(a)(8), Section 402(h), or Section 403(b)
of the Code. The term "determination period" is the Plan Year containing the
Determination Date and the four preceding Plan Years. The determination of who
is a Key Employee shall be made in accordance with Section 416(i)(1) of the Code
and the regulations thereunder.
(b) Top-Heavy Plan. For any Plan Year beginning after December
31, 1983, the Plan is a Top-Heavy Plan if any of the following conditions
exists:
(i) the Top-Heavy Ratio for the Plan exceeds 60 percent
and the Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group;
(ii) the Plan is a part of a Required Aggregation Group
but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Required Aggregation Group exceeds 60 percent; or
(iii) the Plan is a part of a Required Aggregation Group
and a Permissive Aggregation Group and the Top-Heavy Ratio for both Groups
exceeds 60 percent.
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(c) Top-Heavy Ratio.
(i) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension Plan), and
the Employer has not maintained any defined benefit plan which during the
5-year period ending on the Determination Date has accrued any benefits
for any Participant in the Plan, the Top-Heavy Ratio for this Plan alone,
or for any Required Aggregation Group or Permissive Aggregation Group, is
a fraction, the numerator of which is the sum of the account balances of
all Key Employees under the plan(s) as of the Determination Date
(including any part of any account balance distributed in the 5-year
period ending on the Determination Date), and the denominator of which is
the sum of all account balances (including any part of any account balance
distributed in the 5-year period ending on the Determination Date) of all
Participants under the plan(s) as of the Determination Date, both computed
in accordance with Section 416 of the Code and the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio shall be
increased to reflect any contribution which is due but unpaid as of the
Determination Date, but which is required to be taken into account on that
date under Section 416 of the Code and the regulations thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension Plan) and
the Employer maintains one or more defined benefit plans which, during the
5-year period ending on the Determination Date, has accrued any benefits
for any Participant in this Plan, the Top-Heavy Ratio for any Required
Aggregation Group or Permissive Aggregation Group is a fraction, the
numerator of which is the sum of the account balances under the defined
contribution plans for all Key Employees, determined in accordance with
(i) above, and the Present Value of accrued benefits. under the defined
benefit plans for all Key Employees, and the denominator of which is the
sum of the account balances under the defined contribution plans for all
participants and the Present Value of accrued benefits under the defined
benefit plans for all participants. Both the numerator and denominator of
the Top-Heavy Ratio shall be increased for any distribution of an account
balance or an accrued benefit made in the five-year period ending on the
Determination Date and any contribution due but unpaid as of the
Determination Date.
(iii) For purposes of (i) and (ii) above, the value of
account balances and the Present Value of accrued benefits will 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 Section 416 of the Code and the regulations thereunder for the
first and second plan years of a defined benefit plan. The account
balances and accrued benefits of a participant (1) who is not a Key
Employee but who was a Key
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Employee in a prior year, or (2) who has not been credited with at least
one hour of service with the Employer at any time during the five-year
period ending on the Determination Date, will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account, shall be made in
accordance with Section 416 of the Code and the regulations thereunder.
Deductible employee contributions shall not be taken into account for
purposes of computing the Top-Heavy Ratio. When aggregating plans, the
value of account balances and accrued benefits shall be calculated with
reference to the Determination Dates that fall within the same calendar
year. The accrued benefit of a Participant other than a Key Employee shall
be determined under (1) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer, or (2) if there is no such method, as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under the
fractional rule of Section 41l(b)(1)(C) of the Code.
(d) Permissive Aggregation Group. The Required Aggregation
Group plus any other qualified plans of the Employer or an Affiliated Employer
which, when considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required Aggregation Group.
(i) Each qualified plan of the Employer or an Affiliated
Employer in which at least one Key Employee participates or has
participated at any time during the determination period (regardless of
whether the plan has terminated), and
(ii) any other qualified plan of the Employer or an
Affiliated Employer which enables a plan described in (i) above to meet
the requirements of Sections 401 (a) (4) or 410 of the Code.
(f) Determination Date. For any Plan Year of the Plan
subsequent to the first Plan Year, the last day of the preceding Plan Year. For
the first Plan Year of the Plan, the last day of that Plan Year.
(g) Valuation Date. The Determination Date, unless the
Employer designates a different Valuation Date in the Adoption Agreement as the
date as of which account balances or accrued benefits shall be valued for
purposes of calculating the Top-Heavy Ratio.
(h) Present Value. Present value shall be based on the
interest rate and mortality table specified in the Adoption Agreement.
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12.3 Minimum Allocation.
(a) Except as otherwise provided in (c) and (d) below, the
Employer contributions on behalf of any Participant who is not a Key Employee
shall not be less than the lesser of three percent of such Participant's
Compensation or, in the case where the Employer has no defined benefit plan
which designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer contributions and forfeitures, as a percentage of a Key
Employee's Compensation, allocated on behalf of any Key Employee for that year.
The minimum allocation under this Article 12.3 shall be determined without
regard to any Social Security contribution, and shall be made even though, under
other Plan provisions, the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year,
because: (1) the Participant failed to complete 1,000 Hours of Service; (2) the
Participant failed to make mandatory employee contributions to the Plan; or (3)
the Participant's Compensation was less than a stated amount. Employee Pre-Tax
Contributions and Employer Matching Contributions to the Plan shall not be taken
into account for purposes of satisfying the minimum allocation required under
this Article 12.3.
(b) For purposes of computing the minimum allocation required
under (a) above, Compensation shall mean Compensation as defined in Article 2.5
except, however, that any exclusions designated by the Employer in the Adoption
Agreement shall not be taken into account.
(c) The provisions of (a) above shall not apply to any
Participant who was not employed by the Employer on the last day of the Plan
Year.
(d) The provisions of (a) above shall not apply to any
Participant to the extent the Participant is covered under any other qualified
plan or plans of the Employer and the Employer has provided in the Adoption
Agreement that the minimum benefits requirement applicable to Top-Heavy Plans
under Section 416(c) of the Code shall be satisfied through the other plan or
plans maintained by the Employer.
(e) The minimum allocation required under (a) above (to the
extent required to be nonforfeitable under Section 416(b) of the Code) may not
be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
12.4 Minimum Vesting Schedules.
(a) For any Plan year in which this Plan is a Top-Heavy Plan,
one of the minimum vesting schedules designated by the Employer in the Adoption
Agreement shall automatically apply to the Plan. This minimum vesting schedule
shall apply to all benefits within the meaning of Section 411(a)(7) of the Code
except those attributable to employee contributions, benefits that accrued
before
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the effective date of Section 416 of the Code, and benefits that accrued before
the Plan became a Top-Heavy Plan. No reduction in a Participant's vested
benefits may occur in the event the Plan's status as a Top-Heavy Plan changes
for any Plan Year.
(b) This Article 12.4 does not apply to the account balances
of any Employee who does not have an Hour of Service after the Plan has
initially become a Top-Heavy Plan, and such Employee's account balance
attributable to Employer Contributions and Forfeitures shall be determined
without regard to this Article.
ARTICLE 13
ADMINISTRATION
13.1 Duties and Responsibilities of Fiduciaries; Allocation of
Fiduciary Responsibility. A fiduciary for the Plan shall have only those
specific powers, duties, responsibilities and obligations which are explicitly
assigned to the fiduciary under the Plan and Trust Agreement. In general, the
Employer shall have the responsibility for determining the provisions of the
Plan by completing the Adoption Agreement; appointing the Plan Administrator and
Trustee; making the contributions to the Plan required under Article 4; and
determining the procedures for the investment of Trust assets in accordance with
Article 6. The Plan Administrator shall have the responsibility for the
administration of the Plan, as more fully described in Article 13.2. The Trustee
shall have the responsibility for the administration of the Trust and the
management of the assets held thereunder, as specifically provided in the Trust
Agreement. It is intended that each fiduciary shall be responsible only for the
proper exercise of his or her own powers, duties, responsibilities and
obligations under the Plan and Trust Agreement, and shall not be responsible for
any act or failure to act of another fiduciary. A fiduciary may serve in more
than one fiduciary capacity with respect to the Plan.
13.2 Powers and Responsibilities of the Plan Administrator.
(a) Administration of the Plan. The Plan Administrator shall
have all powers necessary to administer the Plan, including the power to
construe and interpret the Plan documents; to decide all questions relating to
an individual's eligibility to participate in the Plan; to determine the amount,
form and timing of any distribution of benefits or withdrawal under the Plan; to
approve and enforce the repayment of any loan to a Participant under the Plan;
to resolve any claim for benefits in accordance with Article 13.6; and to
appoint or employ advisors, including legal counsel, to render advice with
respect to any of the Plan Administrator's responsibilities under the Plan. Any
construction, interpretation or application of the Plan by the Plan
Administrator shall be final, conclusive and binding. All actions by
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the Plan Administrator shall be taken pursuant to uniform standards consistently
applied to all persons similarly situated. The Plan Administrator shall have no
power to add to, subtract from, or modify any of the terms of the Plan, or to
change or add to any benefits provided by the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan.
(b) Records and Reports. The Plan Administrator shall be
responsible for maintaining sufficient records to reflect the Years of Service
completed by each Employee for purposes of determining the Employee's
eligibility to participate in the Plan and vested percentage under Article 7,
and the Compensation of each Participant for purposes of determining the amount
of contributions which may be made by or on behalf of the Participant under the
Plan. The Plan Administrator shall be responsible for submitting all required
reports and notifications relating to the Plan to Participants or their
beneficiaries, the Revenue Service and the Department of Labor.
(c) Furnishing Recordkeeper With Information. The Plan
Administrator shall be responsible for furnishing the Recordkeeper with
sufficient information to enable the Recordkeeper to establish and maintain
separate accounts on behalf of Participants in accordance with Article 6,
including information with respect to the allocation of Plan contributions to
Participants, disposition of Plan Forfeitures, payment of Plan distributions and
withdrawals, and accounting for Plan loans and loan repayments. In addition, the
Plan Administrator shall be responsible for furnishing the Recordkeeper with any
further information respecting the Plan which the Recordkeeper may reasonably
request for the performance of its duties or for the purpose of making any
returns to the Internal Revenue Service or Department of Labor as may be
required of the Recordkeeper.
(d) Furnishing Trustee With Instructions. The Plan
Administrator shall be responsible for furnishing the Trustee with instructions
with respect to the investment of all Plan contributions to the Trust in
accordance with Article 6, all distributions to Participants (including any
purchases of annuity contracts) in accordance with Article 8, all withdrawals by
Participants in accordance with Article 9 and all loans to Participants in
accordance with Article 10. In addition, the Plan Administrator shall be
responsible for furnishing the Trustee with any further information respecting
the Plan which the Trustee may reasonably request for the performance of its
duties or for the purpose of making any returns to the Internal Revenue Service
or Department of Labor as may be required of the Trustee.
(e) Rules and Decisions. The Plan Administrator may adopt such
rules as the Plan Administrator deems necessary, desirable, or appropriate in
the administration of the Plan. All rules and decisions of the Plan
Administrator shall be applied uniformly and consistently to all Participants in
similar circumstances. When making a determination or calculation, the Plan
Administrator shall be entitled to rely
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upon information furnished by a Participant or Beneficiary, the Employer, legal
counsel of the Employer, the Recordkeeper, or the Trustee.
(f) Application and Forms for Benefits. The Plan Administrator
may require a Participant, former Participant or Beneficiary to complete and
file with it an application for a benefit, and to furnish all pertinent
information requested by the Plan Administrator. The Plan Administrator may rely
upon all such information so furnished, including the Participant's, former
Participant's or Beneficiary's current mailing address.
(g) Facility of Payment. Whenever, in the Plan Administrator's
opinion, a person entitled to received any payment of a benefit or installment
thereof is under a legal disability or is incapacitated in any way so as to be
unable to manage his or her financial affairs, the Plan Administrator may direct
the Trustee to apply the payment for the benefit of such person in such manner
as the Plan Administrator considers advisable.
(h) Lost or Missing Participants. Any benefits payable under
the Plan to a Participant or Beneficiary shall be forfeited in the event the
Participant or Beneficiary cannot be located by the Plan Administrator after
reasonable efforts. Such benefits shall be reinstated if a claim is made by the
Participant or Beneficiary for the forfeited benefits, with the exception that
any benefits lost by reason of escheat under applicable state law shall not be
reinstated.
13.3 Allocation of Duties and Responsibilities. The Plan
Administrator may by written instrument designate other persons to carry out any
of the Plan Administrator's duties and responsibilities under the Plan. Any such
duties or responsibilities thus allocated must be described in the written
instrument. If a person other than an Employee of the Employer is so designated,
such person must acknowledge in writing his or her acceptance of the allocated
duties and responsibilities. All such instruments shall be attached to, and made
a part of, the Plan.
13.4 Expenses. The Employer shall pay all expenses authorized and
incurred in the administration of the Plan except to the extent such expenses
are paid from the Trust.
13.5 Liabilities. The Plan Administrator and each person to whom
duties and responsibilities have been allocated pursuant to Article 13.3 may be
indemnified and held harmless by the Employer to an extent determined by the
Board of Directors with respect to any alleged breach of responsibilities
performed or to be performed hereunder. The Employer shall indemnify and bold
harmless the Sponsor against all claims, liabilities, fines and penalties, and
all expenses reasonably incurred by or imposed upon the Sponsor (including, but
not limited to, reasonable attorney's fees) which arise as a result of actions
or failure to act by another party, including the
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Employer, Plan Administrator, Recordkeeper or Trustee, in connection with the
operation and administration of the Plan.
13.6 Claims Procedure.
(a) Filing of Claim. Any Participant or Beneficiary under the
Plan may file a written claim for a Plan benefit with the Plan Administrator or
with a person named by the Plan Administrator to receive claims under the Plan.
(b) Notice of Denial of Claim. In the event of a denial or
limitation of any benefit or payment due to or requested by any Participant or
Beneficiary under the Plan ("claimant"), claimant shall be given a written
notification containing specific reasons for the denial or limitation. The
written notification shall contain reference to the pertinent Plan provisions on
which the denial or limitation of the claimant's benefit is based. In addition,
it shall contain a description of any other material or information necessary
for the claimant to perfect a claim, and an explanation of why such material or
information is necessary. The notification shall further provide appropriate
information as to the steps to be taken if the claimant wishes to submit his or
her claim for review. This written notification shall be given to a claimant
within 90 days after receipt of the claim by the Plan Administrator unless
special circumstances require an extension of time for process of the claim. If
such an extension of time for processing is required, written notice of the
extension shall be furnished to the claimant prior to the termination of said
90-day period, and such notice shall indicate the special circumstances which
make the postponement appropriate.
(c) Right of Review. In the event of a denial or limitation of
the claimant's benefit, the claimant (or his or her duly authorized
representative) shall be permitted to review pertinent documents and to submit
to the Plan Administrator issues and comments in writing. In addition, the
claimant may make a written request for a full and fair review of the claimant's
claim and its denial by the Plan Administrator; provided, however, that such
written request must be received by the Plan Administrator within 60 days after
receipt by the claimant of written notification of the denial or limitation of
the claim. The 60-day requirement may be waived by the Plan Administrator in
appropriate cases.
(d) Decision on Review. A decision shall be rendered by the
Plan Administrator within 60 days after the receipt of the request for review,
provided that where special circumstances require an extension of time for
processing the decision, it may be postponed on written notice to the claimant
(prior to the expiration of the initial 60-day period) for an additional 60
days, but in no event shall the decision by rendered more than 120 days after
the receipt of such request for review. Any decision by the Plan Administrator
shall be furnished to the claimant in writing and shall set forth the specific
reasons for the decision and the specific plan provisions on which the decision
is based.
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ARTICLE 14
AMENDMENT, TERMINATION AND MERGER
14.1 Amendment of Plan.
(a) Amendment by Sponsor. The Employer, by executing the
Adoption Agreement, has thereby delegated to the Sponsor the power to amend the
Plan at any time, including any retroactive amendment necessary to assure that
the Plan will qualify or continue to be qualified under the applicable
provisions of the Code. The Sponsor shall promptly furnish written notice of any
such amendment to the Employer.
(b) Amendment by Employer. The Employer may at any time: (i)
amend any elective or optional provision of the Adoption Agreement; (ii) amend
the Plan by adding 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; (iii) amend the Plan by adding
overriding Plan language to the Adoption Agreement where such language is
necessary to satisfy Section 415 or 416 of the Code because of the required
aggregation of multiple plans. Any Employer that amends the Plan for any other
reason shall cause the Plan as adopted by the Employer to no longer represent a
prototype plan covered by an opinion letter issued by the Internal Revenue
Service to the Sponsor, but rather to represent an individually-designed plan.
The Employer shall furnish an executed copy of any amendment to the Adoption
Agreement or Plan to the Sponsor, which amendment shall become effective no
earlier than the date of receipt by the Sponsor, unless the Sponsor specifically
consents to an earlier effective date.
(c) Limitations on Amendment.
(i) Neither the Sponsor nor the Employer shall amend the
Plan so as to cause or permit any part of the assets of the Plan to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries, or so as to cause or permit any part
of the assets of the Plan to revert to or become the property of the
Employer.
(ii) No amendment to the Plan shall be effective to the
extent that it has the effect of decreasing a Participant's accrued
benefit. For purposes of this Article 14.1(c)(ii), a Plan amendment which
has the effect of decreasing a Participant's account balance or
eliminating an optional form of benefit, with respect to benefits
attributable to service before the amendment, shall be treated as reducing
an accrued benefit. Furthermore, if
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<PAGE> 82
the vesting schedule of the Plan is amended, in the case of an Employee
who is a Participant as of the later of the date such amendment is adopted
or the date it becomes effective, the vested percentage (determined as of
such date) of such Employee in his or her Employer Matching Contribution
Account and Employer Nonelective Contribution Account will not be less
than the percentage computed under the Plan without regard to such
amendment.
(iii) Any amendment to the Plan or Adoption Agreement
which alters the Plan's vesting schedule (including any automatic
amendment to the Plan vesting schedule resulting from a change to or from
Top-Heavy Plan status) or any amendment which directly or indirectly
affects the computation of a Participant's vested percentage in his or her
Employer Contribution Account and Employer Nonelective Contribution
Account under Article 7.2 shall be deemed to include the following terms:
(1) Each Participant having not less than three
Years of Service for vesting purposes at the later of the date such
amendment is adopted or the date such amendment becomes effective
shall be permitted to elect to have his or her vested percentages
computed under the Plan without regard to such amendment. Such
election must be made within 60 days from the latest of: (i) the
date the amendment is adopted, (ii) the date the amendment becomes
effective, or (iii) the date the Participant is issued written
notice of such amendment by the Plan Administrator or the Employer.
Notwithstanding the preceding sentence, no election need be provided
for any Participant whose vested percentage m his or her Employer
Matching Contribution Account and Employer Nonelective Contribution
Account under the Plan, as amended, at any time cannot be less than
such percentage determined without regard to such amendment.
(2) No decrease in a Participant's vested
percentage in his or her Employer Contribution Account and Employer
Nonelective Contribution Account may occur in the event that the
Plan's status as Top-Heavy changes for any Plan Year.
14.2 Termination of Plan; Suspension of Contributions.
(a) Plan Termination. The Employer, by duly adopted
resolution, may terminate the Plan at any time. In the event of the dissolution,
merger, consolidation or reorganization of the Employer, the Plan shall
automatically terminate unless it is continued by a successor employer in
accordance with Article 14.3. Upon the termination or partial termination of the
Plan, the separate accounts of all Participants affected thereby shall
immediately become fully vested and nonforfeitable.
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<PAGE> 83
(b) Suspension of Contributions. The Employer, by duly adopted
resolution, may discontinue all further contributions to the Plan. Upon the
complete suspension of contributions to the Plan by the Employer, the separate
accounts of all Participants affected thereby shall immediately become fully
vested and nonforfeitable. The Employer and Trustee shall continue to maintain
the Plan and Trust in accordance with the requirements of Sections 401(a) and
501(a) of the Code, and the Plan Administrator shall direct the Trustee to
distribute the separate accounts of Participants only at such times and in such
manner as specifically provided in Article 8.
14.3 Successor Employer. In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust shall be continued by the successor employer, in which case
such successor employer shall be substituted for the Employer under the Plan.
The substitution of the successor employer shall constitute an assumption of
Plan liabilities by the successor employer, and the successor employer shall
have all powers, duties and responsibilities of the Employer under the Plan.
14.4 Merger, Consolidation or Transfer. There shall be no merger or
consolidation of the Plan with, or transfer of assets or liabilities of the Plan
to, any other plan maintained or to be established for the benefit of all or
some of the Participants in the Plan, unless each Participant would (if either
this Plan or such other plan then terminated) receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit the Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (if this Plan had then terminated).
14.5 Distribution Upon Termination of Plan or Disposition of Assets
or Subsidiary. If so directed by the Plan Administrator, the Trustee shall
distribute to each Participant the amounts credited to the Participant's
separate accounts under the Plan in a lump-sum payment (unless such amount is
required to be paid in the form of a qualified joint and survivor annuity under
Article 8 or except as otherwise required under Article 8.3(b)) if:
(a) the Plan is terminated under Article 14.2 without the
establishment or maintenance by the Employer of another defined contribution
plan;
(b) the Employer is a corporation and the Employer disposes of
substantially all the assets (within the meaning of Section 409(d)(2) of the
Code) used in its trade or business to an unrelated corporation, provided that
the Participant continues employment with the corporation acquiring such asset
and the Employer continues to maintain the Plan after the disposition; or
(c) the Employer is a corporation and the Employer disposes of
its interest in a subsidiary (within the meaning of Section 409(d)(3) of the
Code),
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<PAGE> 84
provided that the Participant continues employment with such subsidiary and the
Employer continues to maintain the Plan after the disposition.
ARTICLE 15
MISCELLANEOUS
15.1 Exclusive Benefit of Participants and Beneficiaries.
(a) The corpus or income of the Trust shall not be used for,
or diverted to, purposes other than for the exclusive benefit of Participants,
former Participants and their Beneficiaries. The assets of the Trust shall not
revert to the benefit of the Employer, except as otherwise specifically provided
in subsection (b) below.
(b) Employer Contributions to the Plan may be returned to the
Employer under the following conditions:
(i) If the Employer Contribution was made by mistake of
fact, such contribution may be returned to the Employer within one year of
the payment of such contribution.
(ii) Employer Contributions to the Plan are specifically
conditioned upon their deductibility under the Code. To the extent a
deduction is disallowed for any such contribution, it may be returned to
the Employer within one year after the disallowance of the deduction.
(iii) Employer contributions to the Plan are
specifically conditioned on the initial qualification of the Plan under
the Code. If the Plan is determined by the Internal Revenue Service to not
be initially qualified, any Employer contributions made incident to that
initial qualification may be returned to the Employer within one year
after the date the initial qualification is denied, but only if the
application for qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe.
15.2 Leased Employees. For purposes of this Plan, any leased
employee of the Employer shall be treated as an Employee of the Employer and
shall be otherwise eligible for coverage and benefits under the Plan, unless:
(1) the leased employee is covered by a money purchase
pension plan providing (i) a non-integrated employer contribution of
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<PAGE> 85
at least 10 percent of compensation (as defined in Section 415(c)(3) of
the Code, but including amounts contributed pursuant to a salary reduction
agreement which are excludable from the employee's gross income under
Section 125, 402(a)(8), 402(h) or 403(b) of the Code), (ii) immediate
participation, and (iii) full and immediate vesting; and
(2) leased employees do not constitute more than 20
percent of the Employer's non-highly compensated workforce.
For purposes of this Article 15.2, the term "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 any related
persons determined in accordance with Section 414(n)(6) of the Code) 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 to the 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.
15.3 Crediting Service With Predecessor Employer. If the Employer
maintains this Plan as the plan of a predecessor employer, service with the
predecessor employer shall be treated as service with the Employer under this
Plan in accordance with Articles 3.4(b) and 7.3(b).
15.4 Special Requirements For Controlled Business By
Owner-Employees.
(a) If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the trade or business with respect to
which this Plan is established and one or more other trades or businesses, this
Plan and any plan established with respect to such other trades or businesses
must, when looked at as a single plan, satisfy Section 401 (a) and (d) of the
Code with respect to the employees of this and all such other trades or
businesses.
(b) If this Plan provides contributions or benefits for one or
more Owner-Employees who control one or more other trades of businesses, the
employees of each such other trade or business must be included in a plan which
satisfies Sections 401(a) and (d) of the Code 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 contributions or benefits of
the employees under the plan of the trades or businesses which are controlled
must be as
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<PAGE> 86
favorable as those provided for the Owner-Employee 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, shall be considered to control a trade
or business if such Owner-Employee, or such two or more Owner-Employees
together:
(1) own the entire interest in a unincorporated trade or
business; or
(2) in the case of a partnership, own more than 50
percent of either the capital interest or the profits interest in such
partnership.
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.
15.5 Nonguarantee of Employment. Nothing contained in this Plan
shall be construed as a contract of employment between the Employer and any
Employee, or as a right of any Employee to be continued in the employment of the
Employer, or as a limitation of the right of the Employer to discharge any of
its Employees, with or without cause.
15.6 Right to Trust Assets. No Employee, Participant, former
Participant or Beneficiary shall have any right to, or interest in, any assets
of the Trust upon termination of employment or otherwise, except as specifically
provided under the Plan. All payments of benefits under the Plan shall be made
solely out of the assets of the Trust.
15.7 Nonalienation of Benefits. Except as provided under Article 10
with respect to Plan loans, benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, whether
voluntary or involuntary; provided, however, that the Trustee shall not be
hereby precluded from complying with any qualified domestic relations order as
defined in Section 414(p) of the Code or any domestic relations order entered
before January 1, 1985. Any attempt by a Participant, former Participant or
Beneficiary to anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge or otherwise dispose of any right to benefits payable hereunder shall be
void. The Trustee shall not in any manner be liable for or subject to, the
debts, contracts, liabilities, engagements or torts of any person entitled to
benefits hereunder.
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<PAGE> 87
15.8 Failure of Qualification. If the Employer fails to attain or
retain this Plan as a plan which qualifies under Section 401 of the Code, then
the Plan as adopted by the Employer will no longer represent a prototype plan
covered by an opinion letter issued by the Internal Revenue Service to the
Sponsor as to the acceptability of the form of the Plan and Trust Agreement
under Sections 401 and 501 (a) of the Code, but rather will be considered an
individually-designed plan.
15.9 Applicable Law. The Plan shall be construed and enforced in
accordance with and by the laws of the state in which the Employer's principal
place of business is located, as specified in the Adoption Agreement, to the
extent permitted by ERISA.
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<PAGE> 1
Exhibit 10.9
=======================================
MERGER AGREEMENT
Among
NBC ACQUISITION CORP.
EXECUTING SHAREHOLDERS
and
NBC MERGER CORP.
January 6, 1998
=======================================
<PAGE> 2
MERGER AGREEMENT
THIS AGREEMENT is made as of January 6, 1998, among NBC Merger
Corp., a Delaware corporation ("Buyer"), NBC Acquisition Corp., a Delaware
corporation (the "Company"), and, upon execution of a counterpart hereof, each
of the Persons executing this Agreement as an Executing Shareholder
(collectively referred to herein as the "Executing Shareholders" and
individually as an "Executing Shareholder"). Unless otherwise provided,
capitalized terms used herein are defined in Article XI below.
The Persons listed on the Shareholders Schedule attached hereto
(collectively referred to as the "Shareholders" and individually as a
"Shareholder") own all of the issued and outstanding capital stock of the
Company, which as of the date hereof consists of 2,755,776 shares of Class A
Common Stock, par value $.01 per share (the "Class A Common"), and 48,148 shares
of Class B Common Stock, par value $.01 per share (the "Class B Common"). In
addition, certain of the Shareholders own options to acquire in the aggregate
200,000 shares of Class A Common (the "Shareholder Options"), and certain other
Shareholders own warrants to acquire 381,818 shares of Class A Common (the
"Warrants"). The outstanding shares of Class A Common and Class B Common are
referred to collectively as the "Shares."
The Company owns all of the issued and outstanding shares of capital
stock of Nebraska Book Company, Inc., a Kansas corporation (the "Subsidiary").
Subject to the terms and conditions set forth herein, the boards of
directors of the Company and Buyer have approved the merger (the "Merger") of
Buyer with and into the Company, such that the Company shall be the surviving
corporation (the "Surviving Corporation"), with the effect that (a) all Shares
(including shares issued upon the exercise of Options or Warrants after the date
hereof but before the Closing) shall either be converted into the right to
receive an amount of cash consideration or (pursuant to Section 3.04 hereof)
shall remain outstanding as an equal number of shares of common stock, par value
$0.01, of the Surviving Corporation ("Surviving Corporation Shares"), (b) all
Warrants and Options shall be converted into the right to receive an amount of
cash consideration, and (c) all shares of common stock, par value $0.01, of
Buyer ("Buyer Shares") issued and outstanding prior to the Closing shall be
converted into an equal number of Surviving Corporation Shares. Prior to or
contemporaneous with the Closing hereunder, the Company shall offer to redeem
and cancel all of the issued and outstanding options to purchase the Company's
capital stock which are owned by individuals other than Shareholders (the
"Non-Shareholder Options") as provided in Section 6.06 below.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 3
ARTICLE I
MERGER, EFFECTS OF MERGER AND CLOSING
1.01 Merger of Buyer with and into the Company. In accordance with
the provisions of this Agreement and the Delaware General Corporations Law (the
"DGCL"), at the Closing (as defined below), Buyer shall be merged with and into
the Company, which shall continue as the Surviving Corporation. At the Closing,
the separate existence and corporate organization of Buyer shall cease and each
Buyer Share issued and outstanding immediately prior to the Closing shall be
converted into a Surviving Corporation Share as set forth herein.
1.02 Effect of the Merger.
(a) Certificate of Incorporation. Article 4 of the Certificate
of Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows:
"The total number of shares of stock that this corporation shall
have authority to issue is Five Million (5,000,000) shares of Class
A Common Stock, $.01 par value per share ("Common Stock"). Each
share of Common Stock shall be entitled to one vote."
(b) By-laws. The By-laws of Buyer as in effect immediately
prior to the Closing shall be the By-laws of the Surviving Corporation until
altered, amended or repealed as provided therein and in the Certificate of
Incorporation of the Surviving Corporation.
(c) Officers and Directors. The officers and directors of
Buyer immediately prior to the Closing shall become the officers and directors
of the Surviving Corporation until their respective successors are duly
appointed or elected and qualified.
1.03 Effect of Merger. (a) At the Closing, the Merger shall have the
effects set forth in Section 259 of the DGCL. Without limiting the generality of
the foregoing, and subject thereto: (i) the Surviving Corporation shall possess
all the rights, privileges, powers and franchises, of a public and private
nature, and shall be subject to all the restrictions, disabilities and duties of
each of Buyer and the Company (the "Constituent Corporations"); (ii) all
property, real, personal and mixed, and all debts due to either Constituent
Corporation on whatever account, including all choses in action and other things
belonging to the Constituent Corporations, shall be vested in the Surviving
Corporation; (iii) all property, rights, privileges, powers and franchises, and
every other interest of each of the Constituent Corporations shall be, from and
after the Closing Date, the property of the Surviving Corporation and the title
to any real estate vested by deed or otherwise in the Constituent
<PAGE> 4
Corporations shall not revert or be impaired in any way by this Agreement or the
Merger provided for herein, but all rights of creditors and all liens upon any
property of either Constituent Corporation shall be preserved unimpaired, and
all debts, liabilities and duties of the Constituent Corporations shall, from
and after the Closing, attach to and become the debts, liabilities and duties of
the Surviving Corporation, and may be enforced against the Surviving Corporation
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation; and (iv) all transfers vesting in the
Surviving Corporation referred to herein shall be deemed to occur by operation
of law and no consent or approval of any other person shall be required in
connection with any such transfer or vesting unless such consent or approval is
specifically required in the event of merger or consolidation by law or express
provision of any contract, agreement, decree, order or other instrument to which
either or both of the Constituent Corporations is a party or is bound.
(b) The Surviving Corporation shall assume and be liable for
all the liabilities, obligations and penalties of each of the Constituent
Corporations. No liability or obligation due or to become due, and no claim or
demand for any cause existing against either Constituent Corporation or any
stockholder, officer or director thereof, shall be released or impaired by the
Merger. No action or proceeding, whether civil or criminal, then pending by or
against either Constituent Corporation or any stockholder, officer or director
thereof, shall abate or be discontinued by the Merger, but may be enforced,
prosecuted, settled or compromised as if the Merger had not occurred. The
Surviving Corporation may be substituted in any such action or special
proceeding in place of either Constituent Corporation.
(c) At the Closing, the accounting entries with respect to the
assets, liabilities, capital, surplus and any and all other items of the
Constituent Corporations shall be taken up on the books of the Surviving
Corporation at the amounts which they, respectively, are then carried on the
books of said Constituent Corporations, subject to such adjustments as may be
appropriate in giving effect to the Merger.
1.04 Additional Actions. If, at any time after the Closing, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of Buyer or the Company acquired or
to be acquired by reason of, or as a result of, the Merger, or (b) otherwise to
carry out the purpose of this Agreement, Buyer and the Company and their
respective proper officers and directors shall be deemed to have granted to the
Surviving Corporation and its proper officers and directors, and each of them,
an irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
the Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of the Surviving Corporation,
and each of
<PAGE> 5
them, are fully authorized in the name of Buyer and the Company or otherwise to
take any and all such action.
1.05 The Closing.
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Paul, Weiss, Rifkind, Wharton
& Garrison, 1285 Avenue of the Americas, New York, New York, 10019, on February
11, 1998 or on such other date as is mutually agreeable to Buyer and the
Shareholders' Representative. The date and time of the Closing are herein
referred to as the "Closing Date."
(b) Subject to the terms and conditions set forth in this Agreement,
the parties hereto shall consummate the following "Closing Transactions" on the
Closing Date:
(i) the Shareholders' Representative (on behalf of the Shareholders
other than Dissenting Shareholders) shall deliver to Buyer stock
certificates representing the Shares of such Shareholders and instruments
evidencing such Shareholders' Warrants and such Shareholders' Shareholder
Options, accompanied by duly executed letters of transmittal in the form
of Exhibit A (each a "Letter of Transmittal").
(ii) Buyer shall deliver to the Shareholders' Representative (on
behalf of the Shareholders who submit duly executed Letters of Transmittal
(x) an aggregate amount equal to the amounts into which Shares, Warrants
and Options represented by duly executed Letters of Transmittal from such
Shareholders are to be converted pursuant to Sections 3.02(b)(i), (c) and
(d) and (y) certificates representing Surviving Corporation Shares to be
issued to certain Shareholders pursuant to Section 3.02(b)(ii);
(iii) Buyer shall repay, or cause to be repaid, on behalf of the
Company and the Subsidiary, as a reduction of the Merger Consideration as
provided in Section 3.01(a), all amounts necessary to discharge fully the
then outstanding balance of the Indebtedness listed on the Indebtedness
Schedule by wire transfer of immediately available funds as directed by
the holders of such Indebtedness at or prior to the Closing; and
(iv) Buyer shall cause the Certificate of Merger, substantially in
the form of Exhibit B hereto, to be filed with the Secretary of State of
the State of Delaware.
(v) Buyer, the Company and the Shareholders' Representative (on
behalf of the Shareholders) shall make such other deliveries as are
required by and in accordance with Article II hereof.
<PAGE> 6
ARTICLE II
CONDITIONS TO CLOSING
2.01 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions as of the Closing Date, any one or more
of which may be waived by Buyer:
(a) The representations and warranties set forth in Article IV
hereof shall be true and correct in all material respects (except to the extent
qualified as to materiality, in which case such representations and warranties
shall be true and accurate in all respects, after giving effect to such
materiality) at and as of the Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties, except for (i) events contemplated by this
Agreement and (ii) those representations and warranties that address matters
only of a particular date (which shall be true and correct in all material
respects (except to the extent qualified as to materiality, in which case such
representations and warranties shall be true and accurate in all respects, after
giving effect to such materiality) as of such date);
(b) The Company shall have performed in all material respects all of
the covenants and agreements (except to the extent qualified as to materiality,
in which case such covenants and agreements shall have been performed in all
respects, after giving effect to such materiality) required to be performed by
it under this Agreement at or prior to the Closing;
(c) The applicable waiting periods, if any, under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 ( the "HSR Act") shall have
expired or been terminated, and all other material governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby (all of which items are set forth on the
Governmental Consents Schedule attached hereto) shall have been made and
obtained;
(d) No judgment, decree or order shall have been entered and remain
in effect which prevents the performance of this Agreement or the consummation
of any of the transactions contemplated hereby, declares unlawful the
transactions contemplated by this Agreement or causes such transactions to be
rescinded;
(e) On or prior to the close of business on January 26, 1998, the
Company shall have consummated the acquisition of Collegiate Services
Corporation ("CSC") and the consummation of such acquisition shall have taken
place substantially in the manner described on Schedule 2.01(e). If the
condition contained in this Section 2.01(e) is not satisfied by such date, Buyer
may give notice to the Company, on or prior to the close of business on February
2, 1998, of its intention not to consummate the transaction contemplated by this
<PAGE> 7
Agreement. If Buyer fails to give such notice within the prescribed period, the
condition in this Section 2.01(e) shall be deemed satisfied;
(f) The Company shall have redeemed and canceled, or simultaneously
with the Closing shall redeem and cancel, all of the Non-Shareholder Options;
(g) Prior to January 15, 1998, Shareholders who own not less than
95% of the Shares shall have executed this Agreement as Executing Shareholders
or the Executing Shareholders shall have agreed to bear their Pro Rata Share of
95% of any Losses that may be the subject of indemnification under Section
10.02(a). If the condition contained in this Section 2.01(g) is not satisfied
prior to close of business on January 15, 1998, Buyer may give notice to the
Company, prior to close of business on January 20, 1998, of its intention not to
consummate the transactions contemplated by this Agreement. If Buyer fails to
give such notice prior to close of business on January 20, 1998, the condition
in this Section 2.01(g) shall be deemed satisfied;
(h) The holders of not more than two percent of the Shares shall
have perfected appraisal rights under Section 262 of the DGCL with respect to
the Merger;
(i) The Persons listed on Schedule 2.01(i) shall have elected to
convert, in aggregate, a number of Shares equal to $3,850,000 divided by the Per
Share Cash Consideration Amount into Surviving Corporation Shares; and
(j) The Company or the Shareholders' Representative (on behalf of
the Shareholders who wish to participate in the Merger), as the case may be,
shall have delivered to Buyer each of the following:
(i) a certificate of the Company in the form set forth in
Exhibit C attached hereto, dated the Closing Date, stating that the
preconditions specified in subsections (a) through (i) hereof, inclusive,
have been satisfied;
(ii) copies of the governmental consents required by
subsection (c) above;
(iii) the stock certificates representing the Shares, the
instruments representing the Warrants and the instruments representing the
Shareholder Options from the Shareholders, in each case duly endorsed for
transfer or assignment or accompanied by duly executed Letters of
Transmittal;
(iv) all minute books, stock books, ledgers and registers,
corporate seals and other corporate records relating to the organization,
ownership and maintenance of the Company and its Subsidiary; and
<PAGE> 8
(v) a copy of the Company's Certificate of Incorporation,
certified by the Secretary of State of Delaware, and Certificate of Good
Standing from the Secretary of State of Delaware evidencing the Company's
good standing in such jurisdiction, and a copy of the Subsidiary's
Certificate or Articles of Incorporation, certified by the Secretary of
State of Kansas, and a Certificate of Good Standing from the Secretary of
State of Kansas, and each state wherein the Subsidiary is duly qualified
evidencing the Subsidiary's good standing therein.
2.02 Conditions to the Company's Obligations. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions as of the Closing Date,
any one or more of which may be waived by the Company:
(a) The representations and warranties set forth in Article V hereof
shall be true and correct in all material respects (except to the extent
qualified as to materiality, in which case such representations and warranties
shall be true and accurate in all respects, after giving effect to such
materiality) at and as of the Closing as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties, except for those representations and warranties
that address matters only as of a particular date (which shall be true and
correct in all material respects (except to the extent qualified as to
materiality, in which case such representations and warranties shall be true and
accurate in all respects, after giving effect to such materiality) as of that
date);
(b) Buyer shall have performed in all material respects all the
covenants and agreements (except to the extent qualified as to materiality, in
which case such covenants and agreements shall have been performed in all
respects, after giving effect to such materiality) required to be performed by
it under this Agreement at or prior to the Closing;
(c) No judgment, decree or order which prevents the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby, declares unlawful the transactions contemplated by this Agreement or
causes such transactions to be rescinded shall have been entered and remain in
effect;
(d) The applicable waiting periods, if any, under the HSR Act shall
have expired or been terminated, and all other material governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby shall have been duly made and obtained;
(e) Buyer shall have delivered to the Shareholders' Representative
(on behalf of the Shareholders) a certificate in the form set forth as Exhibit D
attached hereto, dated the
<PAGE> 9
Closing Date, stating that the preconditions specified in subsections (a)
through (d) hereof, inclusive, have been satisfied;
(f) The Closing Transactions set forth in Section 1.04(b)(ii) and
(iii) shall have been completed.
ARTICLE III
CONSIDERATION, CONVERSION OF
SHARES AND DISSENTING SHAREHOLDERS
3.01 Merger Consideration.
(a) The "Merger Consideration" shall be equal to $245.0 million (i)
minus the amount, as of the Closing Date, of Indebtedness required to be
described on the Indebtedness Schedule, (ii) minus the Option Payment, if any,
and (iii) plus an amount equal to the sum of (x) the lesser of (A) $5,000,000 or
(B) the amount of Excess Cash plus (y) 75% of the excess, if any, of Excess Cash
over $6,666,667.00; as adjusted pursuant to subsection (b) below.
(b) If the Closing occurs after February 11, 1998 (other than as the
result of a breach of a covenant, representation or warranty contained herein by
the Company or the Shareholders or by reason of the failure of any of the
conditions precedent to the obligations of Buyer contained in Section 2.01,
provided that the failure of the condition precedent under Section 2.01(c) shall
not prevent the incurrence of the increase to Merger Consideration provided in
this Section 3.01(b) in the event that Buyer's filing under the HSR Act is filed
later than four business days after the date hereof), then the Merger
Consideration shall be increased by an amount equal to $67,123.29 per day for
each day between and including February 11, 1998 to, but not including, the
Closing Date.
3.02 Automatic Conversion of Outstanding Shares. At the Closing:
(a) Each issued and outstanding Buyer Share shall, by virtue
of the Merger and without any action on the part of any person or entity, be
converted into a Surviving Corporation Share.
(b) Each Share shall, by virtue of the Merger and without any
action on the part of any person or entity, either (i) be converted into the
right to receive payment of cash consideration in an amount equal to (x) the sum
of (A) the Merger Consideration plus (B) an amount (if any) equal to the
aggregate exercise price of the Shareholder Options and the Warrants which are
to be converted to the right to receive payment under Sections 3.02(c)
<PAGE> 10
and (d) between the date hereof and the Closing divided by (y) the number of
Shares at Closing plus the number of Shares that would be required to be issued
if all of the Shareholder Options and Warrants were exercised prior to Closing
(the "Per Share Cash Consideration Amount") or (ii) subject to Section 3.04,
remain outstanding as a Surviving Corporation Share.
(c) Each Shareholder Option shall, by virtue of the Merger and
without any action on the part of any person or entity, be converted into the
right to receive payment of cash consideration in an amount equal to (i) the
number of shares for which such option is exercisable, multiplied by (ii) the
Per Share Cash Consideration Amount less the per-share exercise price applicable
to such option.
(d) Each Warrant shall, by virtue of the Merger and without
any action on the part of any person or entity, be converted into the right to
receive payment of cash consideration in an amount equal to (i) the number of
shares for which such Warrant is exercisable, multiplied by (ii) the Per Share
Cash Consideration Amount less the per-share exercise price applicable to such
Warrant.
(e) The Surviving Corporation shall be entitled to deduct from
the cash consideration payable pursuant to clauses (c) and (d) above any amounts
required to satisfy any federal, state, or local withholding tax requirements.
3.03 Exchange of Shares. As soon as practicable after the Closing,
the Surviving Corporation shall mail or deliver to each former Company record
holder whose outstanding shares have been converted into Surviving Corporation
Shares as provided in Section 3.02(b)(ii) and who has surrendered his share
certificates representing Shares together with a duly executed Letter of
Transmittal, indicating his election to convert such Shares, a certificate
representing that aggregate number of Surviving Corporation Shares to which such
former Company record holder is entitled pursuant to Section 3.02(b)(ii).
3.04 Converting Company Stockholders. Each Person named on Schedule
2.01(i), by executing a counterpart of this Agreement and delivering a Letter of
Transmittal to the Company at or prior to the Closing, may designate in such
Letter of Transmittal the number of Shares to be converted into Surviving
Corporation Shares and the number of Shares to be converted into the right to
receive cash consideration.
3.05 Dissenting Stockholders
(a) Election. The provisions of Article III to the contrary
notwithstanding, any Shares as to which the holder thereof shall have properly
demanded appraisal in accordance with the requirements of Section 262 of the
DGCL (any holder duly making such demand is referred to herein as a "Dissenting
Stockholder") shall not be
<PAGE> 11
converted into the right to receive the Per Share Cash Consideration Amount or
to convert such Shares into Surviving Corporation Shares, unless and until such
holder shall have failed to perfect, or shall have effectively withdrawn or
lost, the right to appraisal of and payment for such Shares under Section 262 of
the DGCL. In the event that a notice of exercise of appraisal rights under
Section 262 of the DGCL was not required prior to the Closing, at such time as a
holder of Shares subsequently properly demands appraisal rights, certificates
for Shares as to which such appraisal rights are properly demanded (to the
extent such certificates have not theretofore surrendered pursuant to Section
3.03) shall thereupon cease to represent the right to receive the Per Share Cash
Consideration Amount, and shall represent only the right to receive payment for
such shares under Section 262 of the DGCL.
(b) Payment. Each Dissenting Stockholder who becomes entitled,
pursuant to the provisions of Section 262 of the DGCL, to payment of the value
of its Shares shall receive payment therefor from the Company (but only after
the value thereof shall have been agreed upon or finally determined pursuant to
such provisions). If a Dissenting Stockholder fails to perfect, or effectively
withdraws or loses the right to receive payment for such Shares, pursuant to
Section 262 of the DGCL, such Dissenting Stockholder (to the extent the
certificates representing such shares have not theretofore been surrendered in
accordance with Section 3.03) shall be entitled to convert such Shares as
provided in Section 3.01(b)(i).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
4.01 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and the Company has all requisite corporate power and
authority and all authorizations, licenses and permits necessary to own and
operate its properties and to carry on its businesses as now conducted, except
where the failure to hold such authorizations, licenses and permits would not
have a Material Adverse Effect. The Company has made available to Buyer complete
and correct copies of the certificate of incorporation, by-laws and minute
books, each as currently in effect, of the Company.
4.02 Subsidiaries. Except as set forth on the attached Subsidiary
Schedule, neither the Company nor the Subsidiary own or hold the right to
acquire any stock, partnership interest or joint venture interest or other
equity ownership interest in any other corporation, organization or entity. The
Company owns all of the issued and outstanding capital stock of the Subsidiary.
The Subsidiary is duly organized, validly existing and in good standing under
the laws of the State of Kansas, has all requisite corporate power and authority
and all authorizations, licenses and permits necessary to own its properties and
to carry on
<PAGE> 12
its businesses as now conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify, except where the failure to hold such authorizations,
licenses and permits or to be so qualified would not have a Material Adverse
Effect. The Company has made available to Buyer complete and correct copies of
the certificate of incorporation, by-laws and minute books, each as currently in
effect, of the Subsidiary.
4.03 Authorization; No Breach. Except as set forth on the attached
Authorization Schedule, the execution, delivery and performance of this
Agreement by the Company and the Shareholders and the consummation of the
transactions contemplated hereby do not conflict with or result in any material
breach of, constitute a material default under, result in a material violation
of, result in the creation of any material lien, security interest, charge or
encumbrance upon any material assets of the Company or the Subsidiary, or
require any material authorization, consent, approval, exemption or other action
by or notice to any court or other governmental body, under the provisions of
the Company's or the Subsidiary's certificate of incorporation or bylaws or any
material indenture, mortgage, lease, loan agreement or other agreement or
instrument to which the Company or the Subsidiary is bound, or any law, statute,
rule or regulation or order, judgment or decree to which the Company or the
Subsidiary is subject. None of the foregoing items shall be deemed to be
"material" unless the failure to meet the requirements thereof, in combination
with all other failures to meet such requirements, would have a Material Adverse
Effect. This Agreement and the other agreements being entered into herewith have
been duly authorized and approved by the board of directors of the Company and
the requisite number of stockholders of the Company by consent in lieu of a
meeting and have been duly executed and delivered by the Company and, assuming
that this Agreement is a valid and binding obligation of Buyer, this Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws and to general principles of equity
(whether considered in proceedings at law or in equity).
4.04 Capital Stock. The authorized number of shares of capital stock
of the Company consist of the following: 4,500,000 shares of Class A Common and
500,000 shares of Class B Common. As of the date hereof, 2,755,776 shares of
Class A Common and 48,148 shares of Class B Common are issued and outstanding
and are owned of record by the Shareholders in the amounts as set forth on the
Shareholders Schedule. All of the outstanding shares of capital stock of the
Company and the Subsidiary have been duly authorized and are validly issued,
fully paid and nonassessable. Except as set forth on the Capital Stock Schedule,
neither the Company nor the Subsidiary has any other capital stock, equity
securities or securities containing any equity features authorized, issued or
outstanding, and there are no agreements, options, warrants or other rights or
arrangements existing or outstanding which provide for the sale or issuance of
any of the foregoing by the Company or the Subsidiary. Except for the Warrants
and the Shareholder Options and as set forth on
<PAGE> 13
the Capital Stock Schedule, there are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire any shares of capital stock or other equity securities of the
Company or the Subsidiary of any kind. Except as set forth on the Capital Stock
Schedule, there are no agreements or other obligations (contingent or otherwise)
which require the Company or the Subsidiary to repurchase or otherwise acquire
any shares of the Company's capital stock or other equity securities.
4.05 Financial Statements; Cost Reports. The Company has furnished
Buyer with copies of (i) its unaudited consolidated balance sheet as of
September 30, 1997, and the related statement of income for the fiscal period
then ended (the "Unaudited Financial Statements" and such balance sheet referred
to herein as the "Latest Balance Sheet") and (ii) its audited consolidated
balance sheet and statements of income and cash flows for the fiscal years ended
March 31, 1997 and March 31, 1996 (the "Audited Financial Statements," and
collectively with the Unaudited Financial Statements, the "Financial
Statements"). Except as set forth on the attached Accounting Schedule, such
Financial Statements have been based upon the information contained in the
Company's and the Subsidiary's books and records, have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods indicated, and present fairly in all material respects
the financial condition and results of operations of the Company and the
Subsidiary as of the times and for the periods referred to therein, subject in
the case of the Unaudited Financial Statements to (i) the absence of footnote
disclosure and other presentation items and (ii) changes resulting from normal
year-end adjustments.
4.06 Absence of Certain Developments. Since the date of the Latest
Balance Sheet (the "Latest Balance Sheet Date"), there has not been any change,
occurrence or event which (individually or together with other changes,
occurrences or events) has had or will have a Material Adverse Effect on the
Company and the Subsidiary, taken as a whole. Except as set forth on the
attached Developments Schedule and except as expressly contemplated by this
Agreement, since the Latest Balance Sheet Date, neither the Company nor the
Subsidiary has:
(a) borrowed any amount or incurred or become subject to any
material liabilities, except liabilities incurred in the ordinary course
of business, liabilities under contracts entered into in the ordinary
course of business and borrowings from banks (or similar financial
institutions) necessary to meet ordinary course working capital
requirements;
(b) mortgaged, pledged or subjected to any lien, charge or
other encumbrance, any material portion of its assets, except liens for
current property taxes not yet due and payable and mechanics',
materialmen's and contractors' liens or encumbrances incurred in the
ordinary course of business;
<PAGE> 14
(c) sold, assigned or transferred any material portion of its
tangible assets, except in the ordinary course of business;
(d) sold, assigned or transferred any material patents,
trademarks, trade names, copyrights, trade secrets or other intangible
assets except in the ordinary course;
(e) suffered any extraordinary losses or waived any rights of
material value;
(f) issued, sold or transferred any of its capital stock or
other equity securities, securities convertible into its capital stock or
other equity securities or warrants, options or other rights to acquire
its capital stock or other equity securities, or any bonds or debt
securities;
(g) declared or paid any dividends or made any distributions
on the Company's capital stock or other equity securities or redeemed or
purchased any shares of the Company's capital stock or other equity
securities, except for the cancellation and redemption of the
Non-Shareholder Options pursuant to Section 6.06 hereof;
(h) made any material change in its accounting methods,
principles or practices affecting its assets, liabilities or businesses,
except insofar as may have been required by a change in generally accepted
accounting principles ("GAAP");
(i) adopted a plan of liquidation or resolutions providing for
the liquidation, dissolution, merger, consolidation or other
reorganization of the Company or the Subsidiary;
(j) entered into any agreement relating to, or the occurrence
of any wage or salary increase or bonus, or increase in any other direct
or indirect compensation or benefits (including any severance or
termination payment) for or to any officers, directors or employees of the
Company or the Subsidiary or any accrual for or contract or other
agreement to make or pay the same except in the ordinary course of
business in a manner consistent with past practice;
(k) entered into any loan or facility to advance to any
officers, directors or employees, or other representatives of the Company
or the Subsidiary (other than travel advances made in the ordinary course
of business in a manner consistent with past practice) or any other loan
or advance except in the ordinary course of business in a manner
consistent with past practice;
<PAGE> 15
(l) except for any acquisition of tangible property acquired
in the ordinary course of business in a manner consistent with past
practice, acquired all or any part of the assets, properties, capital
stock or business of any other person;
(m) undertaken any action that is outside the ordinary course
of business and in a manner inconsistent with past practice;
(n) undertaken any actions outside of the ordinary course of
business which would affect its respective cash position, including (i)
any failure to make scheduled capital expenditures substantially in
accordance with its ordinary course and customary practice; (ii) any
failure to pay trade payables or other liabilities in the ordinary course;
(iii) any discounting or other actions designed to accelerate the payment
of accounts receivable or (iv) any use of cash to prepay Indebtedness,
otherwise than in the ordinary course of business;
(o) used any Cash, including Excess Cash or any proceeds of
the revolving credit facility of the Company described on the Indebtedness
Schedule (the "Revolver"), for any purpose other than (i) up to $7,100,000
plus the amount of Excess CSC Consideration (which Excess CSC
Consideration shall not exceed $1,200,000), for the acquisitions of (w)
CSC, (x) the retail store in Flagstaff, Arizona, (y) the retail stores in
Charleston, Columbia and West Columbia, South Carolina and (z) the retail
store in Houston, Texas, (ii) for normal capital expenditure projects
consistent with past practices, (iii) for the payment of Taxes when due
and payable, (iv) for the payment of interest on Indebtedness when due and
payable, (v) for payment of (A) the specific monthly mortgage payment
amounts in connection with the retail property in Knoxville, Tennessee,
described on the Indebtedness Schedule as being due and payable in the
ordinary course and (B) an amount of $75,000 in connection with a
scheduled repayment of principal amount of Tranche B (as described on the
Indebtedness Schedule), (vi) for payment of amounts due under the Revolver
and (vii) for normal general working capital obligations incurred in the
ordinary course consistent with past practices;
(p) suffered any material damage, destruction or theft, not
covered by insurance, to any of its material assets;
(q) suffered or undertaken any cancellation, compromise,
waiver or release of any right or claim (or series of rights or claims)
except such as would not have a Material Adverse Effect; or
(r) granted any material license or sublicense of any rights
under or with respect to any of its intangible property not in the
ordinary course of business.
<PAGE> 16
4.07 Title to Properties.
(a) The real property demised by the leases described on the
attached Leased Real Property Schedule constitutes all of the real property
leased by the Company and the Subsidiary (the "Leased Real Property").
(b) The leases described on the Leased Real Property Schedule are in
full force and effect, and the Company or the Subsidiary holds a valid and
existing leasehold interest under each of the leases set forth on the Leased
Real Property Schedule. The Company has made available to Buyer complete and
accurate copies of each of the leases described on the Leased Real Property
Schedule, and none of the leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies made available to
Buyer. All rent and other sums and charges payable by each of the Company and
the Subsidiary as tenant in respect of any Leased Real Property are current, no
written notice of default or termination under any such lease is outstanding,
and, to the knowledge of the Company, no termination event or condition or
uncured default on the part of the Company or the Subsidiary or, to the
knowledge of the Company or the Subsidiary, the applicable landlord, exists
under any of such leases. Except as set forth on Leased Real Property Schedule,
each of the Company and the Subsidiary holds the leasehold estate and interest
in its leases free and clear of all Liens, except for Permitted Liens. To the
Company's knowledge, neither the Company nor the Subsidiary is in default in any
material respect under any of such leases.
(c) Except as set forth on the attached Owned Real Property
Schedule, neither the Company nor the Subsidiary owns any real property. With
respect to each parcel of real property listed on the Owned Real Property
Schedule (the "Owned Real Property"):
(i) either the Company or the Subsidiary owns good and
marketable title to such parcel of real property, free and clear of all
Liens, other than (A) Permitted Liens and (B) other encumbrances and
exceptions set forth on the Owned Real Property Schedule;
(ii) there are no leases, subleases, licenses, concessions or
other agreements granting to any party or parties the right of use or
occupancy of any material portion of such parcel of real property; and
(iii) there are no outstanding options or rights of first
refusal to purchase such parcel of real property, any portion thereof or
interest therein.
(d) The Leased Real Property and the Owned Real Property are
hereinafter collectively referred to as the "Real Property."
<PAGE> 17
(e) To the Company's knowledge, the Real Property is properly zoned
for the businesses now being conducted on the Real Property and the Company has
received no written notice of any pending or threatened proceedings or hearing
which may materially and adversely affect such zoning. Except as set forth on
the Owned Real Property Schedule and the Leased Real Property Schedule, to the
Company's knowledge, all material use, occupancy or similar permits required by
the appropriate governmental authorities to use, occupy and enjoy the Real
Property as currently operated have been issued, there is no outstanding notice
or order of any governmental authority not duly complied with, in all material
respects, affecting the use, occupancy, enjoyment, or operation of the Real
Property or of the improvements thereon, or requiring any repairs, additions, or
improvements thereto, and there is no material violation thereof, or of any
rule, regulation, ordinance, statute, or law of any governmental agency,
involving the acquisition, use, operation, or condition of the Real Property.
(f) Utilities are installed in, and are duly connected to, the Real
Property or the improvements thereon and, to the Company's knowledge, there is
no material charge for their use except the normal and usual metered charges
imposed and deposits customarily required.
(g) Except as set forth on the Owned Real Property Schedule and the
Leased Real Property Schedule, to the Company's knowledge, there are no written
leases, licenses or other agreements vesting in any third party any right to
possess or occupy any portion of the Real Property. The Company has no knowledge
of any pending, contemplated or threatened condemnation or similar proceeding or
any litigation affecting the Real Property or any part thereof.
(h) All of the land, buildings, structures and other improvements
used by the Company and the Subsidiary in the conduct of their businesses are
included in the Real Property.
(i) All material components of all buildings, structures, fixtures
and other improvements in, on or within the Real Property (the "Improvements"),
including to the roofs, structural elements and the building systems and
facilities thereof, are in generally good operating condition and repair,
subject to normal wear and tear and continued repair and replacement in
accordance with past practice.
(j) No portion of the Real Property has suffered any material damage
by fire or other casualty which has not heretofore been completely repaired and
restored.
4.08 Tax Matters. Except as set forth on Schedule 4.08, (a) all
United States federal income Tax Returns of or with respect to the Company and
the Subsidiary required by law to be filed have been timely filed, all such Tax
Returns are true and complete
<PAGE> 18
in all material respects and all Taxes shown on such returns have been timely
paid; (b) all other Tax Returns of or with respect to the Company and the
Subsidiary required to be filed pursuant to applicable federal, foreign, state,
local or other law have been filed, all such Tax Returns are true and complete
and all Taxes shown on such Tax Returns and all other Taxes due, or claimed to
be due whether by proposed assessment or otherwise by any taxing authority, have
been timely paid except for Taxes which are being contested in good faith by
proper proceedings with adequate reserves having been taken in accordance with
GAAP; and (c) the charges, accruals and reserves on the books of the Company and
the Subsidiary in respect of any liability for Taxes based on or measured by net
income for any years not finally determined or with respect to which the
applicable statute of limitations has not expired are believed to be adequate to
satisfy any assessment for such Taxes for any such years. With respect to any
period for which Tax Returns have not yet been filed, or with respect to which
Taxes are not yet due or owing, the Company and the Subsidiary have made due and
sufficient current accruals for such Taxes in accordance with GAAP. Each of the
Company and the Subsidiary has made all required estimated Tax payments
sufficient to avoid any underpayment penalties. The Tax Returns of each of the
Company and the Subsidiary and of each affiliated, consolidated, combined or
unitary group of which the Company and the Subsidiary are or have been members
have not been audited (or if audited have subsequently been closed by the
application of the statute of limitations) or examined by the IRS. There are no
outstanding agreements, waivers or arrangements extending the statutory period
of limitations applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to the Company or the Subsidiary
for any taxable period. No closing agreement pursuant to Section 7121 of the
Code (or any predecessor provision) or any similar provision of any state, local
or foreign law has been entered into by or with respect to the Company or the
Subsidiary. No assessment of Tax is proposed in writing against the Company or
the Subsidiary or any of their respective properties or assets. No consent to
the application of Section 341(f)(2) of the Code (or any predecessor provision)
has been made or filed by or with respect to the Company or the Subsidiary or
any of their respective properties or assets. Neither the Company nor the
Subsidiary has agreed to or is required to make any adjustment for any period
after the Closing Date pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of such
entity, there is no application pending with any taxing authority requesting
permission for any such change in any accounting method of the Company or the
Subsidiary and the IRS has not proposed any such adjustment or change in
accounting method. Neither the Company nor the Subsidiary has been or is in
violation (or with notice or lapse of time or both, would be in violation) of
any applicable law relating to the payment or withholding of Taxes, the result
of which violation has or may reasonably be expected to have a Material Adverse
Effect. The Company and the Subsidiary have duly and timely withheld from
employee salaries, wages and other compensation and paid over to the appropriate
taxing authorities all material amounts required to be so withheld and paid over
for all periods under all applicable laws. Except as disclosed on Schedule 4.08,
neither the Company nor the Subsidiary is a party to, is bound by, or has any
obligation under, any Tax sharing agreement
<PAGE> 19
or similar contract. Except for this Agreement, there is no contract, agreement,
plan or arrangement covering any person that, individually or collectively, to
the knowledge of the Company give rise to the payment of any amount that would
not be deductible by the Company or the Subsidiary by reason of Section 280G of
the Code. Neither the Company nor the Subsidiary has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
4.09 Contracts and Commitments.
(a) Except as set forth on the attached Contracts Schedule, neither
the Company nor the Subsidiary is a party to any: (i) collective bargaining
agreement or contract with any labor union; (ii) bonus, pension, profit sharing,
retirement or other form of deferred compensation plan, other than as set forth
on the attached Employee Benefits Schedule; (iii) stock purchase, stock option
or similar plan, other than as set forth on the attached Capital Stock Schedule;
(iv) contract for the employment of any officer or other senior management
person on a full-time or consulting basis, other than as set forth on the
attached Employee Benefits Schedule; (v) agreement or indenture relating to the
borrowing of money or to mortgaging, pledging or otherwise placing a lien on any
material asset of the Company or the Subsidiary, other than as set forth on the
Latest Balance Sheet or on the attached Liens Schedule; (vi) guaranty of any
material obligation for borrowed money or other material guaranty; (vii) lease
or agreement under which it is lessee of, or holds or operates any personal
property owned by any other party, for which the annual rental exceeds $150,000;
(viii) lease or agreement under which it is lessor of or permits any third party
to hold or operate any property, real or personal, for which the annual rental
exceeds $150,000; (ix) contract or group of related contracts with the same
party for the purchase of products or services, under which the undelivered
balance of such products and services has a selling price in excess of $150,000;
(x) contract or group of related contracts with the same party for the sale of
products or services under which the undelivered balance of such products or
services has a sales price in excess of $150,000; (xi) contract which prohibits
the Company or the Subsidiary from freely engaging in business anywhere in the
world; (xii) contract relating to the acquisition or licensing of any material
patent, trademarks, service mark, trade name or copyright or any franchise
license, royalty agreements or similar contracts; (xiii) contracts or other
agreements for the grant to any person of any preferential rights to purchase
any of the Company's or Subsidiary's assets (other than inventory), properties
or business; (xiv) contracts or other agreements under which the Company or the
Subsidiary agrees to share any liability for Taxes with any person; (xv)
contracts or other agreements relating to the acquisition by the Company or the
Subsidiary of any operating business or the capital stock of any person; or
(xvi) contracts or other agreements for the payment of fees or other
consideration to any officer or director of the Company or the Subsidiary or any
other entity in which any of the foregoing has an interest.
<PAGE> 20
(b) Buyer either has been supplied with, or has been given access
to, a true and correct copy of all written contracts which are referred to on
the Contracts Schedule, together with all material amendments, waivers or other
changes thereto.
(c) Neither the Company nor the Subsidiary nor, to the knowledge of
the Company, any other party to such contract, is in breach of or default under
any contract listed on the Contracts Schedule, and, to the knowledge of the
Company, there does not exist under any thereof any event which, with the giving
of notice or the lapse of time, would constitute such a breach or default,
except for such breaches, defaults and events as to which requisite waivers or
consents have been obtained or which would not, in the aggregate, have a
Material Adverse Effect.
4.10 Licenses. Listed on the Licenses Schedule are all material
licenses, permits, certifications, provider agreements, or other governmental or
regulatory authorizations or approvals regarding the Company or the Subsidiary
(the "Licenses") owned or held by the Company, or used in the business of the
Company. To the Company's knowledge, there are no other Licenses necessary to
enable the Company to carry on its business as presently conducted or as is
contemplated. To the Company's knowledge, all such Licenses are valid,
unrestricted, in full force and effect and there exists no material default
thereunder. To the Company's knowledge, there is no pending or threatened
litigation or other proceeding under which any material License may be
restricted, revoked, terminated or suspended.
4.11 Intellectual Property. Schedule 4.11 sets forth all patents,
patent licenses, trademarks, service marks, trade names, copyrights, franchises,
all applications for any of the foregoing, and all permits, grants and licenses
or other rights running to or from the Company and the Subsidiary relating to
any of the foregoing which are owned by the Company and the Subsidiary or used
in the business of the Company and the Subsidiary. Each of the Company and the
Subsidiary owns, possesses or licenses adequate patents, patent licenses,
trademarks, service marks, copyrights, franchises and trade names necessary to
carry on its business as presently conducted. Except as set forth on Schedule
4.11, none of the Company or the Subsidiary has received any written notice of
infringement of or conflict with asserted rights of others with respect to any
inventions, processes, know-how, formulas, trade secrets, patents, trademarks,
trade names, brand names and copyrights that are owned or used by, or licensed
to, the Company or the Subsidiary. To the knowledge of the Company, except as
set forth on Schedule 4.11, neither the Company nor the Subsidiary is infringing
or has infringed any patent, trademark, service mark, trade name, copyright or
franchise rights of any third person or is using or has used without
authorization any trade secret process or confidential information of any third
party.
4.12 Litigation. Except as set forth on the attached Litigation
Schedule, there are no actions, suits or proceedings pending or, to the
Company's knowledge, overtly threatened against the Company or the Subsidiary,
at law or in equity, or before or by any
<PAGE> 21
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign and neither the Company
nor the Subsidiary is subject to any outstanding judgment, order or decree of
any court or governmental body.
4.13 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company, the Subsidiary or the Shareholders, except for the
fees and expenses of NationsBanc Montgomery Securities, Inc. and Chase
Securities Inc.
4.14 Governmental Consents, etc. Except for the applicable
requirements of the HSR Act and the filing of the Certificate of Merger and
except as set forth on the Governmental Consents Schedule, no material permit,
consent, approval or authorization of, or declaration to or filing with, any
governmental or regulatory authority is required in connection with any of the
execution, delivery or performance of this Agreement by the Company or the
Shareholders or the consummation by the Company or the Shareholders of any other
transaction contemplated hereby.
4.15 Employee Benefit Plans.
(a) Except as listed on the Employee Benefits Schedule attached
hereto, with respect to employees of the Company or the Subsidiary, (i) neither
the Company nor the Subsidiary maintains or contributes to any nonqualified
deferred compensation or retirement plans, (ii) neither the Company nor the
Subsidiary maintains or contributes to any qualified defined contribution
retirement plans, (iii) neither the Company nor the Subsidiary maintains or
contributes to any qualified defined benefit pension plans (the plans described
in (ii) and (iii) are collectively referred to as the "Pension Plans"), and (iv)
neither the Company nor the Subsidiary maintains or contributes to any welfare
benefit plans (the "Welfare Plans"). The Pension Plans and the Welfare Plans are
collectively referred to as the "Plans." Each of the Pension Plans (other than
any multiemployer Pension Plans) has received a favorable determination letter
from the Internal Revenue Service that such Plan is a "qualified plan" under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
the related trusts are exempt from tax under Section 501(a) of the Code, and the
Company is not aware of any facts or circumstances that would jeopardize the
qualification of such Pension Plan. The Plans (other than any multiemployer
Pension Plans) comply in form and in operation in all material respects with the
requirements of the Code and the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) With respect to the Plans (other than any multiemployer Pension
Plans), (i) all required contributions have been made or properly accrued on the
Financial Statements, (ii) there are no material actions, suits or claims
pending, other than routine claims for
<PAGE> 22
benefits, and (iii) there have been no "prohibited transactions" (as that term
is defined in Section 406 of ERISA or Section 4975 of the Code).
(c) The Company has furnished to Buyer true and complete copies of
(i) the most recent determination letter received from the Internal Revenue
Service regarding the Plans (other than any multiemployer Pension Plans) and
(ii) the latest financial statements for the Plans (other than any multiemployer
Pension Plans) and latest prepared actuarial reports.
(d) Neither the Company, the Subsidiary nor, to the Company's
knowledge, any of its directors, officers, employees or any other "fiduciary,"
as such term is defined in Section 3 of ERISA, has committed any material breach
of fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject the Company, the Subsidiary or any of
their respective directors, officers or employees to any material liability
under ERISA or any applicable law.
(e) Neither the Company nor the Subsidiary has incurred any material
liability for any tax or civil penalty imposed by Section 4975 of the Code or
Section 502 of ERISA.
(f) Neither the Company nor the Subsidiary has any liability under
any plan which provides medical or death benefits with respect to current or
former employees of the Company or the Subsidiary beyond their termination of
employment (other than coverage mandated by law), and there are no reserves,
assets, surplus or prepaid premiums under any such plan.
(g) To the Company's knowledge, the Company and the Subsidiary have
complied in all material respects with all applicable laws, rules and
regulations relating to their employees or to the employment of labor (including
those relating to wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by appropriate governmental
authorities). Except as set forth in the Employee Benefits Schedule, to the
Company's knowledge, there is no unfair labor practice complaint pending or
threatened against the Company or the Subsidiary before the National Labor
Relations Board or any state or local agency, no pending labor strike, and no
other material labor grievance.
4.16 Insurance. The attached Insurance Schedule lists and briefly
describes each material insurance policy maintained by the Company and the
Subsidiary. All of such insurance policies are in full force and effect, and to
the Company's knowledge, neither the Company nor the Subsidiary is in material
default with respect to its obligations under any of such insurance policies.
<PAGE> 23
4.17 Compliance with Laws. Except as set forth on Schedule 4.17, the
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any Governmental Authority, except for violations,
which individually or in the aggregate with other violations, would not have a
Material Adverse Effect. As of the date of this Agreement, the Company has
received no written notice that any investigation or review by any Governmental
Authority with respect to the Company which would result in a Material Adverse
Effect is pending, or, to the knowledge of the Company, threatened.
4.18 Environmental Compliance and Conditions.
(a) The Company and the Subsidiary have obtained and possess all
material permits, licenses and other authorizations required under federal,
state and local laws and regulations relating to public health and safety,
worker health and safety and pollution or protection of the environment
(including all laws and regulations relating to the emission, discharge, release
or threatened release of any chemicals, petroleum, pollutants, contaminants or
hazardous or toxic materials, substances or wastes into ambient air, surface
water, groundwater or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of any chemicals, petroleum, pollutants, contaminants or hazardous or
toxic materials, substances or waste ("Environmental and Safety Requirements")),
except where the failure to possess such licenses, permits and authorizations
("Environmental Permits") would not have a Material Adverse Effect. Except as
set forth on the attached Environmental Compliance Schedule, the Company and the
Subsidiary are in compliance with all terms and conditions of such permits,
licenses and authorizations and are also in compliance with all other
Environmental and Safety Requirements or any written notice or demand letter
issued, entered, promulgated or approved thereunder, except where the failure to
comply would not have a Material Adverse Effect.
(b) To the Company's knowledge, neither the Company nor the
Subsidiary has received any written notice of violations or liabilities arising
under Environmental and Safety Requirements, including any investigatory,
remedial or corrective obligations, relating to the Company or the Subsidiary
and arising under Environmental and Safety Requirements.
(c) Except as disclosed in the Environmental Compliance Schedule, to
the Company's knowledge, all disposal, storage, treatment, handling, production
or processing of any hazardous, dangerous, medical or toxic substances or solid
waste by the Company has been conducted in compliance in all material respects
with all applicable Environmental and Safety Requirements. Except as set forth
on the Environmental Compliance Schedule, to the Company's knowledge, there are
no underground storage tanks on the Real Property or the Leased Real Property.
<PAGE> 24
(d) This Section 4.18 constitutes the sole and exclusive
representations and warranties of the Company with respect to the Environmental
and Safety Requirements, Environmental Permits and all other environmental
matters.
4.19 Inventory and Accounts Receivable. The inventories of the
Company reflected on the Latest Balance Sheet are reflected thereon in
accordance with GAAP, will be realizable in the ordinary course of business and
are not damaged or obsolete. The accounts receivable reflected on the Latest
Balance Sheet were, and accounts receivables arising since the Latest Balance
Sheet Date are, valid receivables subject to no setoffs or counterclaims.
4.20 Title to Properties; Liens.
(a) Each of the Company and Subsidiary has good and legal title to
all its respective properties and assets (except that this representation shall
not apply to the Real Property, which is addressed in Section 4.07), free and
clear of any Lien or encumbrances, except for Permitted Liens.
(b) The assets of the Company and Subsidiary include, in all
material respects, all of the assets used in the conduct by the Company and
Subsidiary of their business currently and through the Closing Date as
contemplated herein.
4.21 Transactions with Affiliates. Except as set forth in Schedule
4.21, agreements to be terminated on the Closing Date and transactions among the
Company and the Subsidiary, neither the Company nor the Subsidiary has engaged
in any transaction with any stockholder, director or executive officer of the
Company or the Subsidiary (or any Affiliate thereof).
4.22 Indebtedness. Except as set forth on the Indebtedness Schedule,
there are no contracts, agreements understandings or other obligations relating
to Indebtedness with respect to the Company or the Subsidiary.
4.23 Absence of Undisclosed Liabilities. The Company and the
Subsidiary have no liabilities of the nature required to be disclosed under GAAP
arising out of transactions entered into prior to the Closing, or any action or
inaction prior to the Closing, or any state of facts existing prior to the
Closing, except (i) liabilities under contracts or commitments described in the
Contracts Schedule or under contracts and commitments which are not required to
be disclosed thereon, (ii) liabilities reflected on the Latest Balance Sheet,
(iii) liabilities which have arisen after the Latest Balance Sheet Date in the
ordinary course of business or otherwise in accordance with the terms and
conditions of this Agreement, (iv) liabilities otherwise disclosed in this
Agreement or the schedules attached hereto and (v) liabilities which
individually or collectively would not have a Material Adverse Effect on the
Company and the Subsidiary.
<PAGE> 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholders and the Company
that:
5.01 Organization and Corporate Power. Buyer is a corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to enter into this Agreement
and perform its obligations hereunder.
5.02 Authorization. The execution, delivery and performance of this
Agreement by Buyer and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action, and no
other corporate proceedings on its part are necessary to authorize the
execution, delivery or performance of this Agreement. Assuming that this
Agreement is a valid and binding obligation of the Executing Shareholders and
the Company, this Agreement constitutes a valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization or other similar laws and to the general
principles of equity (whether considered in proceedings at law or in equity).
5.03 No Violation. Buyer is not subject to or obligated under its
certificate of incorporation, its bylaws, any applicable law, or rule or
regulation of any governmental authority, or any material agreement or
instrument, or any license, franchise or permit, or subject to any order, writ,
injunction or decree, which would be breached or violated in any material
respect by its execution, delivery or performance of this Agreement.
5.04 Governmental Authorities; Consents. Except for the applicable
requirements of the HSR Act and the filing of the Certificate of Merger with the
State of Delaware, Buyer is not required to submit any notice, report or other
filing with any governmental authority in connection with the execution,
delivery or performance by it of this Agreement or the consummation of the
transactions contemplated hereby. No consent, approval or authorization of any
governmental or regulatory authority or any other party or Person is required to
be obtained by Buyer in connection with its execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
5.05 Litigation. There are no actions, suits or proceedings pending
or, to Buyer's knowledge, overtly threatened against or affecting Buyer at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect Buyer's performance under this
Agreement or the consummation of the transactions contemplated hereby.
<PAGE> 26
5.06 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer, except for the fees and expenses of Haas Wheat & Partners
Incorporated, which fees and expenses shall be paid by Buyer.
5.07 Financing. Buyer has delivered to the Company true and complete
copies of written commitments of third parties to provide Buyer with financing
in an amount sufficient to effectuate the transactions contemplated hereby.
5.08 No Knowledge of Misrepresentations or Omissions. Other than
with respect to representations and warranties contained in Section 4.04,
4.06(g), 4.06(o), 4.08 and 4.22, Buyer has no actual knowledge which it has
deliberately concealed from the Shareholders to the effect that the
representations and warranties of the Company in this Agreement and the
Schedules hereto contain any material misrepresentations.
ARTICLE VI
PRE-CLOSING COVENANTS
From the date of this Agreement up to and including the Closing Date
(unless this Agreement is terminated pursuant to Article VIII), the parties
hereto covenant and agree:
6.01 Conduct of the Business.
(a) Except as contemplated by this Agreement, the Company shall, and
shall cause the Subsidiary to, conduct its business and operations only in the
ordinary course and, without the prior written consent of Buyer, the Company
shall not, and shall ensure that the Subsidiary does not, undertake any action
requiring disclosure under Section 4.06.
(b) Notwithstanding Section 6.01(a), neither the Company nor the
Subsidiary may use Cash (including Excess Cash and proceeds from the Revolver)
for any purpose other than as described in Section 4.06(o).
6.02 Access to Books and Records. The Company shall provide Buyer
and its authorized representatives ("Buyer's Representatives") with full access
at all reasonable times and upon reasonable notice to the offices, properties,
personnel, books and records of the Company and the Subsidiary in order for
Buyer to have the opportunity to make such investigation as it shall reasonably
desire to make of the affairs of the Company and the Subsidiary. Buyer
acknowledges that it remains bound by the Confidentiality Agreement, dated
November 20, 1997, with the Company (the "Confidentiality Agreement").
<PAGE> 27
6.03 Notification. The Company shall disclose to Buyer in writing
any material variances from the representations and warranties contained in
Article IV promptly upon discovery thereof.
6.04 Regulatory Filings. The Company shall make or cause to be made
all filings and submissions under the HSR Act and any other laws or regulations
applicable to the Shareholders, the Company and the Subsidiary for the
consummation of the transactions contemplated herein. The Company shall
coordinate and cooperate with Buyer in exchanging such information and
assistance as Buyer may reasonably request in connection with all of the
foregoing.
6.05 Conditions. The Company shall use its best efforts to cause the
conditions set forth in Section 2.01 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible after the
satisfaction of the conditions set forth in Article II (other than those to be
satisfied at the Closing).
6.06 Options. Prior to or contemporaneous with the Closing, the
Company shall offer to redeem and cancel all Non-Shareholder Options. The amount
to be paid in connection with such redemption or cancellation is referred to
herein as the "Option Payment."
6.07 Shareholder Approval of Payments. The Company shall have
satisfied the shareholder approval requirements of Section 280G(b)(5)(B) of the
Code with respect to all payments to be made to disqualified individuals
(within the meaning of Section 280G(c) of the Code) in connection with the
transactions contemplated hereby.
ARTICLE VII
COVENANTS OF BUYER
7.01 Access to Books and Records. From and after the Closing, Buyer
shall, and shall cause the Surviving Corporation and the Subsidiary to, provide
the Shareholders' Representative, the Shareholders and their agents with
reasonable access (for the purpose of examining and copying), during normal
business hours, to the books and records of the Company and the Subsidiary with
respect to periods or occurrences prior to the Closing Date in connection with
any matter whether or not relating to or arising out of this Agreement or the
transactions contemplated hereby. Unless otherwise consented to in writing by
the Shareholders' Representative, neither the Company nor the Subsidiary shall,
for a period of seven years following the Closing Date, destroy, alter or
otherwise dispose of any of the books and records of the Company or the
Subsidiary for the period prior to the Closing Date without first offering to
surrender to the Shareholders' Representative such books and records
<PAGE> 28
or any portion thereof which Buyer, the Company or the Subsidiary may intend to
destroy, alter or dispose of.
7.02 Notification. Prior to the Closing, upon discovery, Buyer shall
promptly inform the Company and the Shareholders' Representative in writing of
any material variances from Buyer's representations and warranties contained in
Article V.
7.03 Director and Officer Liability and Indemnification. For a
period of six years after the Closing, Buyer shall not, and shall not permit the
Company or the Subsidiary to amend, repeal or modify any provision in the
Company's or the Subsidiary's certificate or articles of incorporation or bylaws
relating to the exculpation or indemnification of former officers and directors
(unless required by law), it being the intent of the parties that the officers
and directors of the Company and the Subsidiary prior to the Closing shall
continue to be entitled to such exculpation and indemnification to the fullest
extent permitted under applicable law.
7.04 Regulatory Filings. Buyer shall make or cause to be made all
filings and submissions under the HSR Act and any other laws or regulations
applicable to Buyer as may be required of Buyer for the consummation of the
transactions contemplated herein, and Buyer shall be responsible for all filing
fees under the HSR Act. Buyer shall coordinate and cooperate with the Company in
exchanging such information and assistance as the Company may reasonably request
in connection with all of the foregoing.
7.05 Conditions. Buyer shall use its best efforts to cause the
conditions set forth in Section 2.02 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible after
satisfaction of the conditions set forth in Article II.
7.06 Contact with Customers and Suppliers. Prior to the Closing,
Buyer and Buyer's representatives shall contact and communicate with the
employees, customers and suppliers of the Company and the Subsidiary in
connection with the transactions contemplated hereby only with the prior written
consent of the Company or the Shareholders' Representative.
7.07 Maintain Employee Benefits. Buyer agrees to provide, for a
period of at least one year after Closing, substantially comparable employee
benefits to the employees and former employees of the Company as are provided
immediately prior to Closing.
<PAGE> 29
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by the mutual consent of Buyer and the Shareholders'
Representative;
(b) by Buyer, if there has been a material violation or breach by
the Company of any covenant, representation or warranty contained in this
Agreement which has prevented or, if not curable, would prevent the satisfaction
of any condition to the obligations of Buyer at the Closing and such violation
or breach has not been waived by Buyer or, in the case of a covenant breach,
cured by the Company by the earlier of the Closing or within ten days after
written notice thereof from Buyer;
(c) by the Shareholders' Representative, if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement which has prevented or, if not curable,
would prevent the satisfaction of any condition to the obligations of the
Company at the Closing and such violation or breach has not been waived by the
Shareholders' Representative or, with respect to a covenant breach, cured by
Buyer by the earlier of the Closing or within ten days after written notice
thereof by the Shareholders' Representative (provided that the failure of Buyer
to deliver any of the Per Share Cash Consideration Amount at the Closing as
required hereunder shall not be subject to cure hereunder unless otherwise
agreed to in writing by the Shareholders' Representative); or
(d) by either Buyer or the Shareholders' Representative if the
transactions contemplated hereby have not been consummated by the close of
business on February 25, 1998, provided that neither Buyer nor the Shareholders'
Representative shall be entitled to terminate this Agreement pursuant to this
Section 8.01(d) if such Person's (or the Company's or any Shareholder's, in the
case of the Shareholder's Representative) willful breach of this Agreement or
willful misconduct has prevented the consummation of the transactions
contemplated hereby.
8.02 Effect of Termination.
(a) In the event of termination of this Agreement by either Buyer or
the Shareholders' Representative as provided above, the provisions of this
Agreement shall immediately become void and of no further force and effect
(other than this Section 8.02, Article IX, Article X and Article XII hereof and
the Confidentiality Agreement which shall survive the termination of this
Agreement), and there shall be no liability on the part of either Buyer, the
Company or the Shareholders to one another.
<PAGE> 30
(b) In the event that this Agreement is terminated, other than
pursuant to Section 8.01(a) or as the result of a breach of a covenant,
representation or warranty contained herein by the Company or by reason of the
failure of any of the conditions precedent to the obligations of Buyer contained
in Section 2.01, Buyer shall pay to the Company five million dollars
($5,000,000) in immediately available funds within five business days of such
termination which the parties agree is a genuine estimate of the costs incurred
by the Company, the Subsidiary, the Shareholders' Representative and the
Shareholders as a result of Buyer's failure to close the transactions
contemplated hereby.
(c) The right accorded to the Company under Section 8.02(b) shall be
the exclusive remedy of the Company, the Subsidiary and the Shareholders for the
termination of this Agreement to which Section 8.02(b) would apply. In
furtherance of the foregoing, the Company, the Subsidiary and the Shareholders
hereby waive, to the fullest extent permitted under applicable law, and agree
not to assert in any action or proceeding of any kind, any and all rights,
claims and causes of action any of such parties may now or hereafter have
against Buyer, HWH Capital Partners, L.P. or Haas Wheat & Partners Incorporated
(or any of their respective directors, officers, partners, shareholders or
affiliates) by reason of such termination (including, without limitation, any
such rights, claims or causes of action arising under or based upon common law)
other than claims for payment of the amount set forth in Section 8.02(b).
ARTICLE IX
SHAREHOLDERS' REPRESENTATIVES
9.01 Designation. Olympus Growth Fund II, L.P. or its designee (the
"Shareholders' Representative") is hereby designated by each of the Executing
Shareholders to serve as the representative of the Executing Shareholders with
respect to the matters expressly set forth in this Agreement to be performed by
the Shareholders' Representative. By due execution of a Letter of Transmittal
each Shareholder (other than Executing Shareholders, who have appointed such
Shareholders' Representative hereby) thereby designate Olympus Growth Fund II,
L.P. or its designee as its representative with respect to matters expressly set
forth in this Agreement to be performed by the Shareholders' Representative.
Until Buyer is notified in writing to the contrary, Louis J. Mischianti or
Robert S. Morris shall act on behalf of the Shareholders' Representative.
9.02 Authority. Each of the Executing Shareholders, by the execution
of this Agreement, hereby, and each Shareholder (other than the Executing
Shareholder) duly executing a Letter of Transmittal thereby, irrevocably
appoints the Shareholders' Representative as the agent, proxy and
attorney-in-fact for such Shareholders for all purposes of this Agreement
(including the full power and authority on such Shareholder's behalf (i) to
consummate the transactions contemplated herein, and in the event of such
consummation, to
<PAGE> 31
receive payment on behalf of such Shareholder for its securities pursuant to
Section 3.03(a); (ii) to pay such Shareholder's expenses incurred in connection
with the negotiation and performance of this Agreement (whether incurred on or
after the date hereof), it being understood that such expenses shall be
allocated among the Shareholders pro rata based on each such Shareholder's Pro
Rata Share; (iii) to disburse any funds received hereunder to such Shareholder
and each other Shareholder; (iv) to endorse and deliver any certificates
required hereunder, including the endorsement and delivery of any stock
certificates or instruments representing the securities and execution and
delivery of stock powers and such further instruments of assignment as Buyer
shall reasonably request; (v) to execute and deliver on behalf of such
Shareholder any amendment or waiver hereto; provided, however, that such
amendment or waiver does not change the form of payment to the Shareholders, and
does not increase the Shareholders' liabilities in any material respect; (vi) to
take all other actions to be taken by or on behalf of such Shareholder in
connection herewith; (vii) to pay or accept any amount pursuant to Article I
hereof; (viii) to negotiate, settle, compromise and otherwise handle all claims
made by Buyer; and (ix) to do each and every act and exercise any and all rights
which such Shareholder or the Shareholders collectively are permitted or
required to do or exercise under this Agreement). In furtherance thereof, the
Shareholders' Representative is expressly authorized to retain accountants,
legal counsel and other agents. The Shareholders agree that such agency and
proxy are coupled with an interest, are therefore irrevocable without the
consent of the Shareholders' Representative and shall survive the death,
incapacity, bankruptcy, dissolution or liquidation of any Shareholder.
9.03 Exculpation. Neither the Shareholders' Representative (in its
capacity as the Shareholders' Representative) nor any agent employed by it shall
incur any liability to any Shareholder or to Buyer by virtue of the failure or
refusal of the Shareholders' Representative for any reason to consummate the
transactions contemplated hereby or relating to the performance of its other
duties hereunder, except for actions or omissions constituting fraud, bad faith
or gross negligence. Shareholders, on a several basis and in accordance with
their Pro Rata Share, hereby agree to indemnify the Shareholders' Representative
and any agent employed by them for and hold harmless against any loss,
liability, or expense incurred without fraud or bad faith on the part of the
Shareholders' Representative arising out of or in connection with their
performance under this Agreement.
9.04 Resignation, Discharge and Appointment. The Shareholders'
Representative may resign and be discharged from his or its duties and
obligations under this Agreement by giving notice in writing of such resignation
specifying a date (no earlier than 30 days following the date of such notice)
when such resignation will take effect; provided, however, that until a
successor shareholders' representative is appointed by the Shareholders'
Representative or a majority in interest of the Shareholders (determined based
on such Shareholders' Pro Rata Share), the Shareholders' Representative shall
continue to perform its duties and obligations under this Agreement.
<PAGE> 32
ARTICLE X
ADDITIONAL COVENANTS
10.01 Survival of Representations and Warranties; Effect of Closing.
The representations, warranties and covenants (except those post-Closing
covenants set forth in Sections 7.01, 7.03, 7.07 and Articles IX, X and XII of
this Agreement) set forth in this Agreement or in any writing delivered by any
Person in connection with this Agreement shall survive the execution and
delivery of this Agreement but shall terminate upon the consummation of the
transactions contemplated hereby or the termination of this Agreement and shall
not survive beyond the Closing; provided that (i) the representations and
warranties set forth in Sections 4.12 and 4.18 shall survive for six months
following the Closing Date and shall have no further force or effect thereafter,
and (ii) the representations and warranties set forth in each Letter of
Transmittal and in Sections 4.04, 4.06(g), 4.06(o) 4.08, 4.22 and 5.08 and the
covenants set forth in Sections 6.01(b) and 10.05 shall survive for three years
following the Closing Date and shall have no further force or effect thereafter.
10.02 Indemnification.
(a) Indemnification by Executing Shareholders. Subject to the
limitations contained in Section 10.02(c) and Section 10.01, each Executing
Shareholder, individually and not jointly, agrees to indemnify, defend and hold
harmless, Buyer (and its directors, officers, employees, successors and assigns)
from and against any and all losses, claims, damages, liabilities and expenses
("Losses") up to an amount equal to each such Shareholder's Pro Rata Share of
any such Loss based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of the representations, warranties or covenants made
by Company or the Subsidiary in Sections 4.04, 4.06(g), 4.06(o), 4.08, 4.12,
4.18, 4.22, 6.01(b) and 10.05 of this Agreement or in any certificate relating
to such representations, warranties or covenants delivered pursuant hereto.
(b) Notice and Opportunity to Defend. When making a claim under
Section 10.02(a), Buyer shall, promptly after the receipt of notice of the
commencement of any action, investigation, claim or other proceeding against it,
the Company or the Subsidiary in respect of which indemnity may be sought from
the Executing Shareholders under this Section 10.02(a), notify the Shareholders'
Representative in writing of the commencement thereof. The failure of Buyer to
so notify the Shareholders' Representative of any such action shall not relieve
the Executing Shareholders from any liability which it may have to Buyer (i)
other than pursuant to Section 10.02(a) or (ii) under Section 10.02(a) unless,
and only to the extent that, such failure results in the Executing Shareholders'
forfeiture of substantial rights or defenses. In any case in which any action,
claim or other proceeding shall be brought against Buyer, the Company or the
Subsidiary, and it shall notify the Shareholders' Representative of the
commencement thereof, the Shareholders' Representative shall be entitled to
assume the defense thereof at its own expense, with counsel reasonably
satisfactory to Buyer; provided,
<PAGE> 33
however, that Buyer may, at its own expense, retain separate counsel to
participate in such defense. The Shareholders' Representative agrees that it
will not, without the prior written consent of Buyer, the Company or the
Subsidiary (as the case may be), settle, compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding relating
to the matters contemplated hereby (if Buyer, the Company or the Subsidiary is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of
Buyer, the Company or the Subsidiary (as the case may be) from all liability
arising or that may arise out of such claim, action or proceeding. The Executing
Shareholders shall be liable for any settlement of any claim, action or
proceeding effected against Buyer, the Company or the Subsidiary without their
written consent, which consent shall not be unreasonably withheld. The rights
accorded to Buyer, the Company or the Subsidiary under Section 10.02 shall be
the exclusive remedy of such parties for any Losses based upon, arising out of
or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement or in any documents
delivered pursuant hereto.
(c) Limitations on Indemnifications. Except as provided in Section
10.02(c)(iii) below, the indemnification provided for in Section 10.02 shall be
subject to the following limitations:
(i) The Executing Shareholders shall not be obligated to pay
any amount for indemnification under Section 10.02(a) until the aggregate amount
of Losses equals one million five hundred thousand dollars ($1,500,000) (the
"Basket Amount"), whereupon the Executing Shareholders shall be obligated to pay
in full all amounts for indemnification in excess of the Basket Amount.
(ii) The Executing Shareholders shall not be obligated to make
any payment for indemnification under Section 10.02(a) in excess of three
million dollars ($3,000,000) in the aggregate.
(iii) The limitations set forth in this Section 10.02(c) shall
only apply to breaches of any of the representations and warranties set forth in
Sections 4.12 and 4.18.
(d) Indemnification by Buyer and the Company. After the Closing,
subject to the limitations contained in Section 10.01, Buyer and the Company
hereby jointly and severally agree to indemnify, defend and hold harmless, the
Executing Shareholders from and against any and all Losses based upon, arising
out of or otherwise in respect of any inaccuracy in or any breach of the
representations, warranties or covenants made by Buyer in this Agreement or in
any certificate relating to such representations, warranties or covenants
delivered pursuant hereto.
<PAGE> 34
10.03 Limitation of Recourse. The rights accorded to Buyer, the
Company and Subsidiary under this Article X shall be the exclusive remedy of
such parties for any Losses based upon, arising out of or otherwise in respect
of any inaccuracy or breach of any representation, warranty and covenant
contained in this Agreement or in any documents delivered pursuant hereto;
provided, that, this Section 10.03 does not limit the liability of any
Shareholder for any breach of any term of such Shareholder's Letter of
Transmittal for which each such Shareholder will be severally liable. In
furtherance of the foregoing, Buyer hereby waives, with respect to Losses based
upon, arising out of or otherwise in respect of any inaccuracy or breach of any
representation, warranty and covenant under this Agreement, to the fullest
extent permitted under applicable law, and agrees not to assert in any action or
proceeding of any kind related thereto, any and all rights, claims and causes of
action it may now or hereafter have against the Executing Shareholders relating
to this Agreement (including, without limitation, any such rights, claims or
causes of action arising under or based upon common law) other than claims for
indemnification asserted as permitted by and in accordance with the provisions
set forth in this Article X. The obligations of the Executing Shareholders for
all purposes under this Agreement are several and not joint and several, and in
no event shall the Executing Shareholders, the Shareholders' Representative or
any present or former officer, director or employee (present or former) of the
Company or the Subsidiary have any shared or vicarious liability for the actions
or omissions of any other Person.
10.04 Arbitration Procedure.
(a) Buyer, the Executing Shareholders and the Shareholders'
Representative agree that the arbitration procedure set forth below shall be the
sole and exclusive method for resolving and remedying any and all disputes
regarding claims for money damages based upon, arising out of or in any way
connected with the Agreement or the transactions contemplated herein (the
"Disputes"). Nothing in this Section 10.04 shall prohibit a party hereto from
instituting litigation to enforce any Final Determination (as defined below).
The parties hereby agree and acknowledge that, except as otherwise provided in
this Section 10.04 or in the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time, the arbitration
procedures and any Final Determination hereunder shall be governed by and shall
be enforced pursuant to the Uniform Arbitration Act as in effect in the State of
Delaware.
(b) In the event that any party asserts that there exists a Dispute,
such party shall deliver a written notice to each other party involved therein
specifying the nature of the asserted Dispute and requesting a meeting to
attempt to resolve the same. If no such resolution is reached within 45 days
after such delivery of such notice, the party delivering such notice of Dispute
(the "Disputing Person") may, within 75 days after delivery of such notice,
commence arbitration hereunder by delivering to each other party involved
therein a notice of arbitration (a "Notice of Arbitration") and by filing a copy
of such Notice of Arbitration with the Wilmington, Delaware office of the
American Arbitration Association.
<PAGE> 35
Such Notice of Arbitration shall specify the matters as to which arbitration is
sought, the nature of any Dispute, the claims of each party to the arbitration
and the amount and nature of damages or other relief sought to be recovered as a
result of any alleged claim and any other matters required by the Commercial
Arbitration Rules of the American Arbitration Association as in effect from time
to time to be included therein.
(c) Buyer and the Shareholders' Representative each shall select one
arbitrator expert in the subject matter of the Dispute (the arbitrators so
selected shall be referred to herein as "Buyer's Arbitrator" and "Seller's
Arbitrator," respectively). In the event that either party fails to select an
arbitrator as set forth herein within 30 days after the delivery of a Notice of
Arbitration, then the matter shall be resolved by the arbitrator selected by the
other party. Seller's Arbitrator and Buyer's Arbitrator shall select a third
independent, neutral arbitrator expert in the subject matter of the Dispute, and
the three arbitrators so selected shall resolve the Dispute according to the
procedures set forth in this Section 10.04. If Seller's Arbitrator and Buyer's
Arbitrator are unable to agree on a third arbitrator within 20 days after their
selection, Seller's Arbitrator and Buyer's Arbitrator shall each prepare a list
of three independent arbitrators. Seller's Arbitrator and Buyer's Arbitrator
shall each have the opportunity to designate as objectionable and eliminate one
arbitrator from the other arbi trator's list within ten days after submission
thereof, and the third arbitrator shall then be selected by lot from the
arbitrators remaining on the lists submitted by Seller's Arbitrator and Buyer's
Arbitrator.
(d) The arbitrators selected pursuant to paragraph (c) shall
determine the allocation of the costs and expenses of arbitration based upon the
percentage which the portion of the contested amount not awarded to each party
bears to the amount actually contested by such party.
(e) The arbitration shall be conducted in Wilmington, Delaware under
the Commercial Arbitration Rules of the American Arbitration Association as in
effect from time to time, except as otherwise set forth herein or as modified by
the agreement of Buyer and the Shareholders' Representatives. The arbitrators
shall conduct the arbitration such that a final result, determination, finding,
judgment and/or award (the "Final Determination") is made or rendered as soon as
practicable, but in no event later than 120 days after the delivery of the
Notice of Arbitration nor later than ten days following completion of the
arbitration. The Final Determination shall be made in writing, shall state the
basis for such determination and shall be agreed upon and signed by the sole
arbitrator or by at least two of the three arbitrators (as the case may be). The
Final Determination shall be final and binding on all parties, and there shall
be no appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or misconduct by an arbitrator prejudicing the
rights of any party and to correct manifest clerical errors.
<PAGE> 36
(f) Buyer and the Shareholders may enforce any Final Determination
in any state or federal court having jurisdiction over the Dispute. For the
purpose of any action or proceeding instituted with respect to any Final
Determination, each party hereto hereby irrevocably submits to the jurisdiction
of such courts, irrevocably consents to the service of process by registered
mail or personal service and hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have as to
personal jurisdiction or jurisdiction, the laying of the venue of any such
action or proceeding brought in any such court and any claim that any such
action or proceeding brought in any court has been brought in an inconvenient
form.
10.05 Preparation of Tax Returns. The following provisions shall
govern the allocation of responsibility as between Buyer and the Company on the
one hand and the Executing Shareholders and the Shareholders' Representative on
the other hand for certain tax matters following the Closing:
(a) For any tax periods ending on or before the Closing Date or for
the portion of any tax period beginning on or before the Closing Date through to
the Closing Date, the Company shall prepare or cause to be prepared all Tax
Returns for the Company and the Subsidiary which are filed after the Closing
Date. Subject to the requirements of applicable law, each such Tax Return shall
be prepared in a manner consistent with past practices of the Company and the
Subsidiary. Each such Tax Return shall be submitted to the Shareholders'
Representative at least fifteen days prior to the due date (including any
extension thereof) for filing such Tax Return. The Company shall make any
changes in such proposed Tax Return as are reasonably requested by the
Shareholders' Representative no less than five days prior to the due date
(including extensions) for filing such Tax Return. The Company shall file timely
or cause to be filed timely such Tax Return, as so modified. In the event the
Company is required to make any payment of an amount for Taxes relating or
attributable to any tax period ending on or before the Closing Date or for the
portion of any tax period beginning on or before the Closing Date through to the
Closing Date, the Shareholders hereby covenant and agree with Buyer, the Company
and the Subsidiary to pay such amount (the "Pre-Closing Taxes"). The Executing
Shareholders shall, within five days of receipt of written notice from the
Company of any Pre-Closing Taxes, pay to the Company, by check or wire transfer
as directed by the Company in such notice, their Pro Rata Share of the amount of
the Pre-Closing Taxes less any amount due and payable by the Company to the
Shareholders' Representative on account of any refund or credit of Taxes to be
paid by the Company to the Shareholders' Representative pursuant to this Section
10.05(a) to the extent that such refund amount has not already been paid by the
Company to the Shareholders' Representative. In the event the Company or the
Subsidiary receives a refund or credit of Taxes relating or attributable to any
tax period ending on or before the Closing Date or for the portion of any tax
period beginning on or before the Closing Date through to the Closing Date,
Buyer shall cause the Company to, and the Company shall, within five business
days of receipt or utilization of such amount, pay to the Shareholders'
Representative
<PAGE> 37
(on behalf of the Shareholders) the amount by which such refund or credit
exceeds the amount (if any) required to be paid by the Shareholders'
Representative to the Company or the Subsidiary with respect to any Pre-Closing
Taxes. For the purposes of the foregoing, a credit shall be deemed utilized at
such time as the actual liability of the Company or the Subsidiary for Taxes
(including estimated Taxes) is less than it would have been had such credit not
been available. In the event that the liability of the Company or the Subsidiary
for Taxes for any tax period beginning after the Closing Date or for any portion
of a tax period such portion beginning after the Closing Date (in each case, a
"Post-Closing Period") is reduced as a result of taking into account in any such
Post-Closing Period any item of loss or deduction attributable to (i) the
exercise or cashing out of any warrants or options for stock of the Company
after the date hereof and on or before the Closing Date and (ii) payments in the
nature of prepayment penalties with respect to the Indebtedness referred to in
Section 1.05(b)(iii) hereof (in each case, a "Tax Reduction Item"), Buyer shall
cause the Company to, and the Company shall, within fifteen business days of the
close of such Post-Closing Period, pay to the Shareholder's Representative (on
behalf of the Shareholders) the amount of such reduction. For purposes of the
foregoing the amount of any reduction in Taxes attributable to a Tax Reduction
Item to be taken into account for any Post-Closing Period shall be an amount
equal to the excess if any of (x) the liability of the Company or the Subsidiary
for Taxes for such Post-Closing Period determined without regard to any Tax
Reduction Items over (y) the liability of the Company or the Subsidiary for
Taxes for such Post-Closing Period determined by taking into account any Tax
Reduction Items properly taken into account for such Post-Closing Period and all
prior Post-Closing Periods. To the extent that taking any Tax Reduction Item
into account for any Post-Closing Period results in a reduction in Taxes in
accordance with the preceding sentence, such Tax Reduction Item shall not be
taken into account in any subsequent Post-Closing Period. In the event of any
adjustment to the taxable income of the Company or the Subsidiary for any
Post-Closing Period as a result of an audit or otherwise, the amount of any
reduction in Taxes for all Post-Closing Periods shall be recalculated and the
Company shall pay to the Shareholders' Representative (on behalf of the
Shareholders) or the Shareholders' Representative (on behalf of the
Shareholders) shall pay to the Company the amount of any adjustment in such
reduction of Taxes. For purposes of this Section 10.5(a) the liability for
Pre-Closing Taxes and for Taxes for the Post-Closing Period beginning after the
Closing Date shall be determined by closing the books of the Company as of the
close of business on the Closing Date and allocating all items through such time
to the Pre-Closing Period ending on the Closing Date and allocating all items
arising thereafter to the Post-Closing Period beginning on the day after the
Closing Date.
(b) Buyer, the Company, the Executing Shareholders and the
Shareholders' Representative shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
Returns pursuant to this Section 10.05 and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees
<PAGE> 38
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Company shall retain all
books and records with respect to Tax matters pertinent to the Company and the
Subsidiary relating to any tax periods and shall abide by all record retention
agreements entered into with any taxing authority, and shall give the
Shareholders' Representative reasonable written notice prior to transferring,
destroying or discarding any such books and records prior to the expiration of
the applicable statute of limitations for that tax period, and if the
Shareholders' Representative so requests, the Company shall allow the
Shareholders' Representative to take possession of such books and records.
10.06 Further Assurances. From time to time, as and when requested
by any party hereto and at such party's expense, any other party shall execute
and deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to
evidence and effectuate the transactions contemplated by this Agreement.
ARTICLE XI
DEFINITIONS
"Affiliates" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
"Allowable Deferred Acquisition Amount" means the sum of (A) an amount equal to
the lesser of (i) the aggregate of any deferred and unpaid purchase price
outstanding as of the Closing Date and relating to (x) the retail store in
Flagstaff, Arizona, (y) the retail stores in Charleston, Columbia and West
Columbia, South Carolina and (z) the retail store in Houston, Texas (the
"Acquired Stores") and (ii) the excess of $4,100,000 over the aggregate cash
purchase price actually paid on or before the Closing for the acquisition of the
Acquired Stores, plus (B) an amount equal to the lesser of (i) the aggregate of
any deferred and unpaid purchase price outstanding as of the Closing Date
relating to the acquisition of CSC and (ii) the excess of $4,200,000 over the
aggregate cash purchase price actually paid on or before the Closing for the
acquisition of CSC. The parties acknowledge that the full amounts described in
clauses (A)(i) and (B)(i) of this definition are Indebtedness, and thus subject
to reduction pursuant to clause (iii) of the second sentence of the definition
of Indebtedness.
"Buyer's Share of Excess Cash" means an amount equal to the excess of Excess
Cash over the amount by which the Merger Consideration is increased by reason of
Section 3.01(a)(iii).
<PAGE> 39
"Cash" means the aggregate amount of the Company's and the Subsidiary's cash and
cash equivalents as of the time of determination determined on a consolidated
basis in accordance with the accounting principles, methods and procedures used
in preparation of the Company's March 31, 1997 consolidated financial
statements.
"Excess Cash" means all Cash as of the close of business on the business day
prior to the Closing Date ((x) less an amount equal to any accrued interest on
Indebtedness accrued but unpaid through the Closing Date, (y) plus an amount
equal to any asset, net of all applicable fees and expenses, resulting from the
termination of any interest rate swap, collar, cap or similar hedging
arrangement and (z) less the Allowable Deferred Acquisition Amount (if any)),
except (i) Cash maintained at any of the retail stores of the Company or the
Subsidiary for regular business purposes consistent with past practice and (ii)
Cash in the possession or in the control of any employee of the Company or the
Subsidiary, to be used in the normal course of the wholesale textbook purchasing
operations of the Company and the Subsidiary.
"Excess CSC Consideration" means the amount by which the purchase price paid and
to be paid (including any deferred purchase price) by the Company or the
Subsidiary for the acquisition of CSC exceeds $3,000,000.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administration functions of or pertaining to government
or any other government authority, agency, department, board, commission or
instrumentality of the United States, any foreign government, any state of the
United States or any political subdivision thereof, and any court, tribunal or
arbitrator(s) of competent jurisdiction, and any governmental or
non-governmental self-regulatory organization, agency or authority.
"Indebtedness" means, without duplication, (i) all indebtedness of or any
obligation of the Company and the Subsidiary for borrowed money, whether
current, short-term, or long-term, secured or unsecured, (ii) all indebtedness
of the Company and the Subsidiary for the deferred purchase price for purchases
of property outside the ordinary course which is not evidenced by trade
payables, (iii) all lease obligations of the Company and the Subsidiary under
leases which are capital leases in accordance with GAAP, (iv) all off-balance
sheet financings of the Company and the Subsidiary including, without
limitation, synthetic leases and project financing, (v) any payment obligations
of the Company or the Subsidiary in respect of banker's acceptances or letters
of credit (other than stand-by letters of credit in support of ordinary course
trade payables), (vi) any liability of the Company or the Subsidiary with
respect to interest rate swaps, collars, caps and similar hedging obligation,
(vii) any present, future or contingent obligations of the Company or the
Subsidiary under (A) any phantom stock or equity appreciation rights, plan or
agreement, (B) any consulting, deferred pay-out or earn-out arrangements in
connection with the purchase of any business or entity or (C) any
non-competition agreement, (viii) an amount equal to the Seller's Expenses, if
any, paid by
<PAGE> 40
the Company or the Subsidiary, (ix) 50% of the amount of any liability as of the
Closing of the Company or the Subsidiary under deferred compensation plans
(other than Stock Option Plans) of the type reflected under "Other Long-Term
Liabilities" on the balance sheet in the Audited Financial Statements (which
liability shall be determined consistently with its determination on such
balance sheet) and (x) any accrued and unpaid interest (to the extent not
otherwise included as a reduction of Excess Cash) or any contractual prepayment
premiums, penalties or similar contractual charges resulting from the
transactions contemplated hereby or the discharge of such obligations with
respect to any of the foregoing. Indebtedness shall: (i) include any amount of
Excess Cash applied to reduce Indebtedness from the close of business on the
business day prior to the Closing Date through the Closing, (ii) include an
amount by which Buyer's Share of Excess Cash has been reduced by virtue of the
use of Cash to pay (A) the Excess CSC Consideration and (B) the $75,000
principal payment to reduce Tranche B (as set forth in Section 4.06(o)) and
(iii) be reduced by the Allowable Deferred Acquisition Amount (if any).
"Lien" or "Liens" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company or the Subsidiary, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Company or the Subsidiary under a lease which is not in
the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Material Adverse Effect" means a material adverse effect on the business,
results of operations, properties, assets or condition (financial or otherwise)
of the Company or the Subsidiary, taken as a whole, other than with respect to
any adverse effects which, directly or indirectly, relate to or result from (i)
public or industry knowledge relating to the transactions contemplated by this
Agreement or (ii) general economic conditions generally affecting the industry
in which the Company and the Subsidiary compete.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges or Liens which are either not yet due or being contested in good faith;
(ii) deposits, Liens or pledges made in connection with, or to secure payment
of, performance of bids or trade contracts, surety and appeal bonds, performance
bonds, compensation, unemployment insurance, old age pensions or other social
security obligations that are not due and payable or which are being contested
in appropriate proceedings; (iii) operating leases or purchase money security
interests in any property acquired by the Company or the Subsidiary in the
ordinary course of business to the extent disclosed in the schedules to this
Agreement or reflected in the most recent Financial Statement; (iv) statutory
interests or title of a lessor under any lease disclosed in the schedules to
this Agreement; (v) carriers', warehousemen's, statutory mechanics,
<PAGE> 41
materialmen's or contractors' Liens or encumbrances or any similar statutory
Lien which is not filed and for which no amounts are past due or in dispute and
other like Liens arising in the ordinary course of business and securing
obligations not yet due and payable; (vi) matters which would be disclosed by an
accurate survey of each parcel of real property; (vii) zoning restrictions,
easements, rights-of-way, restrictions, licenses, covenants, conditions, rights
of way and other similar charges and encumbrances not interfering with the
ordinary conduct of the business of the Company and the Subsidiary or materially
detracting from the value of the assets of the Company and the Subsidiary, (v)
Liens outstanding on the date hereof which secure Indebtedness to be repaid on
the Closing Date and which are described in the Schedules to this Agreement and
(vi) Liens which individually or in the aggregate are not material.
"Person" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Pro Rata Share" means the pro rata share of each Shareholder as set forth on
the Shareholders Schedule.
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, ad valorem/personal property, stamp,
excise, occupation, sales, use, transfer, value added, alternative minimum,
estimated or other tax, including any interest, penalty or addition thereto,
whether disputed or not.
"Tax Returns" means any return, report, information return or other document
(including schedules or any related or supporting information) filed or required
to be filed with any governmental entity or other authority in connection with
the determination, assessment or collection of any Tax or the administration of
any laws, regulations or administrative requirements relating to any Tax.
ARTICLE XII
MISCELLANEOUS
12.01 Press Releases and Communications. No press release or public
announcement related to this Agreement or the transactions contemplated herein,
or prior to the Closing any other announcement or communication to the
employees, customers or suppliers of the Company or the Subsidiary, shall be
issued or made without the joint approval of Buyer and the Shareholders'
Representative, unless required by law (in the reasonable opinion of counsel) or
court order in which case Buyer and the Shareholders'
<PAGE> 42
Representative shall have the right to review such press release or announcement
prior to publication.
12.02 Expenses. Except as otherwise expressly provided herein, the
Shareholders (on behalf of themselves and the Shareholders' Representative)
shall pay all of their own expenses and those incurred by the Company (other
than amounts (if any) incurred by the Company in relation to the financing
referenced in Section 5.07) or the Subsidiary (including attorneys' and
accountants' fees and expenses) (the "Seller's Expenses"), and Buyer shall pay
all of its own expenses (including attorneys' and accountants' fees and
expenses), incurred in connection with the negotiation of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not);
provided that Buyer shall pay all filing fees required under the HSR Act; and
provided, further, that the Shareholders' Representative may elect to have the
Company pay the Seller's Expenses, in which case, the amount of such Seller's
Expenses so paid shall be included in the definition of Indebtedness as set
forth therein.
12.03 Waiver of Certain Transfer Restrictions. In connection with
the transactions contemplated in this Agreement, the Shareholders hereby
expressly waive the applicability of any provision of that certain Stockholders
Agreement, dated as of August 31, 1995 (as amended, the "Stockholders
Agreement"), between the Company, the Shareholders and the other parties listed
on the signature page thereto, and the Stockholders Agreement and Registration
Rights Agreement, dated as of August 31, 1995, shall terminate and be of no
further force and effect as of the Closing.
12.04 Knowledge Defined. For purposes of this Agreement, the term
"the Company's knowledge" and any similar terms used herein shall mean the
actual current knowledge of Mark W. Oppegard, Bruce E. Nevius, Lawrence Rempe,
William Allen, and Thomas Hoff without any duty to investigate. The "Buyer's
knowledge" and any similar term used herein shall mean the actual current
knowledge of Robert B. Haas and Douglas D. Wheat, without any duty to
investigate.
12.05 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when personally delivered,
delivered by Federal Express or similar overnight courier service or mailed by
first class mail, return receipt requested. Notices, demands and communications
to Buyer, the Company and the Shareholders shall, unless another address is
specified in writing, be sent to the address indicated below:
<PAGE> 43
Notices to Buyer:
NBC Merger Corp.
in care of Haas Wheat & Partners Incorporated
300 Crescent Court - Suite 1700
Dallas, TX 75201
Telecopier: (214) 871-8317
Attn: Robert B. Haas or
Douglas D. Wheat
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn.: Robert M. Hirsh, Esq.
Telecopier: (212) 757-3990
Notices to Shareholders or the Shareholders' Representative:
Olympus Partners
Metro Center
One Station Place
Stamford, CT 06902
Attn: Louis J. Mischianti
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: William S. Kirsch, P.C.
John A. Schoenfeld
Notices to Company:
NBC Acquisition Corp.
c/o Nebraska Book Company
P.O. Box 80529
4700 South 19th Street
Lincoln, NE 68501-0529
Attn: President
<PAGE> 44
with a copy (if prior to Closing) to:
Olympus Partners
Metro Center
One Station Place
Stamford, CT 06902
Attn: Louis J. Mischianti
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: William S. Kirsch, P.C.
John A. Schoenfeld
with a copy (if after Closing) to:
Haas Wheat & Partners Incorporated
300 Crescent Court - Suite 1700
Dallas, TX 75201
Telecopier: (214) 871-8317
Attn: Robert B. Haas or
Douglas D. Wheat
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attn.: Robert M. Hirsh, Esq.
Telecopier: (212) 757-3990
12.06 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned or
delegated by Buyer without the prior written consent of the Shareholders'
Representative.
12.07 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such
<PAGE> 45
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
12.08 No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Person.
12.09 Amendment and Waiver. Any provision of this Agreement or the
Schedules or Exhibits hereto may be amended or waived only in writing signed by
Buyer, the Company and the Shareholders' Representative. No waiver of any
provision hereunder or any breach or default thereof shall extend to or affect
in any way any other provision or prior or subsequent breach or default.
12.10 Complete Agreement. This Agreement and the documents referred
to herein (including the Confidentiality Agreement) contain the complete
agreement between the parties hereto and supersede any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way. The representations
and warranties by each party constitute the sole and exclusive representations
and warranties of such party to the other parties hereto in connection with the
transactions contemplated hereby, and each party understands, acknowledges and
agrees that all other representations and warranties of any kind or nature
expressed or implied are specifically disclaimed.
12.11 Counterparts. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
12.12 Governing Law. All matters relating to the interpretation,
construction, validity and enforcement of this Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Delaware
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of laws of any jurisdiction other than the State of Delaware.
* * * *
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
NBC MERGER CORP.
By: /s/ Douglas D. Wheat
----------------------------------------
Its: Senior Vice President
NBC ACQUISITION CORP.
By: /s/ Louis J. Mischianti
----------------------------------------
Its: President
The undersigned hereby guarantees the obligation of Buyer under Section 8.02(b)
and executes this Agreement as an acknowledgment of such guarantee and for no
other purpose.
HWH CAPITAL PARTNERS, L.P.
By: HWH, L.P., general partner
By: HWH Incorporated, general partner
By: /s/ Robert B. Haas
----------------------------------
Its: Chairman
<PAGE> 47
EXECUTING SHAREHOLDERS:
OLYMPUS GROWTH FUND II, L.P.
By: OGPII, L.P.
----------------------------------------
Its: General Partner
By: RSM, L.L.C.
----------------------------------------
Its: a general partner
/s/ Robert S. Morris
---------------------------------------
Robert S. Morris
President
<PAGE> 48
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P.
----------------------------------------
Its: General Partner
By: RSM, L.L.C.
----------------------------------------
Its: a general partner
/s/ Robert S. Morris
---------------------------------------
Robert S. Morris
President
<PAGE> 49
PMI MEZZANINE FUND, L.P.
By: PACIFIC MEZZANINE INVESTORS, L.P.
----------------------------------------
Its: General Partner
By: /s/ Schuyler Lance
----------------------------------------
Its: Principal
<PAGE> 50
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.
Its Attorney-in-Fact
By: /s/ Mark Golenzer
----------------------------------------
Name: Mark Golenzer
Title: Vice President
<PAGE> 51
LINCOLN NATIONAL INCOME FUND, INC
By: /s/ David C. Fischer
----------------------------------------
Name: David C. Fischer
Title: Vice President
<PAGE> 52
CHASE CAPITAL PARTNERS
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: General Partner
By:
----------------------------------------
Its:
----------------------------------------
<PAGE> 53
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: Assistant Treasurer
<PAGE> 54
MARK W. OPPEGARD
By: /s/ Mark W. Oppegard
----------------------------------------
Its:
----------------------------------------
<PAGE> 55
BRUCE E. NEVIUS
By: /s/ Bruce E. Nevius
----------------------------------------
Its:
----------------------------------------
<PAGE> 56
LARRY R. REMPE
By: /s/ Larry R. Rempe
----------------------------------------
Its:
----------------------------------------
<PAGE> 57
THOMAS A. HOFF
By: /s/ Thomas A. Hoff
----------------------------------------
Its:
----------------------------------------
<PAGE> 58
KENNETH F. JIROVSKY
By: /s/ Kenneth F. Jirovsky
----------------------------------------
Its:
----------------------------------------
<PAGE> 59
WILLIAM H. ALLEN
By: /s/ William H. Allen
----------------------------------------
Its:
----------------------------------------
<PAGE> 60
ARDEAN A. ARNDT
By: /s/ Ardean A. Arndt
----------------------------------------
Its: Shareholder
----------------------------------------
<PAGE> 61
MICHAEL D. MARK
By: /s/ Michael D. Mark
----------------------------------------
Its: Shareholder
---------------------------------------
<PAGE> 62
EXHIBITS
Exhibit A Form of Letter of Transmittal
Exhibit B Merger Certificate
Exhibit C Company Certificate
Exhibit D Buyer Certificate
<PAGE> 63
SCHEDULES
Shareholders (Recitals, ss.ss. 1.01, 3.03, 4.04)
Indebtedness Schedule (ss.ss. 1.05, 3.01, 4.06, 4.22, 6.01)
Collegiate Services Corporation (ss. 2.01(e))
Converting Shareholders (ss. 2.01(i))
Governmental Consents (ss.ss. 2.01, 4.14)
Subsidiaries (ss. 4.02)
Authorization (ss. 4.03)
Capital Stock (ss.ss. 4.04, 4.09)
Accounting (ss. 4.05)
Developments (ss. 4.06)
Leased Real Property (ss. 4.07)
Owned Real Property (ss. 4.07)
Liens (ss.ss. 4.09, 4.20)
Taxes (ss. 4.08)
Contracts (ss.ss. 4.09, 4.23)
Licenses (ss. 4.10)
Intellectual Property (ss. 4.11)
Litigation (ss. 4.12)
Employee Benefits (ss. 4.15)
Insurance (ss. 4.16)
Compliance with Laws (ss. 4.17)
Environmental Compliance (ss. 4.18)
Transactions with Affiliates (ss. 4.21)
<PAGE> 64
Exhibit A
Merger of NBC Merger Corp.,
with and into NBC Acquisition Corp.,
By Mail: By Hand or Overnight Courier:
[ ] [ ]
[FORM OF] LETTER OF TRANSMITTAL
<TABLE>
<CAPTION>
=====================================================================================
Name & Address of Registered Certificate(s) Surrendered
Holder(s):
(Please fill in if blank, include zip code) Certificate Number Number of Shares
- -------------------------------------------------------------------------------------
<S> <C> <C>
------------------ ----------------
------------------ ----------------
------------------ ----------------
------------------ ----------------
Total
=====================================================================================
</TABLE>
The certificate(s) listed above, for shares of common stock, par value
$.01 per share ("Shares"), of NBC Acquisition Corp., a Delaware corporation (the
"Company"), is/are surrendered herewith in exchange for (i) the right to receive
the Per Share Cash Consideration Amount (as defined in the Merger Agreement
dated January 6, 1998 among the Company, Buyer and the Executing Shareholders
(as defined therein) (the "Merger Agreement")) for each Share surrendered or
(ii) subject to Section 3.04 of the Merger Agreement, an equal number of shares
of common stock, par value $0.01, of Buyer ("Buyer Shares"), in each case, in
accordance with the terms and conditions of the Merger Agreement.
I am a party named on the Converting Shareholders Schedule to the Merger
Agreement and hereby elect to convert _____________ of the Shares surrendered
hereby into Buyer Shares, pursuant to Section 3.02(b)(ii) of the Merger
Agreement, and the remainder of the Shares surrendered hereby into the right to
receive the Per Share Cash Consideration Amount. [strike if not applicable]
<PAGE> 65
Please issue certificate(s) as indicated above (see "A" or "B" below if
required).
<TABLE>
<CAPTION>
=====================================================================================
"A" SPECIAL EXCHANGE "B" SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
- -------------------------------------------------------------------------------------
<S> <C>
(See instruction 4 on reverse side) To be completed only if a certificate(s)
To be completed only if a certificate(s) and check, if any, is/are to be issued to
and check, if any, is/are to be issued to the registered holder(s) but delivered to
someone other than the registered someone other than the registered
holder(s). holder(s).
NAME NAME
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
ADDRESS (include zip code) ADDRESS (include zip code)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Taxpayer Identification Number
(TIN):
=====================================================================================
</TABLE>
REQUIRED: TAXPAYER IDENTIFICATION NUMBER & CERTIFICATION (SEE INSTRUCTION 6)
================================================================================
Taxpayer Identification Number (TIN)/Social Security Number:
================================================================================
CERTIFICATION: Under penalties of perjury, I hereby certify as follows:
(1) The number shown above is my correct taxpayer identification number,
or I am waiting for a number to be issued to me, and
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
IMPORTANT: You must cross out item 2 above if you have been notified by the IRS
that you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by
the IRS that you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding,
do not cross out item 2.
REPRESENTATIONS AND WARRANTIES: I hereby represent and warrant to the Company as
follows:
<PAGE> 66
(A) As of the date hereof, [I am/we are] the beneficial owner(s) of the
Shares being transferred hereby and have full power and authority to transfer
such Shares and surrender the certificate(s) submitted in connection herewith.
Upon the delivery to [me/us] by Buyer of the Per Share Cash Consideration Amount
or Buyer Shares, as the case may be, in respect of the Shares surrendered
hereby, neither Buyer nor the Company will be subject to any adverse claim in
respect of such certificate(s).
(B) I am acquiring the Buyer Shares with the present intention of holding
them for investment purposes and not with a view to, or in connection with, any
distribution thereof in violation of any federal or state securities laws.
(C) Upon request, I will execute and deliver any additional documents
reasonably deemed appropriate or necessary by Buyer or the Company in connection
with the surrender of the certificate(s) surrendered hereby.
IMPORTANT PLEASE SIGN HERE Signature Guarantee
(see instruction 4 on reverse side)
- --------------------------------------------------------------------------------
Signature of Owner
- --------------------------------------------------------------------------------
Signature of Co-Owner, If Any Eligible Guarantor Institution
- --------------------------------------------------------------------------------
Telephone Number Date: Official Signature
- --------------------------------------------------------------------------------
<PAGE> 67
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. GENERAL
This Transmittal should be properly filled in, dated and signed by the
holder(s) of the shares which are being surrendered, and delivered or
mailed with the stock certificate(s) for Shares to [ ] at
the address on the cover. The method of delivery is at your option and
risk, but if sent by mail, we suggest insured registered mail with return
receipt.
2. STOCK ISSUED IN SAME NAME
If a new share certificate is to be issued in the same name as the shares
surrendered, simply sign this Transmittal and provide Taxpayer
Identification Number (See No. 6 below). In this case, no endorsement of
the stock certificate is required.
3. STOCK ISSUED IN DIFFERENT NAME
If the new share certificate is to be issued in a name other than that of
the registered holder(s) of the shares surrendered, the signature(s) on
this Transmittal must be guaranteed by an eligible guarantor institution
such as a commercial bank, trust company, securities broker/dealer, credit
union or savings and loan that is a member of the Medallion Signature
Guarantee Program. A verification by a notary public is not acceptable.
4. ENDORSEMENT
This Transmittal should be endorsed exactly as the name(s) appear(s) on
the face of the certificate(s). In case the endorsement is executed by an
attorney, executor, administrator, guardian or other fiduciary, or by an
officer of a corporation, the person executing the endorsement must give
his full title in such capacity and appropriate evidence of authority to
act in such capacity must be forwarded with the certificate(s)
surrendered. If the endorsement is executed by anyone other than the
registered holder(s) of the shares surrendered, please provide legal
documentation which will serve as appropriate evidence of authority to
act. If you have questions about appropriate documentation, please call
the telephone number listed below.
5. TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
You are required to provide the Company with a correct Taxpayer
Identification Number (TIN) or Social Security Number and certification,
which is provided on the front hereof. Failure to provide the information
may subject you to a 31% federal income tax withholding on any cash
payment to you.
<PAGE> 68
6. LOST CERTIFICATE
If any Share certificate(s) are lost, please complete this Transmittal
with the notation that such certificate(s) are lost and deliver or mail
the Transmittal as instructed above. The Company will send you an
Affidavit of Loss, which you will need to complete and return to [ ].
You will be required to pay an indemnity bond premium fee, which is equal
to 2% of the market value of your lost certificate.
7. STOCK IN THE NAME OF DECEDENT
If any Share certificate(s) are currently registered in the name of a
decedent, please see No. 4 above.
8. QUESTIONS
For further information, please call [ ] at [ ]. If
you have any unusual circumstances for which you need assistance, please
call prior to sending in your certificates for exchange in order to
expedite the exchange of your certificates.
<PAGE> 69
Exhibit B
CERTIFICATE OF MERGER
OF
NBC MERGER CORP.
INTO
NBC ACQUISITION CORP.
UNDER SECTION 251 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), NBC Acquisition Corp., a Delaware corporation (the
"Company"), hereby certifies to the following information relating to the merger
(the "Merger") of NBC Merger Corp., a Delaware corporation (the "Merging
Company"), into the Company:
FIRST: That the names and states of incorporation of the Company and the
Merging Company, which are the constituent corporations in the Merger (the
"Constituent Corporations"), are as follows:
Name State
---- -----
NBC Acquisition Corp. Delaware
NBC Merger Corp. Delaware
SECOND: That the Agreement and Plan of Merger dates as of January 6, 1998
(the "Merger Agreement") between the Constituent Corporations and the Executing
Shareholders (as defined therein) setting forth the terms and conditions of the
Merger, has been approved, adopted, certified, executed and acknowledged by each
of the Constituent Corporations in accordance with the provisions of section 251
of the DGCL.
THIRD: That NBC Acquisition Corp. is the corporation that will survive the
Merger (the "Surviving Corporation").
<PAGE> 70
2
FOURTH: That the Certificate of Incorporation of the Surviving Corporation
is hereby amended as follows:
(1) Article Fourth is amended to read in its entirety as follows: "The
total number of shares of stock that his corporation shall have
authority to issue is five million (5,000,000) shares of Class A
Common Stock, $.01 par value per share ("Common Stock"). Each share
of Common Stock shall be entitled to one vote."
Except to the extent amended hereby, the provisions of the Certificate of
Incorporation of the Surviving Corporation shall remain unmodified and in full
force and effect.
FIFTH: That the executed Merger Agreement is on file at the principal
place of business of the Surviving Corporation. The address of the principal
place of business of the Surviving Corporation is: [insert]
SIXTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of either
of the Constituent Corporations.
SEVENTH: That this Certificate of Merger shall be effective on February
[11], 1998.
<PAGE> 71
3
IN WITNESS WHEREOF, NBC Acquisition Corp. has caused this certificate
to be signed by its President this __ day of February, 1998
NBC ACQUISITION CORP.
By:
--------------------------------------
President
ATTEST:
By:
--------------------------
Secretary
<PAGE> 72
EXHIBIT C
COMPANY CERTIFICATE
NBC ACQUISITION CORP.
I, Louis J. Mischianti, do hereby certify that I am the duly elected
and acting President of NBC Acquisition Corp., a Delaware corporation (the
"Company"). This Certificate is executed and delivered pursuant to the Merger
Agreement dated the date hereof (the "Merger Agreement") between the Company,
NBC Merger Corp., a Delaware corporation and each of the Persons executing the
Merger Agreement as an Executing Shareholder. Unless otherwise indicated herein,
all capitalized terms used and not defined in this Certificate shall have the
meaning ascribed to such terms in the Merger Agreement. In my capacity as such
officer of the Company, I DO HEREBY CERTIFY THAT:
1. The preconditions specified in Section 2.01(a)-(i) of the Merger
Agreement have been satisfied;
IN WITNESS WHEREOF, I have executed this Certificate on this ____
day of January, 1998.
NBC ACQUISITION CORP.
By:
--------------------------------------
Name: Louis J. Mischianti
Its: President
<PAGE> 73
EXHIBIT D
BUYER CERTIFICATE
NBC MERGER CORP.
I, _______________, do hereby certify that I am the duly elected and
acting President of NBC Merger Corp., a Delaware corporation (the "Buyer"). This
Certificate is executed and delivered pursuant to the Merger Agreement dated the
date hereof (the "Merger Agreement") between the Buyer, NBC Acquisition Corp., a
Delaware corporation and each of the Persons executing the Merger Agreement as
an Executing Shareholder. Unless otherwise indicated herein, all capitalized
terms used and not defined in this Certificate shall have the meaning ascribed
to such terms in the Merger Agreement. In my capacity as such officer of the
Buyer, I DO HEREBY CERTIFY THAT:
1. The preconditions specified in Section 2.02(a)-(d) of the Merger
Agreement have been satisfied;
IN WITNESS WHEREOF, I have executed this Certificate on this ___ day
of January, 1998.
NBC Merger Corp.
By:
--------------------------------------
Its: President
<PAGE> 1
Exhibit 10.10.1
AGREEMENT FOR PURCHASE
AND SALE OF STOCK
THIS AGREEMENT made January 9, 1998, between and among NEBRASKA BOOK
COMPANY, INC., a Kansas corporation ("NBC") and MARTIN D. LEVINE, an individual
residing in Princeton, New Jersey, and MARTIN D. LEVINE, as trustee of the
Lauren E. Levine Grantor Trust, and MARTIN D. LEVINE, as trustee of the Jonathan
L. Levine Grantor Trust (referred to herein individually as a "Shareholder" and
collectively as the "Shareholders"), who collectively own all of the issued and
outstanding stock of the COLLEGIATE STORES CORPORATION (the "Company"), a New
Jersey corporation, and is made with reference to the following:
A. Shareholders own all of the issued and outstanding shares of capital
stock of the Company;
B. Shareholders desire to sell all of the shares of capital stock of the
Company to NBC; and
C. NBC desires to buy from Shareholders all of the issued and outstanding
shares of capital stock of the Company;
NOW, THEREFORE, for and in consideration of the foregoing premises,
the mutual covenants herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
<PAGE> 2
2
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions
herein contained, at the Closing (as hereinafter defined) Shareholders shall
sell, transfer, assign and deliver to NBC, and NBC shall purchase from
Shareholders, all of the issued and outstanding shares of capital stock of the
Company, $0 par value, consisting of ninety (90) shares of voting common stock
and one thousand two hundred seventy-five (1,275) shares of nonvoting common
stock (collectively, the "Stock").
2. CLOSING; CLOSING DATE. The closing ("Closing") of the purchase
and sale of Stock and of the other transactions contemplated herein shall take
place on or before January 23, 1998, at 10:00 a.m., local time, at the offices
of MarketSource Corporation, 10 Abeel Road, in Cranbury, New Jersey, or at such
other time, date or place as may be mutually agreed upon by Shareholders and
NBC. The day of the Closing is sometimes referred to herein as the Closing Date.
3. PURCHASE PRICE; PAYMENT; ADJUSTMENTS.
3.1 Purchase Price. The total consideration to be paid to
Shareholders for the Stock shall consist of the sum of Four Million Dollars
($4,000,000) (the "Cash Consideration") subject to adjustment as provided
herein.
3.2 Payment Terms. At the Closing, NBC shall pay to
Shareholders the Cash Consideration less an amount equal to One Hundred Thousand
Dollars ($100,000) (the "Deferred Consideration"). The Deferred Consideration
shall be payable, subject to the terms and provisions of Section 3.3 hereof on
or before six (6) months after the Closing Date. Cash payments shall be made by
cashier's check, certified funds or wire transfer, as designated by the
Shareholders subject to any
<PAGE> 3
3
adjustments required herein to be made to the Cash Consideration by the
provisions of this Agreement.
3.3 Deferred Consideration. The "Deferred Consideration"
payable to Shareholders shall be subject to reduction as provided in Section 9.3
of this Agreement. If NBC incurs any Damages as described in Section 9.1, NBC
shall have the right to set-off any such amounts against the Deferred
Consideration as described in Section 9.3 in addition to any other remedies to
which it may be entitled. As of the Closing, the Deferred Consideration shall be
deposited into an interest bearing trust account with U.S. Bank, N.A., Lincoln,
Nebraska, subject to the terms and conditions of the Escrow Agreement attached
hereto as Exhibit A.
3.4 Net Worth Deficiency. Shareholders shall be liable to NBC
on a dollar for dollar basis for the entire amount that the stockholders' equity
of the Company as of the Closing Date is less than zero dollars ($ 0) on the
Closing Balance Sheet (such amount less than zero dollars is herein referred to
as the "Net Worth Deficiency"), provided that the maximum amount of the
Shareholders' liability for a Net Worth Deficiency shall not exceed One Hundred
Thousand Dollars ($100,000). For this purpose, "stockholders' equity of the
Company" shall be the difference of total assets minus total liabilities of the
Company, determined in accordance with generally accepted accounting principles;
provided that the amount of the Net Worth Deficiency shall be adjusted by adding
back all or some portion of the Tax Liability in Section 3.5 hereof in an amount
up to but not to exceed the amount of the Net Worth Deficiency, and the Net
Worth Deficiency after this adjustment shall
<PAGE> 4
4
be the basis for determining the Shareholders' liability to the Company under
this Section 3.4.
3.5 Distribution for Income Taxes. The parties acknowledge
that the Company has elected to be taxed as an "S" Corporation under the
Internal Revenue Code of 1986, as amended (the "Code"). Prior to Closing, the
Company shall distribute to the Shareholders the sum of $553,026.11 (the "Tax
Estimate"), which is an amount estimated by the Shareholders to equal the amount
of federal and state income taxes due by the Shareholders based on their
estimate of $1,119,033 of taxable income of the Company for 1997, and based on
their estimate of $0 of taxable income of the Company for the portion of 1998
prior to Closing. The Tax Estimate is based on the pro forma income statement
and balance sheet attached hereto as Exhibit B. The amount of income tax shall
be calculated at a combined federal and state effective rate of 49.42% times the
actual taxable income of the Company for such periods and the aggregate amount
of such income tax for both 1997 and 1998 is herein referred to as the "Tax
Liability." A copy of the 1997 and 1998 income tax returns will be sent to the
Shareholders upon filing by the Company. If the Tax Liability based on this
calculation is less than the Tax Estimate, the excess shall be promptly refunded
to the Company by the Shareholders; and if the Tax Liability based on this
calculation exceeds the Tax Estimate, NBC shall cause the Company to distribute
to the Shareholders additional sums equal to the excess. The parties shall
mutually agree upon an independent accounting firm to prepare the Company's
returns. An election shall be made pursuant to ss. 1362(e)(3) of the Code to
taxes for
<PAGE> 5
5
1998 to be based on an actual physical closing of the books of the Company as of
the Closing Date.
4. PHYSICAL INVENTORY; CLOSING BALANCE SHEET; WARRANTEES. A physical
inventory for the Company shall be taken at the time of Closing, with
representatives of NBC and Shareholders participating and, within thirty (30)
days after the Closing, a balance sheet and related financial statements of the
Company (the "Closing Balance Sheet") shall be prepared as of the Closing Date
in accordance the generally accepted accounting principles consistently applied
to fairly present the financial condition, assets and liabilities of the Company
as of such date. In the event that NBC determines that there is a Net Worth
Deficiency, it shall notify Shareholders, who shall have the right to have the
Closing Balance Sheet reviewed by their independent accountants at their sole
cost and expense. Shareholders have prepared a pro forma balance sheet as of
December 31, 1997, as set forth in the pro forma financial statements attached
as Exhibit B which was prepared consistent with past practices of the Company.
5. REPRESENTATIONS AND WARRANTIES.
5.1 By Shareholders. Except as otherwise qualified in the
Disclosure Schedule attached hereto as Exhibit C and incorporated herein as the
same may be amended between the date hereof and the Closing Date (such
qualifications making specific reference to the respective (sub)section of this
Agreement to which they apply) (the "Disclosure Schedule"), Shareholders hereby
jointly and severally represent and warrant to NBC that the following
representations and warranties are true and correct in all material respects,
and shall be deemed remade at and as of the
<PAGE> 6
6
Closing Date, provided that representations and warranties herein which refer to
the Disclosure Schedule shall only be true and correct as of the Closing Date:
(a) Organization, Power and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New Jersey, and has all requisite corporate power and authority to own or
hold under lease its properties and assets and to carry on its business as now
conducted. The Company is qualified to do business and is in good standing in
every jurisdiction in which a failure to so qualify could have a material
adverse effect on its assets, business or prospects. The Company possesses all
governmental and other permits, licenses and approvals necessary to own or lease
its properties and assets and to carry on its business as now conducted, and
such permits, licenses and approvals are listed on the Disclosure Schedule. True
and complete copies of the articles of incorporation, as amended to date, and
the by-laws, as amended to date, of the Company have been furnished to NBC.
(b) Authorization by Shareholders. Shareholders, and each of
them, have full power and authority to execute and deliver this Agreement and
all other documents to be executed and delivered pursuant hereto and to
consummate the transactions contemplated hereby. This Agreement constitutes the
valid and binding agreement of Shareholders, enforceable against each
Shareholder in accordance with its terms, except to the extent limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws of general application relating to or affecting the enforcement of
creditors' rights. The trust Shareholders are duly
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7
organized, validly existing, and the trustee thereof has the power and authority
to execute, deliver and perform hereunder.
(c) Authorization by Company. The execution and delivery by
the Company of each document described in this Agreement to which the Company is
a party and the performance by each of its obligations thereunder have been duly
authorized and approved by all necessary corporate action prior to the date of
this Agreement. Each such document to which the Company is a party has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against it in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights.
(d) No Violation By Company. The execution, delivery and
performance by the Company of each document described in this Agreement to which
the Company is a party, the consummation by the Company of the transactions
contemplated thereby and the compliance by the Company with the provisions
thereof, will not, with or without the giving of notice or the passage of time,
(a) violate any law, ordinance, rule or regulation applicable to the Company,
(b) violate any judgment, writ, injunction, order or decree of any court,
arbitrator or governmental authority applicable to the Company or (c) result in
the breach of or conflict with any term, covenant, condition or provision of,
result in the modification or termination of, constitute a default or an event
of acceleration under, or result in the creation or imposition of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company pursuant to its articles of incorporation or by-
<PAGE> 8
8
laws, or any commitment, contract, indenture, mortgage, note or other agreement
or instrument to which the Company is a party or by which any of its properties
or assets are bound.
(e) No Violation by Shareholders. The execution, delivery and
performance by Shareholders of this Agreement, the consummation by the
Shareholders of the transactions contemplated hereby and the compliance by the
Shareholders with the provisions hereof and of each document described in this
Agreement to which the Shareholders are parties, will not, with or without the
giving of notice or the passage of time, (a) violate any law, ordinance, rule or
regulation applicable to the Shareholders, (b) violate any judgment, writ,
injunction, order or decree of any court, arbitrator or governmental authority
applicable to Shareholders or (c) result in the breach of or conflict with any
term, covenant, condition or provision of, result in the modification or
termination of, constitute a default or an event of acceleration under, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon the Stock pursuant to any commitment, contract, indenture,
mortgage, note or other agreement or instrument to which any Shareholder is a
party or by which the Stock is bound. No consent of, or notice to, any federal,
state, or local authority, or any other person or entity is required to be
obtained or made by any Shareholder in connection with the execution, delivery
and performance of this Agreement and the other documents to be executed,
delivered and performed pursuant hereto by Shareholders.
(f) Stock Ownership. Shareholders are the lawful and
beneficial owner of record of 1,365 shares of Stock free and clear of all
pledges,
<PAGE> 9
9
liens, encumbrances, claims and other charges of every kind, including, without
limitation, subscriptions, options, warrants, rights, or other agreements
granting to any person, firm or corporation any interest in or right to acquire
from any Shareholder at any time, or upon the happening of any stated event, any
shares (or interests therein) of the Stock owned by Shareholders.
(g) Accuracy of Closing Balance Sheet. The Closing Balance
Sheet will present fairly the financial condition, assets and liabilities of the
Company in accordance with generally accepted accounting principles consistently
applied as of the Closing Date, and the net worth of the Company shall not be
less than zero dollars ($ 0) as described in Section 3.4 hereof, and subject to
the adjustment, if any, provided in Section 3.4.
(h) Capitalization.
(i) Shares. The authorized capital stock of the Company
consists of 2,500 shares of common stock, $0 par value, of which ninety
(90) shares of voting common stock, and no more, and one thousand two
hundred and seventy-five (1,275) shares of nonvoting common stock, and no
more, are issued and outstanding and owned of record by the Shareholders.
No other shares are issued and outstanding and owned of record by the
Shareholders or anyone else.
(ii) No Restrictions. All of the issued and outstanding
shares of capital stock of the Company are duly authorized, validly issued
and outstanding, fully paid and nonassessable, and have not been issued in
violation of any shareholder rights under applicable law, or its articles
of
<PAGE> 10
10
incorporation or by-laws, or the terms of any agreement to which it is a
party or by which it is bound. All of the issued and outstanding shares of
the Company's capital stock have been issued in compliance with all
applicable securities laws. The Company has no outstanding subscriptions,
options, warrants, rights or other agreements granting to any person, firm
or corporation any interest in or right to acquire from it at any time, or
upon the happening of any stated event, any shares of the capital stock of
the Company, or any interests therein.
(i) Investments. The Company does not own, directly or
indirectly, any stocks, bonds or securities or any equity or other proprietary
interest in any corporation, partnership, joint venture, business enterprise or
other entity of any nature whatsoever.
(j) Financial Statements. Shareholders have delivered to NBC
true and complete copies of (i) the balance sheets of the Company as at December
31, 1996, and the related statements of income and funds flow (collectively, the
"1996 Financial Statements"); and (ii) the unaudited balance sheets of the
Company as at the most recent month-end for which such statements are presently
available, and the related statements of income and funds flow (collectively,
together with all subsequent unaudited month-end statements, referred to as the
"Interim Statements"). Shareholders shall cause additional unaudited month-end
statements to be prepared and delivered to NBC as soon as reasonably possible
after the end of such period. A Closing Balance Sheet as defined in Section 4
hereof and related statements of income and funds flow for the period then ended
shall also be
<PAGE> 11
11
prepared. All such balance sheets and related financial statements have been or
will be prepared in accordance with generally accepted accounting principles
consistently applied and have or will fairly present the assets and liabilities
of the Company as at the dates thereof and the results of the operations of the
Company for the periods covered thereby.
(k) Liabilities and Obligations. The Company has no
liabilities or obligations of any nature whatsoever, whether arising out of
contract, tort, statute or otherwise, including federal or state income tax
liabilities, which are not reflected, reserved against, or given affect to, in
the 1996 Financial Statements except: (i) those disclosed specifically in the
Disclosure Schedule; (ii) those reflected, reserved against or given effect to
in the Interim Statements; and (iii) liabilities and obligations reasonably
incurred in the ordinary course of the Company's business between the date of
the Interim Statements and the date hereof. There is no basis for assertion
against the Company of any liabilities or obligations not reflected, reserved
against or given effect to in the 1996 Financial Statements, the Interim
Statements or in the Disclosure Schedule except for liabilities and obligations
described in clause (iii) of this paragraph (k), and Shareholders shall disclose
or cause to be disclosed all such liabilities or obligations to NBC's
representatives preparing the Closing Balance Sheet.
(l) Absence of Certain Changes. Since December 31, 1996, there
has not been: (i) any material adverse change in the condition (financial or
otherwise), results of operations, assets, liabilities, or business of the
Company; (ii) any damage, destruction or loss (whether or not covered by
insurance) adversely
<PAGE> 12
12
affecting the properties, assets, liabilities, or business of the Company; (iii)
any declaration, setting aside, or payment of any dividend or other distribution
in respect of the capital stock of the Company or any direct or indirect
redemption, retirement purchase or other acquisition of any of such capital
stock or any issuance of shares of capital stock or the granting, issuance or
exercise of any right, warrant, option or similar commitment relating to the
Company's authorized or issued capital stock; (iv) any increase in the
compensation, commissions or perquisites payable or to become payable by the
Company to any director, officer, employee or agent of the Company other than
increases consistent with past practices in the ordinary course of business, or
any payment of any bonus (other than payments consistent with past practices in
the ordinary course of business), profit sharing or other extraordinary
compensation to any employee of the Company; (v) any change in the accounting
methods or practices followed by the Company or any change in the amortization
policies or rates theretofore adopted by the Company; (vi) any cancellation of
the debts owed to or claims held by the Company; or (vii) any sale, lease,
abandonment or other disposition by the Company of any real property or (other
than in the ordinary course of business), of any machinery, equipment or other
operating properties, or any intangible assets utilized in the business of the
Company. In addition, Shareholders shall not make or cause any such changes
through the Closing Date, and they shall report all such changes that any
Shareholder becomes aware of to NBC's representatives preparing the Closing
Balance Sheet.
(m) Tax Returns and Reports. All federal, state, local and
foreign income, excise, property, sales, payroll and other tax returns and
reports
<PAGE> 13
13
required to be filed by the Company (the "Tax Returns") have been filed with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, and all such returns and reports properly
reflect the taxes owed by the Company for the periods covered thereby. All
federal, state, local and foreign taxes, assessments, interest, penalties,
deficiencies, fees and other governmental charges or impositions which are
called for as due by the Tax Returns to any taxing authority from the Company
(the "Taxes"), have been properly accrued or paid, provided that as an "S"
corporation, the Company has not accrued or paid any federal or state income
taxes. The Company has not received any notice of assessment or proposed
assessment by the Internal Revenue Service or any other taxing authority in
connection with any Tax Returns and there are no pending tax examinations of or
tax claims asserted against the Company or its properties. There are no tax
liens on any of the properties or assets of the Company except for liens of
current taxes not yet due and payable. There is no basis for any additional
assessment of any Taxes. The Company has not waived any law or regulation
fixing, or consented to the extension of, any period of time for assessment of
any Taxes which waiver or consent is currently in effect.
(n) Title and Condition of Assets. The Company owns and has
good marketable title to all of its properties and assets, including those
assets and properties reflected in the 1996 Financial Statements and the Interim
Statements and the Closing Balance Sheet and all properties and assets acquired
by it after the respective dates thereof, free and clear of all mortgages,
liens, pledges, charges or encumbrances or other third party interests of any
nature whatsoever, except for
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14
(i) the lien of current taxes not yet due and payable, (ii) properties and
assets disposed of by the Company since the respective dates thereof in the
ordinary course of business for fair value, and (iii) such secured indebtedness
as is disclosed in the 1996 Financial Statements or the Interim Statements or
the Closing Balance Sheet. The properties and assets of the Company that are
utilized in the operation of its business (including all buildings), are in good
operating condition and repair, normal wear and tear excepted, and usable in the
ordinary course of its business and conform to all applicable statutes,
ordinances and regulations relating to their construction, use and operation.
(o) Real Estate and Leases. The Company owns no real property.
There is set forth in the Disclosure Schedule a brief description of all real
estate (including buildings and improvements) leased by the Company according to
the character of the property and the location thereof. The Company has good and
marketable title to such leased real estate, in each case free and clear of any
encumbrances whatsoever except as set forth on the Disclosure Schedule or the
lien of current taxes not yet due and payable. There is also set forth in the
Disclosure Schedule a brief description (including in each case the annual
rental payable, the expiration date, a brief description of the property covered
and the name of the lessor, including for each lessor in which any Shareholder
has, directly or indirectly, any beneficial interest, and a description of the
extent of such interest) of every lease or agreement (written or oral) under
which the Company is lessee of, or holds or operates, any property, real or
personal, owned by any third party. Each of such leases and agreements is in
full force and effect and constitutes a legal, valid and
<PAGE> 15
15
binding obligation of the respective parties thereto. Neither the Company nor
any other party thereto is in default under any such lease or agreement nor has
any event occurred which with the passage of time or giving of notice would
constitute such a default. To the best of Shareholders' knowledge, the real
property and the buildings thereon utilized by the Company in the conduct of its
business do not violate any present building, zoning or other laws or
ordinances, or any agreements applicable thereto, and no notice of any such
violation has been received by the Company.
(p) Contracts. All written or oral contracts, agreements,
leases, mortgages and commitments ("Contracts"), to which the Company is a party
or by which it may be bound (including without limitation, any and all guaranty
and indemnification Contracts; warranty Contracts; marketing, dealership,
distributorship, franchise and similar Contracts; powers of attorney; patent,
trademark and similar licenses; real and personal property leases, indentures,
deeds of trust, mortgages, chattel mortgages and similar Contracts; conditional
sales Contracts; labor and collective bargaining Contracts; employment
Contracts; and pension, profit sharing, bonus, incentive, deferred compensation,
group insurance, severance pay, retirement or other employee benefit Contracts
to which the Company is a party, or under which the Company may be obligated, or
to which the Company or any of the rights, properties or assets of the Company
may be subject or bound), but (i) excluding Contracts which involve a payment to
or by the Company of less than $1,000 and which can be terminated by the Company
within 30 days after written notice without liability or penalty to the Company
and (ii) excluding sales orders entered into in the ordinary course of business
involving future payments to the Company of less than
<PAGE> 16
16
$1,000 individually and (iii) excluding purchase orders entered into in the
ordinary course of business involving future payment by the Company of less than
$5,000 individually, are listed and briefly described in the Disclosure
Schedule. All Contracts constitute legal, valid and binding obligations of the
respective parties thereto, are in full force and on the date hereof, and
neither the Company nor any other party thereto has violated any provision of,
or committed or failed to perform any act which with notice, lapse of time or
both would constitute a default under the provisions of any Contract, the
termination of which could have an adverse effect upon the assets, liabilities,
financial condition, business or results of operations of the Company. Correct
and complete copies of all written Contracts disclosed on the Disclosure
Schedule have been made available to NBC.
(q) Inventory. The inventory of the Company reflected in the
1996 Financial Statements and the Interim Statements and to be reflected in the
Closing Balance Sheet, and the inventory acquired since the dates thereof
consists of items of quantity and quality which are usable and salable in the
ordinary course of the business of the Company consistent with past practice at
prices at least equal to the values on its books.
(r) Receivables. All accounts receivable of the Company shown
on the 1996 Financial Statements and the Interim Statements and on the Closing
Balance Sheet (except to the extent reserved against thereon as being
uncollectible) and any such receivables which arose since the respective dates
thereof (except to the extent reserved against on the books and records of the
Company as being uncollectible consistent with past practices) are valid
receivables subject to no
<PAGE> 17
17
setoffs or counterclaims. The amount of vendor credits are true and correct and
the Company shall be entitled to the entire amount of each such credit against
future purchases.
(s) No Default, Violation or Litigation. The Company is not in
violation of any law or order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, laws, regulations, orders and restrictions
applicable to environmental standards and controls, wages and hours, civil
rights and occupational health and safety), which violation would have an
adverse effect upon the assets, liabilities, financial condition, or results of
operation of the Company or its right to conduct its business as presently
conducted, nor has it received any notice of noncompliance. There are no
lawsuits, proceedings, claims or governmental investigations pending or
threatened against, or involving the Company or its properties or business.
There is no basis for any action which would have an adverse effect upon the
assets, liabilities, financial condition, or results or operations of the
Company or its right to conduct its business as presently conducted. There are
no judgments, consents, decrees, injunctions, or any other judicial or
administrative mandates outstanding against the Company which could adversely
affect the assets, liabilities, financial condition, or operations of the
Company or its right to conduct its business as presently conducted.
(t) Bank Accounts. The Disclosure Schedule sets forth a list
of all accounts and deposit boxes maintained by the Company at any bank or other
<PAGE> 18
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financial institution and the names of the persons authorized to effect
transactions in such accounts and with access to such boxes.
(u) Insurance. The Disclosure Schedule contains a list of all
insurance policies (specifying the insurer, the amount of the coverage, the type
of insurance, the policy number and any pending claims thereunder) maintained by
or on behalf of the Company on its properties, assets, business or personnel.
All such policies are in full force and effect, and the Company is not in
default with respect to any provision contained in any insurance policy, nor
failed to give any notice or present any claim thereunder in due and timely
fashion. The Company will keep all such policies in full force and effect to the
Closing Date.
(v) Employment and Labor Relations. The Company is not a party
to or otherwise bound by any contracts, agreements or other commitments
respecting employment or compensation of any of its officers, directors, agents
or employees. There is no unfair labor practice complaint, labor disturbance or
other controversy respecting persons or past employees pending, threatened or
proposed against, or affecting the business of the Company, and no Shareholder
has knowledge of any facts or circumstances which would indicate that any
claims, complaints or litigation could be brought against the Company in
connection with employment matters. To the best of Shareholders' knowledge, the
Company is in compliance with all laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and it is not
engaged in any unfair labor practice. The Company is not a party to any
collective bargaining agreement with any labor union or organization, and none
of the employees of the Company are represented by
<PAGE> 19
19
any labor union or organization. The Disclosure Schedule lists all current
full-time employees and part-time employees, showing the date each employee
started working for the Company and showing his or her current hourly or monthly
earnings.
(w) Employee Benefits. For purposes of this Agreement, the
term "Employee Plan" includes any pension, retirement, disability, medical,
dental or other health plan, life insurance or other death benefit plan, profit
sharing, deferred compensation, stock option, bonus or other incentive plan,
vacation benefit plan, severance plan, or other employee benefit plan or
arrangement, including without limitation, any pension plan ("Pension Plan") as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any welfare plan as defined in Section 3(l) of ERISA
("Welfare Plan"), whether or not any of the foregoing is funded, and whether
written or oral, (a) to which the Company is a party or by which it is bound or
(b) with respect to which the Company has made any payments or contributions, or
may otherwise have any liability (including any such plan or arrangement
formerly maintained by the Company).
(i) There are no Employee Plans other than those listed
in the Disclosure Schedule, and the Company has never been a party to any
multi-employer plan.
(ii) No Pension Plan is a "defined benefit plan" as
defined in ERISA.
(iii) To the best of Shareholders' knowledge, each
Employee Plan, the administrator and fiduciaries of each Employee Plan,
and the Company has at all times complied in all material respects with
the
<PAGE> 20
20
applicable requirements of ERISA, including but not limited to the
fiduciary responsibilities imposed by ERISA, and any other applicable law
(including regulations and rulings thereunder) governing each Employee
Plan, and each Employee Plan has at all times been properly administered
in all material respects in accordance with all such requirements of law.
No lawsuits or complaints to, or by, any person or governmental entity
have been filed or are pending and no Shareholder has knowledge of any
state of facts or contemplated event which could give rise to any such
lawsuit or complaint with respect to any Employee Plan. Without limiting
the foregoing, the following are true with respect to each Employee Plan
to the best of Shareholders' knowledge:
(A) The Company has filed or caused to be filed on
a timely basis each and every return, report, statement, notice,
declaration and other document required by any government agency,
federal, state and local (including, without limitation, the
Internal Revenue Service and the Department of Labor) with respect
to each Employee Plan.
(B) The Company has delivered or caused to be
delivered to every participant, beneficiary and other party entitled
to such material, all plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including,
without limitation, summary descriptions and reports, as are
required under Title I of ERISA and/or the Internal Revenue Code, as
amended ("Code").
<PAGE> 21
21
(C) The Company is not delinquent as to
contributions or payments to or in respect of any Employee Plan.
(iv) To the best of Shareholders' knowledge, with
respect to each Employee Plan, there has not occurred, nor is any person
or entity contractually bound to enter into, any transaction giving rise
to any tax under Section 4975 of the Code or Section 406 of ERISA, or
liability under Section 502(i) of ERISA.
(v) To the best of Shareholders' knowledge, the
financial statements, if any, for each Employee Plan accurately reflect
the financial condition and funding of the Employee Plan as of the date of
such financial statements, and no adverse change has occurred with respect
to the financial condition or funding of the Employee Plan since the date
of such financial statements.
(x) Environmental Provisions. With respect to all real estate
leased by the Company:
(i) No claim, lawsuit, agency proceeding, or other
legal, quasi-legal or administrative challenge is pending or threatened
concerning the property, the operation of the property, or the existence
of any hazardous substances thereon.
(ii) To the best of Shareholders' knowledge, the
property has never been used for any industrial or commercial operation
that utilizes hazardous substances.
<PAGE> 22
22
(iii) To the best of Shareholders' knowledge, there has
been no spill, discharge, release, deposit, or emplacement of any
hazardous substance on the property, whether in containers or other
impoundments, or directly in the lands or waters of the property.
(iv) To the best of Shareholders' knowledge, there is no
asbestos-containing or other hazardous materials in the structures on the
property.
(v) No electrical transformers, fluorescent light
fixtures or other electrical equipment containing PCBs have been affixed
or installed on or in the property.
(vi) There are no storage tanks, barrels, sumps,
impoundments, or other containers or equipment (movable or fixed) for the
containment of hazardous substances in any part of the property.
(vii) No governmental entity has served upon the Company
any notice claiming any violation of any statutes, ordinance, or
regulations or noting the need for any repair, construction, alteration,
or installation with respect to the property and hazardous substances or
requiring any change in the means or methods of those conducting
operations thereon.
The Company has, at all times, complied with all federal, state and local laws,
ordinances and regulations relating to and involving (A) industrial hygiene or
to environmental conditions on, under or about such real estate, including, but
not limited to, soil and groundwater conditions; and (B) the use, generation,
manufacture, storage, disposal and transportation of hazardous materials.
<PAGE> 23
23
(y) Intellectual Property. The Company owns all patents,
trademarks, trade names, service marks, franchises, and the technology necessary
for the conduct of its business as presently conducted without infringing upon
or conflicting with the rights of others, and the Company has not received any
notice from a party claiming such an infringement or conflict; and no
Shareholder is aware of any facts or circumstances which would indicate that
such an infringement or conflict could exist. All such patents, trademarks,
trade names, service marks and franchises are described on the Disclosure
Schedule and the Company's interest therein is similarly described.
(z) Conflicts of Interest. Except for MarketSource Corporation
and its affiliates, no Shareholder, director, officer or, to the best of
Shareholders' knowledge, employee of the Company controls or is an employee,
officer, director or agent of any corporation, firm, association, partnership or
other business entity which is a competitor, supplier or customer of the
Company.
(aa) Disclosure; Capacity. Shareholders have disclosed to NBC
all facts known to them to be material to the assets, liabilities or business of
the Company. No representation or warranty of Shareholders made hereunder or in
the Disclosure Schedule or in any certificate, statement, or other document
delivered by or on behalf of the Shareholders hereunder contains any untrue
statement or omission of a material fact known to Shareholders which would cause
the general interpretation of the statements to be misleading. Copies of all
documents referred to on the Disclosure Schedule have been delivered or made
available to NBC, are true, correct and complete copies thereof, and include all
amendments, supplements or modifica-
<PAGE> 24
24
tions thereto or waivers thereunder. All representations and warranties by
Shareholders hereunder are made from knowledge acquired in their capacities as
an individual, shareholder, officer, director, employee and from any other
relationship of Shareholders to the Company.
(bb) Indebtedness. As of the Closing Date, the Company has no
Indebtedness. For the purposes hereof, "Indebtedness" means, without duplica
tion, (i) all indebtedness of or any obligation of the Company for borrowed
money, whether current, short-term, or long-term, secured or unsecured, (ii) all
indebtedness of the Company for the deferred purchase price for purchases of
property outside the ordinary course which is not evidenced by trade payables,
(iii) all lease obligations of the Company under leases which are capital leases
in accordance with generally accepted accounting principles, (iv) all
off-balance sheet financings including, without limitation, synthetic leases and
project financing, (v) any payment obligations of the Company in respect of
bankers' acceptances or letters of credit (other than stand-by letters of credit
in support of ordinary course trade payables), (vi) any liability of the Company
with respect to interest rate swaps, collars, caps and similar hedging
obligations, (vii) any present, future or contingent obligations of the Company
under (A) any phantom stock or equity appreciation rights, plan or agreement,
(B) any deferred pay-out or earn-out arrangements in connection with the
purchase of any business or entity or (C) any non-competition agreement, (viii)
the amount of any liability as of the Closing of the Company under deferred
compensation plans and (ix) any accrued and unpaid interest or any contractual
prepayment premiums,
<PAGE> 25
25
penalties or similar contractual charges resulting from the transactions
contemplated hereby or the discharge of such obligations with respect to any of
the foregoing.
5.2 By NBC. NBC represents and warrants to Shareholders that
the following representations and warranties are true and correct in all
material respects, and shall be deemed remade at and as of the Closing Date:
(a) Organization and Good Standing. NBC is a corporation
duly organized, validly existing and in good standing under the laws of Kansas,
with full corporate power and authority to conduct its business as now
conducted.
(b) Authorization. NBC has all requisite corporate power
and authority to execute and deliver this Agreement and all other documents to
be executed and delivered pursuant hereto by it and to carry out the
transactions contemplated hereby. The execution and delivery of this Agreement
and all other documents to be executed and delivered pursuant hereto by NBC, and
the consumma tion of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of NBC and this Agreement and all
other documents to be executed and delivered pursuant hereto by NBC constitute
the valid and binding agreements of NBC, enforceable against NBC in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights. No consent of, or notice to, any federal,
state or local authority, or any other person or entity is required to be
obtained or made by NBC in connection with the execution,
<PAGE> 26
26
delivery or performance of this Agreement and the other documents to be
executed, delivered and performed by NBC pursuant hereto.
(c) Acknowledgment by NBC. As of the Closing Date, NBC
acknowledges that it shall have conducted to its satisfaction, an independent
investigation and verification of the financial condition, results of
operations, assets, liabilities, properties and projected operations of the
Company and, in making its determination to proceed with the transactions
contemplated by this Agreement, NBC shall have relied on the results of its own
independent investigation and verification and the representations and
warranties of the Company. NBC acknowledges that the New Book Rewards program
has been an historical source of revenues and profits which is not expected to
continue in the future.
(d) Payables. The Company will pay its payables to
MarketSource Corporation in accordance with a list of the payables and the due
dates to be prepared by the Company prior to Closing in accordance with the
terms of Section 6(e) hereof.
6. ORDINARY COURSE. Shareholders shall cause the Company to operate
its business in the ordinary course until the Closing Date. In connection
therewith:
(a) Ordered Merchandise. The Company shall maintain usual and
customary inventory levels, collect accounts receivable, pay expenses, and
continue general promotional activities.
(b) Right to Inspect. At any time after the date of this
Agreement, NBC shall have the right to conduct any inspections or investigations
with
<PAGE> 27
27
respect to the business of the Company and its properties, either individually
or by utilizing a third party.
(c) Access. From and after the date hereof, representatives of
NBC shall have free access to the business and records pertaining to the Company
in order that NBC may have full opportunity to make such investigation as it
shall desire of the affairs of the Company relating to its business, provided
that NBC provides the Company reasonable prior notice of its desire to such
access; and such activities by NBC shall not interfere with the Company's normal
business operations. Each party hereto shall have the right to make copies of
all books and records received or retained by the other party hereunder.
(d) Subsequent Events. If Shareholders become aware of any
fact or circumstance which would change or affect the accuracy of a representa
tion or warranty in this Agreement, they shall immediately give written notice
of any change, fact or circumstance to NBC, but such notice shall not relieve
Shareholders of their liabilities or obligations with respect thereto.
(e) Use of Cash. The Company shall, and the Shareholders shall
cause the Company to, use its cash and cash equivalents from the date hereof
until the Closing only for ordinary course working capital purposes consistent
with past practices; provided, that the Company shall use such cash to pay the
following obligations prior to or at Closing: (i) for the repayment of existing
shareholder loans in an amount not to exceed $255,478, and then to the extent of
remaining cash and cash equivalents, and (ii) to distribute to the Shareholders
for the payment of the Tax Estimate as provided in Section 3.5 of this
Agreement. Upon payment of the items
<PAGE> 28
28
set forth above, the Company shall repay the Company's outstanding balance due
to MarketSource Corporation as set forth on the Company's financial statements,
which amount was estimated to be $755,079 as of December 31, 1997, as such
amount may change in the ordinary course of business based on services rendered
by MarketSource Corporation prior to Closing, provided that prior to Closing,
the Shareholders shall cause the preparation of a list of the components of such
payable by MarketSource and the Company, and the items and amounts of such list
shall be subject to the reasonable approval by NBC.
7. DELIVERIES AT CLOSING
7.1 Deliveries by Shareholders. At the Closing, Share holders
covenant and agree to deliver, or cause to be delivered, to NBC the following:
(a) Stock Certificates. The certificate or certificates
representing the number of shares of Stock of the Company set forth opposite
each Shareholder's name on Exhibit D, duly endorsed in blank (or with a stock
power duly endorsed in blank and affixed to such certificate(s)), in proper form
for transfer, free and clear of all options, liens, claims, charges,
restrictions, equities and other encumbrances of any nature whatsoever.
(b) Resignations. The written resignations of all
directors and officers of the Company from those positions, effective as at the
Closing, and release of claims.
(c) Corporate Records. All minute books, stock record
books and transfer ledgers, securities and corporate seals of the Company.
<PAGE> 29
29
(d) Opinion of Counsel. An opinion of legal counsel to
the Company dated the Closing Date and satisfactory to NBC and its counsel to
the effects set forth on Exhibit E hereto.
(e) No Litigation. A certificate dated the Closing Date
and signed by Shareholders, the truth and accuracy of which shall be a condition
to NBC's obligation to consummate the transactions contemplated herein, to the
effect that other than as described on the Disclosure Schedule, there is no
action, suit or other proceeding pending before any court, tribunal or
governmental authority seeking or threatening to restrain or prohibit the
consummation of the transactions contemplated by this Agreement, or seeking to
obtain substantial damages in respect thereof, or involving a claim that
consummation thereof would result in the violation of any law, decree or
regulation of any governmental authority having appropriate jurisdiction.
(f) Accuracy of Representations; Performance of
Covenants. A certificate dated the Closing Date and signed by Shareholders, the
truth and accuracy of which shall be a condition to NBC's obligation to
consummate the transactions contemplated herein, to the effect that, other than
as described on the Disclosure Schedule, the representations and warranties of
Shareholders contained in this Agreement (except for factual changes in the
information contained in the Disclosure Schedule or attachments hereto occurring
after the execution of this Agreement and before Closing, which changes shall be
noted on amendments to such information at Closing which are subject to approval
by NBC in its sole and absolute discretion) are true and correct as of the
Closing Date, and that Shareholders have
<PAGE> 30
30
duly performed or complied with all of the obligations to be performed or
complied with by them under the terms of this Agreement on or prior to Closing.
(g) Marketing Services. MarketSource Corporation, a
Delaware corporation, an affiliate of Shareholders, and NBC shall execute a
marketing services agreement whereby MarketSource will provide certain
advertising and promotional services, such as a used book buy-back program. The
contract period will begin April 1, 1998, and extend through March 31, 2000.
There will be a minimum annual fee of $125,000 (2 years - $250,000) for services
rendered. Any and all third party and/or production fees will be billed
additional subject to NBC's prior approval. The fee for the first year of
$125,000 is due at April 1, 1998 and the fee for year two is due on April 1,
1999.
(h) Further Assurances. At and following the Closing,
Shareholders, without further consideration, shall execute and deliver such
other documents and instruments and take such further actions as NBC may
reasonably request in order to complete and perfect the transactions
contemplated herein.
7.2 Deliveries by NBC. NBC hereby covenants and agrees with
each Shareholder, that at the Closing, NBC will deliver, or cause to be
delivered, the following:
(a) Consideration for Stock. The difference between the
Cash Consideration and the Deferred Consideration referred to in Section 3
hereof, apportioned to each Shareholder based on the number of shares of Stock
owned by such Shareholder.
<PAGE> 31
31
(b) Accuracy of Representations; Performance of
Covenants. A certificate signed by an officer of NBC, the truth and accuracy of
which shall be a condition to Shareholders' obligation to consummate the
transactions contemplated herein, to effect that the representations and
warranties of NBC contained in this Agreement are true and correct as of the
Closing Date, and that NBC has duly performed or complied with all of the
obligations to be performed or complied with by it under the terms of this
Agreement on or prior to Closing.
(c) Further Assurances. At and following the Closing,
NBC, without further consideration, shall execute and deliver such other
documents and instruments and take such further actions as Shareholders may
reasonably request in order to complete and perfect the transactions
contemplated herein.
8. CONDITIONS OF CLOSING.
8.1 Conditions to NBC's Obligations. All obligations of NBC
under this Agreement are subject to the fulfillment at Closing of each of the
following conditions:
(a) Shareholders' representations and warranties
contained in this Agreement shall be true and correct in all material respects
at the time of Closing as though such representations and warranties were made
at such time;
(b) Shareholders shall have performed and complied with
all agreements and conditions required by this Agreement to be performed or
<PAGE> 32
32
complied with by Shareholders prior to or at Closing, including without
limitation the preparation of the Disclosure Schedules described in Section 5.1
of this Agreement;
(c) Shareholders shall make, or cause to be made, all
deliveries described in Section 7.1 of this Agreement;
(d) The Company shall have entered into the following
agreements, all of which shall be on terms and conditions reasonably
satisfactory to NBC: (i) a lease agreement for its premises in Cranbury, New
Jersey, on terms substantially similar to those set forth in the lease agreement
attached hereto as Exhibit F; (ii) an agreement with MarketSource Corporation
for accounting services after Closing; and (iii) an employee leasing agreement
with MarketSource Corporation whereby the services of Bonnie O'Neill will be
leased to the Company;
(e) Between the date of the Interim Statements and the
Closing, no material adverse change shall have occurred in the condition of the
business, the leased premises, the capital or the property of Company;
(f) All equipment, inventories, the leased premises, and
other physical elements of the property shall be in good condition, fully usable
in the ordinary course of the operation of the business, and NBC shall be
reasonably satisfied with any inspections it shall conduct or have conducted
with respect to the properties of the Company, including any environmental
inspections or audits;
(g) NBC shall be reasonably satisfied that the business
has been conducted only in the ordinary course from and after the date of the
Interim Statement through the Closing Date;
<PAGE> 33
33
(h) NBC shall have been satisfied in its sole discretion
with the results of the physical inventory described in Section 4 hereof and
with the other asset and liability listings as of the date of the physical
inventory and as of the Closing Date;
(i) NBC shall have received a certificate of search for
all UCC or other liens against the assets of the Company, certified on or about
the Closing Date, indicating that there are no liens or claims against such
assets or the Stock other than as disclosed in the Disclosure Schedule; and
(j) NBC shall have been satisfied in its sole discretion
with the amendments to the Disclosure Schedule submitted by the Company and
approved the same in writing and with the payables list described in Sec tion
5.2(d) hereof.
8.2 Noncompliance. If any one or more of the conditions
precedent set forth in this Section shall not be in effect or complied with on
the Closing Date, after a reasonable period of time to correct by Shareholders,
NBC may, by written notice to Shareholders, elect in its sole and absolute
discretion to either (i) cancel this Agreement and all obligations of NBC
hereunder, or (ii) execute a written waiver of compliance with any one or more
of the said conditions precedent and close this transaction, provided that such
waiver shall not release or relieve Shareholders from any liability if such
waiver causes Damages to NBC as provided in Section 9 hereunder.
<PAGE> 34
34
8.3 Conditions to Shareholders' Obligations. All obligations
of Shareholders under this Agreement are subject to the fulfillment at Closing
of the following conditions:
(a) The representations and warranties of NBC contained
in this Agreement shall be true and correct in all material respects at the time
of Closing as though such representations and warranties were made at such time;
(b) NBC shall have performed and completed all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing Date;
(c) NBC shall make all deliveries described in Section
7.2 of this Agreement;
(d) The parties shall agree upon a mutually acceptable
joint press release announcing the sale; and
(e) The Shareholders shall have approved the amendments
to the Disclosure Schedule.
8.4 Failure of Conditions. In the event of default by any
party which is not cured prior to the Closing Date, the non-defaulting party
shall have the option to rescind this Agreement in addition to all other
remedies at law or in equity arising from such default, including the remedy of
specific performance.
9. INDEMNIFICATION; SETOFF.
9.1 Indemnification by Shareholders. Subject to the
limitations set forth in this Article IX, from and after the Closing,
Shareholders
<PAGE> 35
35
jointly and severally covenant and agree to reimburse and indemnity and hold NBC
(which term, for the purposes hereof shall include NBC and the Company) harmless
from, against and in respect of any and all damage, loss, liability or
deficiency resulting from any of the following (collectively referred to as
"Damages"):
(a) any misrepresentation or omission, breach of
warranty or nonfulfillment of any covenant or agreement of Shareholders or the
Company under this Agreement, including without limitation, the Disclosure
Schedule, or any other written statement, list, certificate or other instrument
furnished to NBC by or on behalf of Shareholders or Company pursuant to this
Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgments, costs and other
expenses (including, without limitation, reasonable audit and legal fees)
arising out of or resulting from (i) any misrepresentation, breach of warranty
or nonfulfillment of any covenant or agreement by Shareholders; or (ii) the
operation of the Company prior to the Closing; and
(c) the amount of the Net Worth Deficiency, if any, as
determined in the Closing Balance Sheet, on a dollar for dollar basis up to a
maximum amount of One Hundred Thousand Dollars ($100,000). Any incident, amount
or omission described under paragraphs (a), (b), and (c) above is herein
referred to as a "Claim." No Damages shall result for (i) uncollected accounts
receivable, payment or collection of which is not guaranteed by the
Shareholders; (ii) any portion of a Claim based on Section 5.1(q) hereof based
on a lower value on the Closing Balance Sheet caused solely by a new edition of
such
<PAGE> 36
36
books released by the publisher; (iii) the cost or loss to NBC or the Company
after having taken into account any insurance proceeds payable to NBC or the
Company in connection therewith; or (iv) in connection with the Closing Balance
Sheet, the amount that any individual asset or liability may be under- or
overstated in an amount which is not material. Materiality for purposes of the
Closing Balance Sheets shall be $15,000 for any individual asset or liability,
or $50,000 for a class of such assets or liabilities, provided that this
materiality clause shall not waive or modify the covenants and warranties
related to the Net Worth Deficiency.
9.2 Method of Asserting Claims, etc. Within 45 days after NBC
discovers or it receives notice of any Claim which might give rise to Damages
under Section 9.1 hereof, NBC will give written notice to Shareholders of such
Claim stating the nature, basis and (to the extent known) amount thereof. If the
Claim under Section 9.1 involves a suit by a third party or by any governmental
body, or any legal, administrative or arbitration proceeding, Shareholders shall
be entitled to participate therein, and, to the extent desired by Shareholders,
to assume the defense thereof, and after notice from Shareholders to NBC of the
election so to assume the defense hereof, Shareholders will not be liable to NBC
for any legal or other expenses subsequently incurred by NBC in connection with
the defense thereof, other than reasonable costs of investigation, unless
Shareholders do not actually assume the defense thereof following notice of such
election. NBC and Shareholders will render to each other such assistance as may
reasonably be required of each other in order to insure proper and adequate
defense of any such suit, claim or proceeding. NBC will not settle any Claim and
incur any Damages without the written consent of the
<PAGE> 37
37
Shareholders, which consent shall not be unreasonably withheld. NBC and/or the
Company shall assign to Shareholders all right, title and interest in any Claim
which is paid by Shareholders hereunder.
9.3 Right of Setoff. In order to secure Shareholders'
obligations pursuant to this Agreement, NBC shall have the right to offset its
Damages against the Deferred Consideration described in Section 3.3 hereof,
provided, however, that the amount of Damages that NBC may be entitled to
recover from Shareholders pursuant to this right of indemnity shall not be
limited to the Deferred Consideration, and NBC shall have the right to pursue
any other remedies at law or in equity to which it may be entitled.
Notwithstanding any other provision in this Agreement to the contrary, NBC may
withhold payment of any portion of the Deferred Consideration at the expiration
of the six (6) month period which NBC reasonably estimates may be required to
offset Damages which it may incur based on Claims which have been made known to
NBC prior to such date.
9.4 Limitation on Amendment. Shareholders shall have no
liability to indemnify NBC pursuant to misrepresentations or breaches of
warranties set forth in Sections 5.01(d), (e), (g), (i), (j), (k) (l), (o), (p),
(q), (s), (t), (u), (,v), (w), (x), (y), (z) and (aa), and liability under
Section 9.1(b) of this Agreement, for an aggregate amount which exceeds
$4,000,000. With respect to the representations and warranties set forth in
Sections 5.1(a), (b), (c), (f), (h), (m), (n) and (ab), there shall be no limit.
9.5 Indemnification by NBC. NBC hereby agrees to indemnify and
hold Martin D. Levine harmless from, against and in respect of any
<PAGE> 38
38
and all damage, loss, liability or deficiency, including costs and other
expenses (including, without limitation, reasonable legal fees) incurred by the
Shareholders arising out of or resulting from a default by NBC with respect to
the indemnified obligations set forth in this Section 9.5, resulting from (i)
any misrepresentation or breach of warranty or nonfulfillment of the
representations set forth in Section 5.2 of this Agreement, and (ii) Martin D.
Levine's personal guarantee set forth in ss. 14.10 of the Agreement for Sale of
Assets and Assumption of Liabilities dated October 1, 1995, by and among the
Collegiate Stores Cooperative, Inc., a California consumer cooperative (the
"Coop"), CSC, Inc., a New Jersey corporation and Martin D. Levine (the "Coop
Agreement") of the following: (i) the obligation to provide free memberships to
the 14 founding members until February 28, 2001 as provided in ss. 2.02(i) of
the Coop Agreement; and (ii) the unpaid aggregate balance not to exceed $280,000
for consulting payments to the 14 founding members of the Coop; provided that
the amount of the indemnification obligation hereunder shall not exceed the
amounts represented by Shareholders to be due pursuant to such obligations.
10. MISCELLANEOUS.
10.1 Survival. All statements made by Shareholders herein or
in the Disclosure Schedule, or in any other document, instrument, certificate,
schedule or list delivered to NBC hereunder shall be deemed representations and
warranties of Shareholders regardless of any investigation made by or on behalf
of NBC. All representations, warranties, agreements, covenants and
indemnifications made by the parties in this Agreement, specifically including,
without limitation, the right to indemnification and setoff against the Deferred
Consideration, or in any
<PAGE> 39
39
document delivered pursuant hereto, shall survive the Closing regardless of any
investigation at any time made by or on behalf of NBC; provided, however, that
the representations and warranties by Shareholders set forth in the following
subsections of Section 5.1 of this Agreement shall only survive until September
30, 1998: (d), (e), (g), (i), (j), (k), (l), (o), (p), (q), (s), (t), (u), (v),
(w), (x), (y), (z) and (aa); and provided, further, that the representation and
warranty set forth in Section 5.01(r) shall not survive Closing. All other
representations, warranties, agreements, covenants and indemnifications made by
Shareholders hereunder shall survive until March 31, 2001. The non-competition
agreement in Section 10.5 shall survive for the full term set forth therein.
10.2 Waiver of Terms. Any of the terms or conditions of this
Agreement may be waived at any time by the party or parties entitled to the
benefit thereof but only by a written notice signed by the party or parties
waiving such terms or conditions.
10.3 Amendment of Agreement. This Agreement may be amended or
supplemented at any time only by written instrument duly executed by NBC and
Shareholders.
10.4 Payment of Expenses. Each party shall be solely
responsible for, and shall pay all of its own expenses associated with this
transaction, including but not limited to its accounting, consultants, legal
fees, and out-of-pocket expenses incurred in connection with this Agreement and
the transactions herein contemplated.
<PAGE> 40
40
10.5 Non-Competition. The Company is in the business of
providing group buying services, including the purchase and distribution of new
textbooks for independent college bookstores in the United States. In
consideration of NBC's agreement to enter into this Agreement, Martin Levine
covenants and agrees that for a period of 3 years from and after the Closing
Date, not to engage directly or indirectly in any business that provides group
buying services, including the purchase and distribution of new textbooks, for
independent college bookstores in the United States. NBC acknowledges that
Martin Levine enjoys a substantial reputation in the college store industry and
nothing in this non-competition clause is intended to interfere with his ability
to conduct his on-going business affairs. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this subsection is
invalid or unenforceable, the parties hereto agree that the court making the
determinations of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed. This Section 10.5 shall be
governed by, construed and enforced in accordance with the laws of the State of
New Jersey.
10.6 Entire Agreement, Assignment, etc. This Agreement sets
forth the entire understanding of the parties with respect to the subject matter
hereof. Any previous agreements or understanding between the parties regarding
the
<PAGE> 41
41
subject matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms and conditions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, legal representatives, successors and assigns of the parties
hereto and the Company; provided, however, that none of the rights or
obligations of any of the parties hereto may be assigned without the prior
written consent of, in the case of assignment by Shareholders, NBC, or, in the
case of assignment by NBC, the Shareholders, which consent shall not
unreasonably be withheld.
10.7 Notices. All notices, consents, waivers or other
communications which are required or permitted hereunder shall be in writing and
shall be deemed to have been duly given on the date delivered personally or when
the same shall be deposited in the mails, registered or certified first-class
mail, return receipt requested, postage prepaid, as follows:
If to NBC:
Nebraska Book Company, Inc.
Attn: Mark W. Oppegard, President
P.O. Box 80529
Lincoln, NE 68501-0529
or to such other person or address as NBC may designate in writing.
If to Shareholders:
Martin D. Levine
c/o MarketSource Corporation
10 Abeel Road
Cranbury, NJ 08512
or to such other person or address as the Shareholders may designate in writing.
<PAGE> 42
42
10.8 Commission and Finder's Fees. NBC and the Shareholders
mutually represent and warrant each to the other that none of them has retained
or used the services of any individual, firm or corporation in such manner as to
entitle such individual, firm or corporation to any compensation for brokers' or
finders' fees with respect to the transactions contemplated hereby for which the
other or the Company may be liable.
10.9 Severability. In the event that any one or more of the
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions of this Agreement shall not be in any way impaired.
10.10 Counterparts. This Agreement may be executed simul-
taneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10.11 Headings. The headings of the Sections and the
subsections of this Agreement are inserted for the convenience of reference only
and shall not constitute a part hereof.
10.12 Governing Law. Except as provided in Section 10.5
hereof, this Agreement shall be governed, construed and enforced in accordance
with the laws of the State of Nebraska
10.13 Exhibits. All Exhibits attached to this Agreement and
the Disclosure Schedule are incorporated herein and made a part of this
Agreement.
<PAGE> 43
43
IN WITNESS WHEREOF, this Agreement had been duly executed by the
parties hereto on the day and year first above written.
ATTEST: NEBRASKA BOOK COMPANY, INC.
/s/ Ardean A. Arndt By: /s/ Mark W. Oppegard
- -------------------------- -------------------------------------
Secretary Its President
Shareholders:
/s/ Martin D. Levine
---------------------------------
Martin D. Levine
/s/ Martin D. Levine
---------------------------------
Martin D. Levine, Trustee of the
Lauren E. Levine Grantor Trust
/s/ Martin D. Levine
---------------------------------
Martin D. Levine, Trustee of the
Jonathan L. Levine Grantor Trust
<PAGE> 44
44
STATE OF NEBRASKA )
) ss.:
COUNTY OF LANCASTER )
The foregoing instrument was acknowledged before me this 9th day of
January, 1998, by Mark W. Oppegard, President of NEBRASKA BOOK COMPANY, INC., a
Kansas corporation, on behalf of the corporation.
/s/ Pamela L. Sewell
---------------------------------
Notary Public
STATE OF ____________)
) ss.:
COUNTY OF ___________)
The foregoing instrument was acknowledged before me this 9th day of
January, 1998, by Martin D. Levine
(SEAL)
/s/ John M. Hoepfner
---------------------------------
Notary Public
STATE OF ____________)
) ss.:
COUNTY OF ___________)
The foregoing instrument was acknowledged before me this 9th day of
January, 1998, by Martin D. Levine, Trustee, on behalf of the Lauren E. Levine
Grantor Trust.
(SEAL)
/s/ John M. Hoepfner
---------------------------------
Notary Public
<PAGE> 1
Exhibit 10.10.2
FIRST AMENDMENT TO
AGREEMENT FOR PURCHASE
AND SALE OF STOCK
THIS FIRST AMENDMENT TO AGREEMENT ("First Amendment") made January
23, 1998, between and among NEBRASKA BOOK COMPANY, INC., a Kansas corporation
("NBC") and MARTIN D. LEVINE, an individual residing in Princeton, New Jersey,
and MARTIN D. LEVINE, as trustee of the Lauren E. Levine Grantor Trust, and
MARTIN D. LEVINE, as trustee of the Jonathan L. Levine Grantor Trust (referred
to herein individually as a "Shareholder" and collectively as the
"Shareholders") and is made with reference to the Agreement for Purchase and
Sale of Stock dated January 9, 1998, by and between NBC and Shareholders (the
"Agreement").
FOR VALUABLE CONSIDERATION as described in the Agreement, the
parties agree as follows:
1. AMENDMENT OF SECTION 1. Section 1 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
Subject to the terms and conditions herein contained, at the Closing (as
hereinafter defined) Shareholders shall sell, transfer, assign and deliver
to NBC, and NBC shall purchase from Shareholders, all of the issued and
outstanding shares of capital stock of the Company, $0 par value,
consisting of ninety (90) shares of voting common stock and nine hundred
ten (910) shares of nonvoting common stock (collectively the "Stock").
<PAGE> 2
2. AMENDMENT OF SECTION 3.1. Section 3.1 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
3.1 Purchase Price. The total consideration to be paid to Shareholders for
the Stock shall consist of the sum of Three Million Eight Hundred Ninety-
three Thousand Nine Hundred Forty Dollars ($3,893,940) (the "Cash
Consideration") subject to adjustment as provided herein.
3. AMENDMENT OF SECTION 3.3. Section 3.3 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
3.3 Deferred Consideration. The "Deferred Consideration" payable to
Shareholders shall be subject to reduction as provided in Section 9.3 of
this Agreement. If NBC incurs any Damages as described in Section 9.1, NBC
shall have the right to set-off any such amounts against the Deferred
Consideration as described in Section 9.3 in addition to any other
remedies to which it may be entitled. As of the Closing, the Deferred
Consideration shall be deposited into an interest bearing trust account
with First Bank, N.A., Lincoln, Nebraska, subject to the terms and
conditions of the Escrow Agreement attached to the Agreement as Exhibit A.
4. AMENDMENT OF SECTION 3.4. Section 3.4 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
3.4 Net Worth Deficiency. Shareholders shall be liable to NBC on a dollar
for dollar basis for the entire amount that the stockholders' equity of
the Company as of the Closing Date is less than zero dollars ($0) on the
Closing Balance Sheet (such amount less than zero dollars is herein
referred to as the "Net Worth Deficiency"), provided that the maximum
amount of the Shareholders' liability for a Net Worth Deficiency shall not
exceed One Hundred Thousand Dollars ($100,000). For this purpose,
"stockholders' equity of the Company" shall be the difference of total
assets minus total liabilities of the Company, determined in accordance
with generally accepted accounting principles; provided that the amount of
the Net Worth Deficiency shall be adjusted by adding back all or some
portion of the Tax Liability in Section 3.05 hereof and $106,060 of the
distribution to Shareholders in 1998,
2
<PAGE> 3
as set forth on the Disclosure Schedule, which is cross-referenced to
Section 5.1(l)(iii) hereof, in an aggregate amount up to but not to exceed
the amount of the Net Worth Deficiency, and the Net Worth Deficiency after
these adjustments shall be the basis for determining the Shareholders'
liability to the Company under this Section 3.4.
5. AMENDMENT OF SECTION 3.5. Section 3.5 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
3.5 Distribution for Income Taxes. The parties acknowledge that the
Company has elected to be taxed as an "S" Corporation under the Internal
Revenue Code of 1986, as amended (the "Code"). Prior to Closing, the
Company shall distribute to the Shareholders the sum of $545,596.80 (the
"Tax Estimate"), which is an amount estimated by the Shareholders to equal
the amount of federal and state income taxes due by the Shareholders based
on their estimate of $1,125,000 of taxable income of the Company for 1997,
and based on their estimate of $21,000 of taxable loss of the Company for
the portion of 1998 prior to Closing, which is a net aggregate amount of
$1,104,000 (the "Taxable Income"). The Tax Estimate is based on the pro
forma income statement and balance sheet attached to this First Amendment
as Exhibit B-1 for 1997 and for 1998. The amount of income tax shall be
calculated at a combined federal and state effective rate of 49.42% times
the actual taxable income of the Company for such periods and the
aggregate amount of such income tax for both 1997 and 1998 is herein
referred to as the "Tax Liability." A copy of the 1997 and 1998 income tax
returns will be sent to the Shareholders five (5) business days prior to
filing by the Company. If the Tax Liability based on this calculation is
less than the Tax Estimate, the excess shall be promptly refunded to the
Company by the Shareholders; and if the Tax Liability based on this
calculation exceeds the Tax Estimate, NBC shall cause the Company to
distribute to the Shareholders additional sums equal to the excess tax
liability as hereinafter determined which exceeds the Tax Estimate by
$100,000 (hereinafter the "$100,000 Tax Obligation"), provided that any
increase in Tax Liability triggered by a change in reserves as set forth
on the Exhibit B-1 Financial Statements initiated by NBC shall be
distributed to the extent it exceeds the Tax Estimate by $1, and provided
further that the additional amount distributed shall be based on the
aggregate amount of income taxes actually paid by the Shareholders
attributable to the taxable income of the Company that exceeds the Tax
Estimate plus the $100,000 Tax Obligation based on their actual marginal
tax rate (not to exceed 49.42%) times the taxable income of the Company
which exceeds the Taxable Income set forth above, and the Shareholders
shall verify the excess to the reasonable satisfaction of NBC. The parties
shall mutually agree upon an
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independent accounting firm to prepare the Company's returns. An election
shall be made pursuant to ss. 1362(e)(3) of the Code to taxes for 1998 to
be based on an actual physical closing of the books of the Company as of
the Closing Date.
6. AMENDMENT OF SECTION 5.1(h)(i). Section 5.1, subparagraph (h)(i)
of the Agreement is hereby amended in its entirety, and as so amended shall
provide as follows:
(h) Capitalization.
(i) Shares. The authorized capital stock of the Company consists of
2,500 shares of common stock, $0 par value, of which ninety (90) shares of
voting common stock, and no more, and nine hundred and ten (910) shares of
nonvoting common stock, and no more, are issued and outstanding and owned
of record by the Shareholders. No other shares are issued and outstanding
and owned of record by the Shareholders or anyone else.
7. AMENDMENT OF SECTION 7.1(g). Section 7.1(g) of the Agreement is
hereby amended in its entirety, and as so amended shall provide as follows:
(g) Marketing Services. MarketSource Corporation, a Delaware
corporation, an affiliate of Shareholders, and NBC shall execute a
marketing services agreement whereby MarketSource will provide certain
advertising and promotional services, such as a used book buy-back
program. The contact period will begin April 1, 1998, and extend through
March 31, 2000. MarketSource will be obligated to provide $125,000 of
services during each of the 2 years (at standard rates), provided that the
Company shall be granted $75,000 credit against the amount due for the
first year. Any and all third party and/or production fees will be billed
additional subject to NBC's prior approval. The fee for the first year of
$50,000 is due at April 1, 1998 and the fee for year two of $125,000 is
due on April 1, 1999.
8. AMENDMENT OF SECTION 8.1(d). Reference is hereby made to Section
8.1(d), which is hereby amended to delete subsection (ii) thereof. There will be
no accounting services agreement with MarketSource Corporation.
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<PAGE> 5
9. AMENDED DISCLOSURE SCHEDULE. Reference is hereby made to Section
8.1(j) and Section 8.3(e) of the Agreement. The parties hereby approve the
amendments to the Disclosure Schedule attached hereto as Exhibit C-1.
10. AMENDMENT OF SECTION 9.5. Section 9.5 of the Agreement is hereby
amended in its entirety, and as so amended shall provide as follows:
9.5 Indemnification by NBC. NBC hereby agrees to indemnify and hold Martin
D. Levine harmless from, against and in respect of any and all damage,
loss, liability or deficiency, including costs and other expenses
(including, without limitation, reasonable legal fees) incurred by the
Shareholders arising out of or resulting from a default by NBC with
respect to the indemnified obligations set forth in the Section 9.5,
resulting from (i) any misrepresentation or breach of warranty or
nonfulfillment of the representations set forth in Section 5.2 of this
Agreement, and (ii) Martin D. Levine's personal guarantee set forth in
ss.14.10 of the Agreement for Sale of Assets and Assumption of Liabilities
dated October 1, 1995, by and among the Collegiate Stores Cooperative,
Inc., a California consumer cooperative (the "Coop"), CSC, Inc., a New
Jersey corporation and Martin D. Levine (the "Coop Agreement") of the
following: (A) the obligation to provide free memberships to the 14
founding members until February 28, 2001 as provided in ss.2.02(i) of the
Coop Agreement; and (B) the unpaid aggregate balance not to exceed
$280,000 for consulting payments to the 14 founding members of the Coop;
provided that the amount of the indemnification obligation hereunder shall
not exceed the amounts represented by Shareholders to be due pursuant to
such obligations. NBC's obligation under subsection (i) above shall be
reduced by the difference between $100,000 and the amount actually paid by
the Shareholder, if any, of the $100,000 Tax Obligation.
11. AMENDMENT OF EXHIBITS. Reference is hereby made to Exhibit B and
Exhibit D of the Agreement, both of which are amended and restated in their
entirety as set forth on Exhibit B-1 and Exhibit D-1 attached to this Amendment
and incorporated herein by this reference.
12. CROSS-REFERENCES. All references herein to section numbers shall
mean the section of the Agreement.
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<PAGE> 6
13. RATIFICATION OF TERMS. Except as expressly amended herein, the
parties hereby ratify and affirm all the terms and provisions of the Agreement.
IN WITNESS WHEREOF, this Agreement had been duly executed by
the parties hereto on the day and year first above written.
ATTEST: NEBRASKA BOOK COMPANY, INC.
/s/ Bruce E. Nevius By: /s/ Mark W. Oppegard
- ------------------------- --------------------------------
Secretary Its President
Shareholders:
/s/ Martin D. Levine
--------------------------------
Martin D. Levine
/s/ Martin D. Levine
--------------------------------
Martin D. Levine, Trustee of the
Lauren E. Levine Grantor Trust
/s/ Martin D. Levine
--------------------------------
Martin D. Levine, Trustee of the
Jonathan L. Levine Grantor Trust
6
<PAGE> 7
STATE OF New Jersey )
: ss.:
COUNTY OF Morris )
The foregoing instrument was acknowledged before me this 23rd day of
January, 1998, by Mark W. Oppegard, President of NEBRASKA BOOK COMPANY, INC., a
Kansas corporation, on behalf of the corporation.
(SEAL)
/s/ Karen W. Delano
-------------------------------
Notary Public
STATE OF New Jersey )
: ss.:
COUNTY OF Morris )
The foregoing instrument was acknowledged before me this 23rd day of
January, 1998, by Martin D. Levine.
(SEAL)
/s/ Karen W. Delano
-------------------------------
Notary Public
STATE OF New Jersey )
: ss.:
COUNTY OF Morris )
The foregoing instrument was acknowledged before me this 23rd day of
January, 1998, by Martin D. Levine, Trustee of the Lauren E. Levine Grantor
Trust.
(SEAL)
/s/ Karen W. Delano
-------------------------------
Notary Public
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<PAGE> 8
STATE OF New Jersey )
: ss.:
COUNTY OF Morris )
The foregoing instrument was acknowledged before me this 23rd day of
January, 1998, by Martin D. Levine, Trustee of the Jonathan L. Levine Grantor
Trust.
(SEAL)
/s/ Karen W. Delano
-------------------------------
Notary Public
8
<PAGE> 1
Exhibit 10.11
COMMERCIAL LEASE
THIS AGREEMENT made and entered into this 8th day of March, 1989, by
and between ROBERT J. CHANEY, MARY CHARLOTTE CHANEY, and ROBERT J. CHANEY, as
Trustee under the Last Will and Testament of James A. Chaney (hereinafter
collectively referred to as "Landlord") and NEBRASKA BOOK CO., INC., a Kansas
Corporation, (hereinafter referred to as "Tenant").
WHEREAS, the Landlord is the owner of certain land and improvements
(hereinafter sometimes referred to as the "Demised Premises") located at 4500
College Avenue, College Park, Maryland 20740; and
WHEREAS, the Landlord is desirous of leasing the Demised Premises to
the Tenant upon the terms and conditions hereinafter provided, and the Tenant is
desirous of leasing the Demised Premises from the Landlord upon the terms and
conditions hereinafter provided;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, and for other good an valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties, it is
agreed as follows:
W I T N E S S E T H
1. Leased Premises. The Landlord hereby leases to the Tenant and the
Tenant accepts from the Landlord "As Is" the premises known as 4500 College
Avenue, College Park, Maryland 20740, more particularly described as follows:
Being all of the Lots Numbered ONE (1) through TEN (10) both
inclusive, in Block Number TWENTY-NINE (29), of the Subdivision
known as "JOHNSON & CURRIDEN'S SUBDIVISION OF COLLEGE PARK", Prince
George's County, Maryland, as per plat thereof duly recorded among
the Land Records of said County in Liber J.W.B. No. 5 at folio 478,
and re-recorded in Plat Book "A", at folio 50 of the Plat Records of
said County, together with all improvements now located thereon.
2. Term. This Lease shall continue in force for a term of sixteen
(16) years and seven (7) months commencing on March 1, 1989 ("Commencement
Date"), and ending on September 30, 2005, unless sooner terminated as herein
provided.
<PAGE> 2
3. Rent.
(a) The Tenant covenants to pay an Annual Minimum Rent for the
Demised Premises of One Hundred Thousand Dollars ($100,000.00) payable in
advance in successive monthly installments of Eight Thousand Three Hundred
Thirty-Three Dollars and Thirty-Three Cents ($8,333.33) each, on the first day
of each and every calendar month from March 1, 1989 through September 30, 1990,
without any set-off, counterclaim or deduction whatsoever and without any prior
demand being made therefor. Beginning on October 1, 1990, the Tenant covenants
to pay an Annual Minimum Rent for the Demised Premises of One Hundred Fifty
Thousand Dollars ($150,000.00) payable in advance in successive monthly
installments of Twelve Thousand Five Hundred Dollars ($12,500.00) each, on the
first day of each and every calendar month during the term of this Lease,
without any set-off, counterclaim or deduction whatsoever and without any prior
demand being made therefor.
(b) All payments of rent shall be made in cash or by check
payable to Robert J. Chaney, 3912 Calverton Drive, Hyattsville, Maryland 20782,
or to such other person or place as may be designated by notice in writing from
Landlord to Tenant from time to time.
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly installments of rent herein stipulated shall be deemed
to be other than on account of the earlier stipulated rent nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed as accord and satisfaction. Landlord may accept such
check for payment without prejudice to Landlord's right to recover the balance
of such rent or pursue any other remedy provided in this Lease.
(d) Any monthly installment of basic rent not paid within ten
(10) days of the due date shall be subject to a late charge of ten percent (10%)
per month. All other rent and all other payments becoming due hereunder
(including additional rent) shall bear interest at the rate of ten percent (10%)
per annum after the first calendar day following the date when the same shall
become due and payable.
4. Cost of Living Adjustment.
(a) Beginning with the lease year commencing on October 1,
1991 (the first adjustment will be made as of October 1, 1991), the Annual
Minimum Rent set forth above shall be increased by the Cost of Living Adjustment
set forth below. The term "lease year" as used herein shall mean any twelve (12)
month period beginning on October 1 and ending on September 30 of the following
year, or any fraction thereof if this lease shall be terminated other than on
September 30. The result reached thereby shall be paid by the Tenant as Annual
Minimum Rent for and during said lease year in lieu of the Annual Minimum Rent
paid in the lease year
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immediate prior thereto; provided, however, that the amount payable by Tenant
under this Lease as Annual Minimum Rent for any lease year shall not be less
than the Annual Minimum Rent payable in the lease year immediately prior
thereto. As more specifically set forth below, this adjustment shall be based on
fifty percent (50%) of the change in the Index now known as "United States
Bureau of Labor Statistics, Consumer Price Index, for Urban Wage Earners and
Clerical Workers", all items, Washington, D.C. Standard Metropolitan Statistical
Area Average (1982-84 = 100.00), hereinafter referred to as the "Index", and any
revisions of that Index. If such Index shall be discontinued, with no successor
or comparable successor Index, the Landlord shall, in its reasonable discretion,
stipulate a substitute formula.
(b) The Cost of Living Adjustment shall be accomplished by
multiplying the Annual Minimum Rent for the lease year immediately prior to the
lease year for which such annual adjustment is to be made by a fraction, the
numerator of which fraction shall be the most recently published monthly Index
immediately preceding the first day of the lease year for which such annual
adjustment is to be made, and the denominator of which fraction shall be the
corresponding monthly Index preceding the first day of the lease year
immediately prior thereto; the Annual Minimum Rent for the proceeding twelve
(12) months is then subtracted from this amount to determine the Cost of Living
Adjustment. Fifty percent (50%) of this Cost of Living Adjustment shall then be
added to the prior Annual Minimum Rent to determine the new Annual Minimum Rent.
(c) The resulting new Annual Minimum Rent shall be payable in
twelve (12) equal monthly installments on the first day of each month of the
applicable lease year until again adjusted.
5. Taxes.
(a) Beginning on March 1, 1989, the Tenant shall be
responsible for all real estate taxes levied or imposed relative to the Demised
Premises and Tenant shall promptly pay all real estate taxes. For purposes of
this Paragraph five (5), the term "real estate taxes" shall mean all taxes,
rates and assessments, general and special, levied or imposed with respect to
the building and land related thereto. If the system of real estate taxation
shall be altered or varied and any new tax or levy shall be levied or imposed on
the building and/or the Landlord in addition to or in substitution for real
estate taxes presently levied or imposed on real estate in Prince George's
County, Maryland, and including any taxes on rents, then any such new tax or
levy shall be included within the term "real estate taxes".
(b) If Landlord shall incur any charge or expense on behalf of
Tenant under the terms of this Lease, such charge or expense shall be considered
additional rents hereunder; in addition to and not in limitation of any other
rights and remedies which Landlord may have in case of the failure by Tenant to
pay such sums
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<PAGE> 4
when due, such nonpayment shall entitle Landlord to the remedies available to it
hereunder for nonpayment of rent.
6. Use of Premises. It is understood and agreed that the Demised
Premises shall be used and occupied by the Tenant as a retail store in a manner
that complies with all applicable laws, ordinances, government regulations and
all protective covenants and restrictions of record affecting such use.
7. Payment of Utilities. The Tenant shall pay all charges for
electricity, water and sewer charges and all other utilities chargeable to the
Demised Premises.
8. Improvements and Alterations. The Tenant agrees not to make any
improvements/alterations in or additions to the Demised Premises without first
procuring the Landlord's written consent, said consent shall not be unreasonably
withheld. All alterations, additions and improvements, which may be made or
installed by the Tenant upon the leased premises, shall, at the termination of
the Lease, become the property of the Landlord and shall remain upon and be
surrendered with the Demised Premises as a part thereof, without disturbance, at
the expiration or termination of the term of this Lease, all without
compensation or credit to Tenant. If Tenant is not in default, Tenant may remove
all trade fixtures at the end of the term, and Tenant shall repair all damage
resulting from said removal.
9. Repairs and Maintenance.
(a) Tenant shall, at its own cost and expense, keep the
premises in good order and condition. Tenant further agrees and covenants, at
its own cost, to repair and maintain the premises, including, but not limited
to, the building, parking lot, roof, all structural walls and foundation,
plumbing, heating, air conditioning, ventilation, electrical and lighting
facilities and equipment, fixtures, walls, ceilings, windows, doors and plate
glass.
If Tenant fails to make such repairs or replacements promptly
after written demand, Landlord may, at its option, make such repairs or
replacements without incurring liability for any loss or damages that may accrue
to Tenant's property or business by reason thereof, and Tenant shall repay the
cost thereof to Landlord on demand as additional rent, with interest at the rate
of ten percent (10%) per annum from the date of commencement of said repairs.
(b) The Landlord shall not be required to make any
improvements or repairs of any kind or character to the Demised Premises during
the term of this Lease.
(c) At the expiration or termination of the tenancy hereby
created, Tenant shall surrender the Demised Premises in good condition,
reasonable
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<PAGE> 5
wear and tear excepted, and shall surrender all keys for the Demised Premises to
the Landlord at the place then fixed for the payment of rent. Tenant shall
remove all its trade fixtures, and any alterations before surrendering the
premises as aforesaid and shall repair any damage to the Demised Premises.
10. Right of First Refusal and Option to Buy.
(a) If the Landlord elects to sell the Demised Premises at any
time during the term of this Lease Agreement and the Tenant is not in default of
any of its obligations under this Lease Agreement, then the Tenant shall have
the right of first refusal to purchase the Demised Premises at and for the price
and upon the terms and conditions submitted to or offered by any third-party
purchaser. If such an offer is procured from, or made to a third-party
purchaser, the Landlord shall give written notice to the Tenant of such proposal
to sell, the price, terms and conditions of such a sale, and the Tenant shall
have thirty (30) days in which to exercise the option herein granted by advising
the Landlord in writing within said thirty (30) day period. The Tenant shall
have thirty (30) days in which to exercise its right of first refusal, but the
time for settlement shall be extended for an additional sixty (60) days with
rent and additional rent to be paid until the date of settlement as herein
provided. If the Tenant shall fail to exercise said right of first refusal
within the said thirty (30) day period, then such failure shall relieve the
Landlord from any further liability under this right of first refusal and the
Landlord may then proceed to freely sell said property to a third-party
purchaser. If the Tenant does not exercise said right of first refusal within
the specified time period, the Tenant, upon Landlord's request, will execute an
instrument releasing its rights hereunder. This provision is only intended to
give the Tenant the right of first refusal to purchase the Demised Premises,
nothing herein shall be construed to give the Tenant a fixed priced option to
purchase the Demised Premises.
(b) If during the term of this Lease Agreement, Robert J.
Chaney and Mary Charlotte Chaney shall both become deceased, and if the last to
survive Robert J. Chaney and Mary Charlotte Chaney shall have owned thee Demised
Premises at the time of their demise, and if the Tenant is not in default with
regard to any of its obligations under this Lease Agreement, then upon the death
of the later of Robert J. Chaney or Mary Charlotte Chaney, the Tenant shall have
an option to purchase the Demised Premises under the following terms and
conditions. The Tenant shall give written notice of its intention to exercise
this option to the Personal Representative or Executor ("Personal
Representative") of the later to die of the owners of the Demised Premises as
stated above, within ninety (90) days of the date of death. If the Personal
Representative does not receive said written notice within said ninety (90) days
after death, then the Tenant shall have no right of purchase under this
provision.
The settlement shall occur within one hundred twenty (120) days from
the date that this option is exercised. The Tenant shall pay all settlement
costs
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<PAGE> 6
including all taxes and recordation costs. Rent shall be adjusted to the date of
settlement.
The exact purchase price and terms shall be as mutually agreed upon
by the Tenant and the Personal Representative. If they are unable to reach such
mutual agreement, each party shall appoint a qualified appraiser to determine
the value of the property; the value of the property shall be the purchase
price. If the two appraisers agree, then they shall render a written report of
their opinion and this value shall be the purchase price. If they cannot agree,
they shall each render separate written reports and they shall together appoint
a third appraiser who shall render a third written report. The fees and costs of
the first two appraisers shall be borne by each party for its own appraiser. The
costs of the third appraiser shall be equally borne by the parties. The purchase
price shall be the value contained in the third appraiser's report, provided,
however, that if the value contained therein is more than the first two
appraisals, then the higher of the first two appraisals shall govern, and
provided further, that if the value contained in the third appraisal is less
than the lower of the first two appraisals, then the lower of the first two
appraisals shall govern.
It is clearly understood between the parties executing this Lease
Agreement that the aforesaid limited option to purchase only becomes effective
upon the death of both Robert J. Chaney and Mary Charlotte Chaney and only if
the later to become deceased owned the Demised Property at the time of his/her
death. This option to purchase is nontransferable and is granted solely to the
Nebraska Book, Co., Inc., or its parent corporation, Lincoln Industries, or any
wholly owned subsidiary of Lincoln Industries.
11. Tenant's Insurance and Indemnification.
(a) Tenant agrees that it will indemnify and save Landlord
harmless from any and all liabilities, damages, causes of action, suits, claims
judgments, costs and expense of any kind (including reasonable attorneys' fees)
(i) relating to or arising from or in connection with the possession, use,
occupation, management, repair, maintenance or control of the Demised Premises,
or any portion thereof, or (ii) arising from or in connection with any act or
omission of Tenant or Tenant's agents, employees or invitees, or (iii) resulting
from any default, violation or injury to person or property or loss of life
sustained in or about the Demised Premises. To assure such indemnity, Tenant
shall carry and keep in full force and effect at all times during the term of
this Lease for the protection of Landlord and Tenant herein, public liability
insurance with limits of at least Ten Million Dollars ($10,000,000.00) for each
accident and One Million Dollars ($1,000,000.00) for each separate injury, and
property damage insurance in the amount of five Hundred Thousand Dollars
($500,000.00). Tenant shall also obtain fire insurance on the Demised Premises
during the entire term of this Lease in an amount equal to the full replacement
value of the property. The Landlord may require the Tenant to acquire greater
insurance from time to time but not more than every 24 months. All
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insurance will be through an insurance company acceptable to both Landlord and
Tenant.
(b) Said public liability and property damage insurance
policies and any other insurance policies carried by Tenant with respect to the
Demised Premises, shall (i) be issued in form acceptable to Landlord and Tenant
by good and solvent insurance companies qualified to do business in the State of
Maryland and reasonably satisfactory to Landlord and Tenant, (ii) be issued in
the names of Landlord, Tenant and any other parties in interest from time to
time designated in writing by notice from Landlord to Tenant, (iii) be written
as primary policy coverage and not contributing with or in excess of any
coverage which Landlord may carry; and (iv) contain an express waiver of any
right of subrogation by the insurance company against Landlord, if same is
available from the insurance company. Neither the issuance of any insurance
policy required hereunder, nor the minimum limits specified herein with respect
to Tenant's insurance coverage, shall be deemed to limit or restrict in any way
Tenant's liability arising under or out of this Lease. On or before the Rent
Commencement Date and before any such insurance policy shall expire, Tenant
shall deliver to Landlord certificates of insurance for, certified copies of, or
duplicate originals of each such public liability and property damage policy or
renewal thereof, as the case may be, together with evidence of payment of all
applicable premiums. The public liability and property damage insurance policies
required to be carried hereunder by or on behalf of Tenant shall provide that
unless Landlord shall first have been given ten (10) days' prior written notice
thereof (i) such insurance policies shall not be cancelled and shall continue in
full force and effect, (ii) the insurance carrier shall not, for any reason
whatsoever, fail to renew such insurance policies, and (iii) no material change
may be made in such insurance policies. In the event that Tenant shall fail to
furnish any insurance coverage herein required to be procured by Tenant, or
shall fail to pay any premium under such policies when due, Landlord, upon three
(3) days' written notice, at its sole option, shall have the right to pay such
delinquent premium on behalf of Tenant, or obtain such required policy and pay
the premium therefor for a period not exceeding one (1) year in each instance,
and any premium so paid by Landlord shall be immediately payable by Tenant to
Landlord as additional rent hereunder.
12. Tenant's Waiver of Claims. Tenant covenants that no claim shall
be made against Landlord by Tenant, or by any agent or servant of Tenant, or by
others claiming the right to be in the premises or in said building through or
under Tenant, for any injury, loss or damage to person or property occurring
upon the premises from any cause other than the negligence of Landlord, and
Tenant shall hold Landlord harmless therefrom.
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<PAGE> 8
13. Access to Premises.
(a) The Landlord reserves for itself and its representatives
the right to enter upon the Demised Premises at all reasonable hours for the
purpose of inspecting the same, making repairs, additions or alterations to the
building in which the Demised Premises are located and exhibiting the Demised
Premises to prospective tenants, purchasers or others. The exercise by Landlord
of any of its rights under this paragraph shall not be deemed an eviction or
disturbance of Tenant's use and possession of the Demised Premises.
(b) Landlord may, within six (6) months next preceding the
expiration of the term, enter the premises, to place and maintain notices for
letting, free from hindrance or control of Tenant, and to show the premises to
prospective tenants thereof at times which will not unreasonably interfere with
Tenant's business. If Tenant shall vacate the premises during the last month of
the term of this Lease, Landlord shall have the unrestricted right to enter the
same after Tenant's moving to commence preparations for the succeeding tenant or
for any other purpose whatever, without affecting Tenant's obligation to pay
rent for the full term.
14. Mechanic's Lien. Tenant agrees not to permit any mechanic's,
materialmen's or other liens to be fixed or placed against the Demised Premises
or the building containing the Demised Premises and agrees to immediately
discharge (either by payment or by filing of the necessary bond, or otherwise)
any mechanic's, materialmen's or other lien which is fixed or placed against the
Demised Premises or the building arising from any obligation allegedly owed by
Tenant.
15. Taking of Leased Premises. In the event of a taking of the whole
or any part of the Leased Premises, so as to render the Leased Premises
economically unsuitable for the permitted uses, the Tenant shall have the right
to terminate this Lease upon written notice to the other party within forty (40)
days after receiving knowledge of the taking. Should the Tenant elect to
terminate this Lease, the Lease term shall cease as of the day the public
authority takes physical possession of the Leased Premises. If, following a
taking, this Lease shall continue in effect as to any portion of the Leased
Premises, the Tenant's rent shall be reduced by the proportion which the floor
area of the Leased Premises taken bears to the initial floor area of the Leased
Premises. Any compensation award for any taking shall be the property of
Landlord.
16. Damage By Fire or Casualty. This Lease is made on condition
that, if the premises or any part hereof, or the elevators, hallways, stairways
or other approaches thereto, is damaged or destroyed by fire or other casualty
from any cause, so as to render said premises and/or approaches unfit for the
use and occupancy, a just and proportionate part of the rent, according to the
nature and extent of the injury to said premises and/or approaches, shall be
suspended or abated until said premises and have been put in as good condition
for use and occupancy as at the time
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immediately prior to such damage or destruction. The Demised Property shall be
expeditiously repaired by Tenant, unless, because of the substantial extent of
the damage or destruction, Landlord and Tenant should decide not to allow for
the repair or restoration of the premises or the building, in which event and at
Landlord's and Tenant's option, Landlord and Tenant may terminate this lease
forthwith, by giving each other a written notice of its intention to terminate
within ninety (90) days after the date of the casualty. In such event, Tenant
shall have no claim against Landlord for the value of any expired term of this
Lease.
17. Subordination. Tenant hereby covenants and agrees to subject and
subordinate this Lease, upon request of Landlord, to any paramount lease, deed
of trust or other financing method that may now or hereafter affect the leased
premises, and to all renewals, modifications, consolidations, replacements and
extension thereof. Landlord shall, however, use its best efforts to have
included in any paramount lease, deed of trust or other financing arrangements
to which this Lease is subordinated, a provision that such subordination shall
not adversely affect the Tenant's right of use and occupancy hereunder so long
as Tenant is not in default under any of the provisions hereof. To effect this
subordination and in connection with such financing, Tenant agrees to execute
promptly any certificate, assignment of rents or other documents that Landlord
may request. Tenant shall, in the event of any foreclosure, attorn to the
purchaser upon any such foreclosure and recognize such purchaser as the Landlord
under this Lease.
18. Assignment of Lease.
(a) Tenant will not assign, transfer, mortgage or otherwise
encumber this Lease or sublet or rent (or permit occupancy or use of) the
premises, or any part thereof, without obtaining the prior written consent of
Landlord, any consent to be at Landlord's sole discretion and Landlord may
unreasonably withhold its consent, nor shall any assignment or transfer of this
or the right of occupancy hereunder be effectuated by operation of law or
otherwise without the prior written consent of Landlord. If Tenant is a
corporation or partnership, any transfer of a majority or controlling interest
of Tenant's issued and outstanding capital stock or partnership interests shall
be deemed an assignment under this Lease and shall require Landlord's prior
written consent. The consent by Landlord to any assignment or subletting shall
not be construed as a waiver or release of Tenant from the terms of any covenant
or obligation under this Lease, nor shall the collection or acceptance of rent
from any such assignee, subtenant or occupant constitute a waiver or release of
Tenant of any covenant or obligation contained in this Lease, nor shall any such
assignment or subletting be construed to relieve Tenant from obtaining the
consent in writing of Landlord to any further assignment or subletting. In the
event that Tenant defaults hereunder, Tenant hereby assigns to Landlord the rent
due from any subtenant, assignee or any other occupant holding the premises or
any portion thereof under the Tenant, and hereby authorizes each subtenant to
pay said rent directly to Landlord.
9
<PAGE> 10
(b) Notwithstanding the above, the Tenant shall be able to
sublet, without the Landlord's prior written consent, that portion of the
Demised Premises that it presently sublets as of the Commencement Date of this
Lease Agreement.
(c) Notwithstanding the above, the Tenant shall be able to
assign this lease to a wholly owned subsidiary without the Landlord's consent as
long as the subsidiary uses the Demised Premises for the same purpose and under
the same trade name as the Tenant herein. The Tenant and the wholly owned
subsidiary shall both then be fully liable for all obligations hereunder. Any
further assignments or subleases will be subject to the restrictions in
Paragraph 18(a) above.
19. Remedies of Landlord.
(a) Landlord may terminate this lease upon ten (10) days'
written notice to Tenant upon the happening of the any one or more of the
following events or default: (i) the institution in a court of competent
jurisdiction of proceedings for the reorganization, liquidation or involuntary
dissolution of Tenant, or for its adjudication as a bankrupt or insolvent or for
the appointment of a receiver of the property of Tenant, and if said proceedings
are not then dismissed, and any receiver, trustee or liquidator appointed
therein discharged, thirty (30) days after the institution of said proceedings;
(ii) the insolvency of the Tenant or the making by Tenant of an assignment or
composition for the benefit of its creditors; (iii) the levying of a writ of
execution or attachment on or against the property of Tenant; (iv) the taking of
any action for the voluntary dissolution of Tenant or of its consolidation with
or merger into another corporation; (v) the vacation or abandonment of the
Demised Premises by Tenant; (vi) the failure of Tenant to pay any installment of
rent, or any other payment, or charge herein provided for, when due; and (vii)
the violation by Tenant of, or its failure to perform or threat to break, any
covenant or agreement herein contained, if such continues after thirty (30)
days' written notice from Landlord, or, if it cannot be cured within such thirty
(30) days, if the Tenant does not within such period commence to cure such
violation, failure, or threat and thereafter diligently complete the same.
(b) Upon such termination of this Lease, Landlord may re-enter
the leased premises with or without process of law, using such force as may be
necessary, and remove all persons and chattels therefrom and Landlord shall not
be liable for damages or otherwise by reason of re-entry or termination of this
Lease nor shall such re-entry or termination waive, bar or any way prejudice any
other remedies available to Landlord. Notwithstanding such termination, the
liability of Tenant for the rent provided for herein shall not be extinguished
for the balance of the term remaining after said termination, and Landlord shall
be entitled to recover immediately as liquidated damages an amount equal to the
rent for the said balance of the term.
10
<PAGE> 11
(c) In the event of any breach hereunder by Tenant, Landlord
may immediately or at any time thereafter, without notice, cure such breach for
the account and at the expense of Tenant. If Landlord at any time, by reason of
such breach, is compelled to pay, or elects to pay any sum of money or do any
act that will require the payment of any sum of money, or is compelled to incur
any expense, including reasonable attorney's fees, in instituting or prosecuting
any action or proceeding to enforce Landlord's rights hereunder, the sum or sums
paid by Landlord, with interest thereon, at the rate of twenty percent (20%) per
annum from the date of payment thereof, shall be deemed to be additional rent
hereunder and shall be due from Tenant to Landlord on the first day of the month
following the payment of such respective sums of expenses.
(d) When this Lease is terminated in accordance with this
paragraph, Tenant will yield upon possession to Landlord on the date of
termination, and failing so to do, will pay as liquidated damages for each day
possession is withheld, an amount equal to double the amount of the daily base
rent, computed on a thirty (30) day month basis.
(e) All rights and remedies of Landlord herein enumerated
shall be cumulative and none shall exclude any other right or remedy allowed by
law and said rights and remedies may be exercised and enforced concurrently and
whenever and as often as occasion therefor arises. Any base rent, additional
rent or other payment or charge herein provided for may be recovered by the
Landlord from the Tenant by distress or action or by any legal process as may at
the time be in operation and force in like cases relating to proceedings between
landlords and tenants.
20. Tenant Holding Over. If Tenant shall not immediately surrender
the Demised Premises on the day after the end of the term hereby created, then
Tenant shall, by virtue of this Agreement, become a tenant by the month at 125%
of the rental agreed by said Tenant to be paid as aforesaid, commencing said
monthly tenancy with the first day next after the end of the term above demised;
and said Tenant as a monthly tenant, shall be subject to all of the conditions
and covenants of this Lease as though the same had originally been a monthly
tenancy. Each party hereto shall give to the other at least thirty (30) days'
written notice to quit the Demised Premises, except in the event of non-payment
of rent in advance or of the additional rents provided in which event Tenant
shall not be entitled to any notice to quit, the usual thirty (30) days' notice
to quit being expressly waived; provided, however, that in the event that Tenant
shall hold over after the expiration of the term hereby created, and if Landlord
shall desire to regain possession of said premises promptly at the expiration of
the term aforesaid, then at any time prior to the acceptance of the rent by
Landlord from Tenant, as monthly Tenant hereunder, Landlord, at its election or
option, may re-enter and take possession of the Demised Premises forthwith,
without process, or by any legal action or process in force in the State of
Maryland.
11
<PAGE> 12
21. Notices and Demands. Any notice or demand required or permitted
under this Lease shall be in writing and shall be sent by registered or
certified mail or hand delivered to Tenant at Nebraska Book Co., Inc., 6400
Cornhusker Highway, Lincoln, Nebraska 68501, Attention: Bruce Nevius, Treasurer,
with a copy sent to the address of the Demised Premises, and any notices to
Landlord shall be delivered to the address then fixed for the payment of rent,
and either party may, by like notice at any time and from time to time,
designate a different address to which notice shall be sent. Notices given in
accordance with these provisions shall be deemed given when mailed.
22. General.
(a) Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent or of partnership or of joint venture or of any
association between Landlord and Tenant other than the relationship of landlord
and tenant. The invalidity or unenforceability of any provision hereof shall not
affect or impair any other provisions. The necessary grammatical changes
required to make the provisions of this Lease apply in the plural sense where
there is more than one tenant and to either corporations, associations,
partnerships or individuals, males or females, shall in all instances be assumed
as though in each case fully expressed. The laws of the State of Maryland shall
govern the validity, performance and enforcement of this Lease. Time is of the
essence with respect to each covenant, term and provision of this Lease.
(b) This Lease contains the entire agreement between the
parties with respect to the subject matter hereof and each party acknowledges
that it did not, in entering into this Lease, rely upon any representation or
promises made by or on behalf of the other except as expressly set forth herein.
No provision of this Lease shall be modified, waived or discharged other than by
an instrument in writing signed by Tenant and Landlord.
(c) If Tenant enters into this Lease as a corporation, each of
the persons executing this Lease on behalf of Tenant do hereby covenant and
warrant that Tenant is a duly authorized and existing corporation, qualified to
do business in Maryland and that the corporation has full right and authority to
enter into this Lease.
(d) The Tenant and Landlord are aware that certain subleases
presently exist with regard to the Demised Premises.
(e) Any cost of recording this lease, including all transfer
taxes and costs in connection therewith, shall be at the expense of Tenant.
(f) The Landlord's predecessors in interest and the Tenant
entered into a Lease Agreement on September 19, 1975 ("Old Lease Agreement") for
the Demised Premises for a term of fifteen (15) years ending on October 30,
1990.
12
<PAGE> 13
The Landlord and Tenant acknowledge that beginning on the Commencement Date
herein (March 1, 1989), the Old Lease Agreement shall expire and this Lease
Agreement shall govern the rights, obligations, terms and conditions between the
parties. From the Commencement Date of this Lease Agreement the Tenant hereby
forever releases the Landlord from any rights it may have under the Old Lease
Agreement, and all obligations the Landlord may have under and pursuant to the
Old Lease Agreement.
23. Successors and Assigns. The terms, covenants and conditions
hereof shall be binding upon, and inure to the successors in interest and
assigns of the parties hereto.
24. Quite Enjoyment. Landlord covenants and agrees with Tenant that
upon Tenant paying the rent and additional rent and observing and performing all
the terms, covenants and conditions, on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the premises hereby demised,
subject, nevertheless, to the terms and conditions of this Lease, and to the
mortgages and deeds of trust hereinbefore mentioned.
25. Waiver of Trial by Jury. Landlord and Tenant each agree to and
they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant and Tenant's use or occupancy of said
premises and/or any claim of injury or damage, and any statutory remedy.
IN WITNESS WHEREFORE, the parties hereto have executed this Lease on
the day and year first above written.
WITNESS OR ATTEST: LANDLORD:
/s/ [signature illegible] /s/ Robert J. Chaney
- -------------------------- --------------------------------
ROBERT J. CHANEY
/s/ [signature illegible] /s/ Mary Charlotte Chaney
- -------------------------- --------------------------------
MARY CHARLOTTE CHANEY
13
<PAGE> 14
/s/ [signature illegible] /s/ Robert J. Chaney
- -------------------------- --------------------------------
ROBERT J. CHANEY, as Trustee
under the Last Will and Testament
of James A. Chaney
TENANT:
NEBRASKA BOOK CO., INC.
/s/ Ardean A. Arndt (SEAL) By: /s/ George A. Lincoln (SEAL)
- ----------------------- --------------------------------
Secretary President
14
<PAGE> 15
STATE OF MARYLAND
COUNTY OF PRINCE GEORGE'S
I, Kay B. Marchone, a Notary Public in and for the aforesaid state
and county, do hereby certify that Robert J. Chaney and Mary Charlotte Chaney,
the Landlord named in the foregoing and attached Lease, bearing date the 8th day
of March, 1989, being personally known to me as the person(s) named as Landlord
in the foregoing Lease, and acknowledged the same to be their act and deed and
that they delivered the same as such.
Given under my hand and notarial seal, this 8th day of March, 1989.
/s/ Kay B. Marchone
------------------------------
NOTARY PUBLIC
My Commission Expires: 7-1-1990
STATE OF NEBRASKA
COUNTY OF LANCASTER
I, Robin S. Haney, a Notary Public in and for the aforesaid state
and county, do hereby certify that George A. Lincoln the Tenant (the
attorney-in-fact for the corporate Tenant) named in the foregoing and attached
Lease, bearing date the 23rd day of February, 1989, being personally known to me
as the person(s) named as Landlord in the foregoing Lease, and acknowledged the
same to be their act and deed and that they delivered the same as such.
Given under my hand and notarial seal, this 23rd day of February,
1989.
/s/ Robin S. Haney
------------------------------
NOTARY PUBLIC
My Commission Expires: 3-24-1991
15
<PAGE> 1
Exhibit 10.12
AGREEMENT OF LEASE
AGREEMENT OF LEASE entered into as of September 1, 1986, by and
between ODELL ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited partnership,
registered to transact business in Michigan, 27 Orchard Drive, West Redding,
Connecticut 06896 (hereinafter referred to as "Landlord") and NEBRASKA BOOK
COMPANY, INC., a Kansas corporation with offices at P.O. Box 80269, Lincoln,
Nebraska 68501 (hereinafter referred to as "Tenant"),
W I T N E S S E T H :
Property Demised and Warranties. Landlord agrees to lease to Tenant,
upon the terms and conditions hereinafter set forth, the property and all
fixtures attached thereto located at 1115-17-19 South University, Second Floor
only, Ann Arbor, Michigan (hereinafter referred to as the "Leased Premises"),
and more fully describe in Schedule A attached hereto and made a part hereof.
Landlord represents and warrants that there are no liens or
encumbrances (except a certain mortgage to Helen C. Ulrich, Trustee, dated as of
January 1, 1983, and recorded on February 23, 1983, in Liber 1865, Page 651 of
the Register of Deeds of Washtenaw County, Michigan) that affect or shall affect
Tenant's use of the property as herein set forth. So long as Tenant shall pay
rental and other sums provided herein and shall keep and perform all the terms,
covenants and conditions on its part contained herein, Landlord covenants Tenant
shall have the right to peaceful and quiet enjoyment of the premises.
Landlord further represents and warrants that he has full right,
power, and authority to enter into this Lease for the term herein set forth and
that there exist on the date this agreement is signed no city, county or state
zoning, building, or use restrictions which would prohibit Tenant from
continuing the use of the Leased Premises in its present manner for the purpose
herein contemplated.
Term and Extension. The initial term of this Lease shall be for a
period of three (3) years, commencing September 1, 1986 and terminating August
31, 1989, both dates inclusive. Tenant shall have the option to extend this
Lease for three (3) additional periods of three (3) years each, provided Tenant
is not then in default of any of its obligations hereunder. However, and
notwithstanding anything to the contrary herein, Tenant's right to exercise its
option to extend the term shall in no event lapse until thirty (30) days after
Tenant receives written notice from Landlord that the period for exercise of the
option to extend will lapse after said thirty (30) days.
Tenant shall exercise its options to extend this Lease by giving
written notice of the exercise of each such option prior to a date six (6)
months before the end of the initial term of this Lease or the first extension
term, as the case may be, provided Tenant is not then in default of any of its
obligations hereunder.
<PAGE> 2
2
The extended term shall be upon the same terms, covenants, and
conditions, as provided in this Lease for the initial term, except rent which
shall be as provided in the Rent section, below. Any rightful termination of
this Lease during the initial term or during any extension thereof shall
terminate any and all further rights of renewal or extension hereunder.
Rent.
A. The rent for the lease term shall be Two Thousand One Hundred
Forty Dollars ($2,140.00) per month payable in advance, beginning September 1,
1986.
B. For the three (3) three (3) year option periods, the monthly
rental shall be adjusted as the parties agree. In the absence of agreement, the
then existing fair rental value of the Leased Premises shall be determined as
follows:
The then existing fair rental value of the Leased Premises shall be
determined by the average of the appraised rental value determined by
three MAI real estate appraisers; one selected by Landlord; one selected
by Tenant; and the third selected by the first two selected appraisers.
The arbitrators shall be governed by Chapter 50 of the Michigan Revised
Judicature Act, as amended, and a judgment of any Michigan Circuit court
may be rendered upon the award made pursuant to this agreement.
In determining the then existing fair rental value of the Leased
Premises, whether by agreement or arbitration, other rental properties owned by
The Fred C. Ulrich Trust, by The Helen C. Ulrich Trust, by Sandra J. Odell or
the Odell Associates Limited Partnership, any successor thereto or by any other
trust, partnership or entity in which any of the foregoing have a controlling
interest, shall not be utilized or considered in such determination.
PROVIDED, the monthly rental shall not be less than that in effect
for the period immediately preceding adjustment.
PROVIDED, the monthly rental for this initial thirty-six (36) months
of each of the option periods shall be determined not less than sixty (60) days
prior to the last date for the exercise of the option.
C. All rent payments due hereunder shall be payable in accordance
with the terms of this section at 27 Orchard Drive, West Redding, Connecticut or
at such place as Landlord may direct.
Use of Premises, Restrictions, and Quiet Enjoyment. It is understood
and agreed by the parties that Tenant intends to use the Leased Premises for the
operation of a retail bookstore and related retail uses; however, if at any time
during
<PAGE> 3
3
this Lease or any period of extension or renewal thereof Tenant desires to use
and occupy the premises for any other lawful purpose, Tenant may do so provided
that Tenant first obtains the prior written consent of Landlord, which consent
shall not be unreasonably withheld, and provided further that the premises shall
not be used or occupied for any unlawful business, use, or purpose, nor for any
business, use, or purpose deemed extrahazardous or in violation of any
governmental law or regulation presently existing or subsequently enacted.
Asbestos and Hazardous Waste Materials. Landlord warrants that it
has not installed asbestos on or about the Leased Premises since after the death
of Fred C. Ulrich in 1981. To the best of Landlord's knowledge, information and
belief, the Leased Premises do not contain and have not in the past ten (10)
years contained any hazardous waste material subject to local, state or federal
regulations as to use, storage or disposal.
The parties understand that Tenant intends to continue the use of
the Leased Premises in the same manner as currently conducted. Landlord
recognizes that it is essential to Tenant to continue such use without the cost
of revisions or reconstruction required by any governmental authority.
Therefore, in the event asbestos or any hazardous waste material hereinbefore
described is found to be located on the Leased Premises on the date this
agreement is signed, Landlord, at its sole expense, and in compliance with
applicable law and regulation, shall promptly remove or contain any asbestos or
hazardous waste material within the Leased Premises.
Compliance with Law. Except as otherwise agreed in this Lease or
warranted in this Lease, Tenant shall, at its sole expense, comply with all
laws, orders, and regulations of federal, state and municipal authorities and
with any direction of any public officer, pursuant to law, which shall impose
any duty upon Landlord with respect to the Leased Premises and shall obtain all
licenses or permits which may be required for the conduct of its business within
the terms of this Lease or for the making of repairs, alterations, improvements,
or additions, and Landlord, where necessary, will join with Tenant in applying
for all such permits or licenses.
Repairs and Maintenance. Tenant shall, during the term of this Lease
or any renewal or extension thereof, at its sole expense, keep the interior and
exterior, including the roof, of the Leased Premises in as good order and repair
as it is at the date of commencement of this Lease, reasonable wear and tear and
damage by accident, fire, or other casualty excepted. Tenant shall not knowingly
commit or willingly permit to be committed any act or thing contrary to the
rules and regulations prescribed from time to time by the Washtenaw County Board
of Health or which shall be contrary to the rules and regulations of any
federal, state, or municipal authority. Tenant has inspected the premises and is
satisfied with said premises and accepts the premises in its present condition,
subject only to Landlord's representations and undertakings herein.
<PAGE> 4
4
Alterations and Improvements. Tenant shall have the right, from time
to time and at its sole expense, provided the same do not affect adversely the
structure of the premises, to make such alterations, improvements, modifications
or changes to, or decoration of the interior or exterior of the Leased Premises
as shall be reasonable or appropriate in Tenant's judgment for Tenant's conduct
thereon of its business. Tenant understands and agrees that prior to any change,
alteration, improvement, or modification to either the interior or exterior of
the Leased Premises, including signage, permission shall first be obtained in
writing from Landlord, such permission not to be unreasonably withheld.
Any such alteration, improvement, modification, or change (except
for movable items and trade fixtures) shall, at termination of this Lease or any
extension thereof, become the exclusive property of Landlord, as his interest
may appear, and be surrendered with and as part of the Leased Premises.
Taxes and Assessments. Landlord shall pay all real estate taxes.
Landlord shall also pay any special assessment imposed upon the Leased Premises
for any purpose whatsoever during the initial term of this Lease or any
extension thereof; except if a parking assessment is imposed, Tenant shall pay
any such assessment.
If the city, county, state, or any other political subdivision
within which the Leased Premises is located shall, during the term of this
Lease, impose upon the Landlord any tax or other governmental charge ("non-real
estate tax") in lieu of all or any part of the real estate taxes which, prior to
such imposition, were assessed or levied against the Leased Premises ("real
property taxes"), such non-real property tax shall, for purposes of this
paragraph, be treated as if it were a real estate tax.
Any personal property tax assessed on inventory or goods shall be
paid by Tenant.
Insurance. Landlord shall keep the Leased Premises insured against
loss or damage by fire with extended coverage endorsement in an amount
sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies but, in any event, in an amount not less than eighty percent
(80%) of the full insurable value as determined from time to time. The term
"full insurable value" shall mean actual replacement cost (exclusive of
excavation, foundations and footings below the basement floor) without deduction
for physical depreciation. Such insurance shall be issued by financially
responsible insurers duly authorized to do business in the State of Michigan.
Landlord shall pay the cost of fire and extended coverage insurance.
Tenant, at all times during the term of this Lease or any extension
or renewal thereof, at its expense, shall procure, maintain, and keep in force
general public liability insurance for claims for personal injury, death, or
property damage occurring in or about the Leased Premises, with limits of not
less than Five Hundred
<PAGE> 5
5
Thousand Dollars ($500,000.00) in respect to death or injury to a single person;
not less than One Million Dollars ($1,000,000.00) in respect to any one
accident; and not less than One Hundred Thousand Dollars ($100,000.00) in
respect to property damage. Tenant shall name Landlord as an additional insured
thereunder.
Tenant shall further procure, maintain, and keep in force building
contents insurance in an amount acceptable and deemed necessary by Tenant.
Tenant shall pay, or reimburse Landlord for, the premiums on a
policy of insurance insuring against loss of rent. Tenant shall also be liable
for plate glass insurance.
Each party agrees to waive any and all claims of subrogation against
the other as to any liability or potential liability of the other to the extent
any such claims are covered from time to time by policies of insurance covering
the Leased Premises.
Tenant shall deliver to Landlord appropriate certificates of
insurance confirming that the insurance to be obtained by Tenant hereunder is in
full force and effect and that prior to any cancellation thereof, notice of such
cancellation shall be given to Landlord.
Utilities and Other Services. Tenant shall make arrangements for and
shall pay, or cause to be paid, charges for any and all gas, electricity, water,
light, heat, air conditioning, power and telephone, or other communication
service used, rendered, or supplied upon or in connection with Tenant's use of
the Leased Premises and shall indemnify and hold Landlord harmless for any
liability or damages on such account.
Property Loss, Damage, Etc. Landlord shall not be liable to Tenant
for any loss or damage:
(a) To property of Tenant, Tenant's agents, servants,
employees, visitors, or licensees entrusted to Landlord or Landlord's agents or
employees, or
(b) For any loss of property due to theft, vandalism, or Acts
of God, or
(c) For any injury or damage to persons or property resulting
from falling plaster, steam, gas, electricity, water, rain, or snow which may
leak from any part of said building or from the pipes, appliances, or plumbing
works thereof or from the street or from any place or by dampness, or
<PAGE> 6
6
(d) For any damage caused by other tenants, subtenants, or
persons in the Leased Premises, or
(e) For interference with the light or other incorporeal
hereditaments or caused by operation in construction of any public or
quasi-public work, or
(f) Any latent defect or for the presence of bugs, vermin, or
insects, if any, in the premises.
Fire, Other Casualty Loss. In all cases where the Leased Premises is
damaged in whole or in part by fire or other casualty, Landlord shall repair the
damage with reasonable dispatch, and if the damage has rendered the Leased
Premises untenantable, in whole or in part, there shall be an apportionment of
the rent until the damage has been repaired except as modified by Tenant's
obligation to insure against rent loss (see page 4 - Insurance). In determining
what constitutes reasonable dispatch, consideration shall be given to delays
caused by strikes, adjustment of insurance, and other causes beyond Landlord's
control.
All insurance proceeds paid by reason of any damage or loss
hereinabove described shall be paid to Landlord to be used by Landlord for the
purposes hereinabove set forth.
Condemnation. If the whole of the Leased Premises, or such portion
thereof as will make the Leased Premises unsuitable for the purposes herein
leased, is condemned for any public use or purpose by any legally constituted
authority, then, in either of such events, this Lease shall cease from the time
when possession is taken by such public authority, and rental shall be accounted
for between Landlord and Tenant as of the date of surrender of possession. Such
termination shall be without prejudice to the rights of either Landlord or
Tenant to recover compensation from the condemning authority for any loss or
damage caused by such condemnation. Neither Landlord nor Tenant shall have any
rights in or to any award made to the other by the condemning authority. If a
portion of the Leased Premises is taken by condemnation but the remaining
premises may be still economically used for the purposes set forth herein, there
shall be an equitable apportionment of rent.
Sublet, Assignment. Tenant shall, from time to time, have the right
to sublet all or portions of the Leased Premises for the remainder of the term
or any extension thereof with the prior written approval of Landlord, which
approval Landlord shall not unreasonably withhold. In the event of any sublet of
the Leased Premises contemplated hereunder, Tenant shall remain primarily liable
for the payment of the rent herein reserved and for the performance of all other
terms and conditions of this Lease required to be performed by Tenant.
<PAGE> 7
7
It is further understood and agreed that this Lease may be assigned by Tenant
upon written approval of the Landlord, such approval not to be unreasonably
withheld. However, Landlord specifically agrees that this Lease may be assigned
to and assumed by any parent or affiliated corporation of the Company. Landlord
may assign this Lease to any person or persons without written approval of
Tenant, provided that any assignee of Landlord agrees to abide by all of the
terms, covenants, and conditions set forth in this Lease.
Surrender at Termination. Tenant shall, on the expiration or the
sooner termination of the lease term, surrender to Landlord the Leased Premises,
including all replacements, changes, additions, and improvements constructed or
placed by Tenant therein, with all equipment in or appurtenant thereto, except
all movable items and trade fixtures installed by Tenant, in good condition and
repair, reasonable wear and tear excepted. Any movable items, trade fixtures,
equipment, or personal property belonging to Tenant or to any other subtenant,
if not removed at such termination and if Landlord shall so elect, shall be
deemed abandoned and become the property of Landlord without any payment or
offset therefor. If Landlord shall not so elect, Landlord may remove such
fixtures or property from the Leased Premises and store them at Tenant's risk
and expense. Tenant shall repair and restore and save Landlord harmless from all
damage to the Leased Premises caused by such removal, whether by Tenant or by
Landlord.
It is further understood and agreed that at the termination of this
Lease or any period of extension or, renewal hereunder, Tenant shall surrender
the premises to Landlord and, at the time of such surrender, remove, or cause to
be removed, from the Leased Premises any and all items, of whatever nature and
wheresoever situate on the Leased Premises, that may in any way interfere with
Landlord's subsequent rental of the property as standard commercial real estate.
Waiver. One or more waivers of any breach, covenant, or condition of
this Lease by Landlord shall not be construed as a waiver of such covenant or
condition or as a waiver of any subsequent breach of the same covenant or
condition. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of Tenant for any balance due and owing, nor shall any endorsement on any
statement or check nor any letter accompanying any check or payment as rent be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's rights to recover the balance of such rent or
pursue any other remedy provided in this Lease.
Breach, Default. The parties hereto expressly covenant and agree
that in the event there is a breach or default by Tenant in the performance of
any term, covenant, or condition herein contained or hereafter established (and,
with respect to any term, covenant or condition other than payment of rent or
other sums due of Tenant hereunder, such breach is not cured by Tenant within
ten (10) days after
<PAGE> 8
8
written notice thereof), or if proceedings are commenced against Tenant in any
court under a bankruptcy act or for the appointment of a trustee or receiver of
the Tenant's property, either before or after the commencement of the lease
term, Landlord may, upon the giving of proper notice as provided for by the laws
of the State of Michigan, terminate this Agreement of Lease, and upon Tenant's
failure to vacate the premises, Landlord may re-enter or repossess the Leased
Premises by summary proceedings and dispossess or remove the Tenant or occupants
thereof and their effects. Landlord may store all property of Tenant so removed
and Tenant shall pay Landlord the rate of One Hundred Dollars ($100.00) per day
as storage fees. Upon re-entry or repossession, Landlord shall use all
reasonable diligence to relet the Leased Premises, or any part thereof, and
collect from Tenant the difference between the rent hereby reserved and agreed
to be paid by Tenant for the portion of the term remaining at the time of
re-entry or repossession and the amount, if any, received or to be received
under such reletting for such portion of the term. If the repossessed property
is relet pursuant to the terms of this section, Landlord may collect such
rentals which, in his sole discretion, he may deem advisable, with the right to
make alterations and repairs to the premises. Rentals received by Landlord from
such reletting shall be applied as follows:
1. To the payment of any indebtedness, other than rent, due
hereunder from Tenant to Landlord, including all damages, attorney fees, and
costs sustained by Landlord as a result of the default of Tenant.
2. To the payment of rent due and unpaid hereunder.
3. To the payment of any cost of such reletting.
4. To the payment of the cost of any alteration or repair to the
premises.
The residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. Should
such rentals received from such reletting during any month be less than the
amount agreed to be paid that month by the Tenant hereunder, then Tenant shall
pay such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly.
No such re-entry and/or taking possession of the premises by
Landlord shall be construed as an election on his part to terminate this Lease
unless written notice of such intent shall be given to Tenant or unless the
termination hereof be decreed by a court of competent jurisdiction.
Should Landlord at any time terminate this Lease for any breach, in
addition to any other remedy he may have, he may recover from Tenant all damages
that may be incurred by reason of such breach, including the cost of recovering
the premises and including the worth at the time of such termination of the
excess, if any,
<PAGE> 9
9
of the amount of rent and charges equivalent to rent reserved in this Lease for
the remainder of this date of term over the then reasonable rental value of the
premises for the remainder of this date of term.
If the Landlord shall breach any of the conditions required to be
performed by him under this Lease and such breach is not cured by Landlord
within ten (10) days after written notice thereof, Tenant may either cure such
breach and deduct the cost thereof from rent subsequently becoming due hereunder
or elect to terminate this Lease upon giving at least thirty (30) days notice to
Landlord of its intention to do so, in which event this Lease shall terminate
upon the date fixed in such notice (unless the Landlord shall have meanwhile
cured such default).
Notwithstanding the foregoing, if it is not reasonably possible for
the Landlord or the Tenant, as the case may be, to cure a stated breach within
ten (10) days after written notice thereof, the other party shall withhold
enforcement of its remedies stated in this section for a reasonable period,
PROVIDED that the party to whom such written notice is given must be pursuing a
cure thereof diligently and in good faith. The immediately preceding sentence of
this paragraph, however, shall not apply to any breach or default by Tenant for
which ten (10) days written notice is not required (including Tenant's failure
to pay rent or other sums due of Tenant hereunder).
Notices. Any notice required to be given by the terms of this Lease
shall be in writing and shall be sent by first class: mail to the last address
of the party to whom the notice is to be given, as designated by such party in
writing. Landlord hereby designates his address as 27 Orchard Drive, West
Redding, Connecticut. Tenant hereby designates its address as P.O. Box 80269,
Lincoln, Nebraska 68501.
Entire Agreement; Severability. This Lease contains the entire
agreement between the parties and shall not be modified in any manner except by
an instrument in writing executed by the parties. If any term or provision of
this Lease or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid and unenforceable, shall not be affected
thereby and each other term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law. The covenants, conditions, and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, personal
representatives, trustees, successors, and assigns.
Joint Default. If Tenant shall breach or default in the performance
of any term, covenant or condition contained or hereafter established in any
other lease with Landlord for other property located in Washtenaw County,
Michigan, such breach or default shall be deemed a breach or default under this
Agreement of Lease.
<PAGE> 10
10
Access to Leased Premises. If access to the Leased Premises is by
stairway or other areas not within the Leased Premises, Landlord shall provide
all necessary and reasonable access for the benefit of Tenant. If the Leased
Premises includes stairways or other areas that are required for access to other
rental properties not included as part of the Leased Premises, Tenant shall
permit necessary and reasonable access to such other rental properties;
PROVIDED, however, Tenant's consent to such access shall be first obtained.
Tenant shall not unreasonably withhold such consent.
IN WITNESS WHEREOF, the parties have herewith set their hands and
seals as of the day and year first above written.
WITNESS: LANDLORD:
ODELL ASSOCIATES LIMITED
PARTNERSHIP, a Connecticut
limited partnership
/s/ Ann Grasso By: /s/ Sandra Odell
- -------------------------- -------------------------------------
Sandra Odell, General Partner
/s/ Stacey B. Ericson
- --------------------------
NEBRASKA BOOK COMPANY, INC.
/s/ Todd J. Hunter By: /s/ Bill C. Macy
- -------------------------- -------------------------------------
Vice President
/s/ Bruce E. Nevius
- --------------------------
<PAGE> 11
11
STATE OF CONNECTICUT)
) ss.
COUNTY OF FAIRFIELD )
The foregoing instrument was acknowledged before me this 27th day of
August, 1986, by Sandra Odell, General Partner of Odell Associates Limited
Partnership, a Connecticut limited partnership.
/s/ Jane T. Santa
----------------------------------
Notary Public
Fairfield County, Connecticut
My Commission Expires: 3/31/91
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENAW )
The foregoing instrument was acknowledged before me this28th day of
August, 1986, by Bill Macy, Vice President of Nebraska Book Company, Inc., a
Kansas corporation, on behalf of the corporation.
/s/ Marthann L. Acker
----------------------------------
Notary Public
Weshtenaw County, Michigan
My Commission Expires: 12/28/88
<PAGE> 12
Schedule A
AGREEMENT OF LEASE
Ulrich Trust - Nebraska Book Company, Inc.
Premises located in the City of Ann Arbor, Washtenaw County,
Michigan, described as:
The Second Floor only at the following described premises:
AS TO 1115 - 1117 SOUTH UNIVERSITY: Beginning at a point in the North line of
South University Avenue 157.36 feet East of the SW corner of Lot 21, R. S.
Smith's Addition to the City of Ann Arbor, as recorded in Liber 42 of Deeds,
pages 446 and 447, Washtenaw County Records; thence East in the North line of
South University Avenue 41.72 feet to the BE corner of Lot 29; thence N'ly 92.0
feet in the East line of said Lot 29; thence West parallel to South University
Avenue 41.82 feet; thence S'ly 92.0 feet to the Place of Beginning, being a part
of Lot 29, R. S. Smith's Addition to the City of Ann Arbor.
AS TO 1119 SOUTH UNIVERSITY: Part of Lot 30, R. S. Smith's Addition to the City
of Ann Arbor, as recorded in Liber 42 of Deeds, pages 446 and 447, Washtenaw
County Records, described as: Commencing at the
SW corner of said Lot 30 and running East along South University Avenue, 22 and
36/100 feet to a stake; thence North parallel with the West line of said Lot, 82
feet to a stake; thence West 22 and 26/100 feet to the West line of said Lot;
thence South 82 feet to the Place of Beginning. Also a right of way along and
over a parcel of land ten feet in width having Ats south boundary line 82 feet
North from the South line of said Lot and extending parallel with the South line
of said Lot from the East to the West line thereof.
<PAGE> 1
Exhibit 10.13
AGREEMENT OF LEASE
AGREEMENT OF LEASE entered into as of September 1, 1986, by and
between JOHN B. DeVINE, Successor Trustee of The Fred C. Ulrich Trust, as
amended, 201 South Main Street, Fourth Floor, Ann Arbor, Michigan 48104
(hereinafter referred to as "Landlord") and NEBRASKA BOOK COMPANY, INC., a
Kansas corporation with offices at P.O. Box 80269, Lincoln, Nebraska 68501
(hereinafter referred to as "Tenant"),
W I T N E S S E T H:
Property Demised and Warranties. Landlord agrees to lease to Tenant,
upon the terms and conditions hereinafter set forth, the property and all
fixtures attached thereto located at 549 East University Avenue, Ann Arbor,
Michigan (hereinafter referred to as the "Leased Premises"), and more fully
described in Schedule A attached hereto and made a part hereof.
Landlord represents and warrants that there are no liens or
encumbrances that affect or shall affect Tenant's use of the property as herein
set forth. So long as Tenant shall pay rental and other sums provided herein and
shall keep and perform all the terms, covenants and conditions on its part
contained herein, Landlord covenants Tenant shall have the right to peaceful and
quiet enjoyment of the premises.
Landlord further represents and warrants that he has full right,
power, and authority to enter into this Lease for the term herein set forth and
that there exist on the date this agreement is signed no city, county or state
zoning, building, or use restrictions which would prohibit Tenant from
continuing the use of the Leased Premises in its present manner for the purpose
herein contemplated.
Term and Extension. The initial term of this Lease shall be for a
period of ten (10) years, commencing September 1, 1986 and terminating August
31, 1996, both dates inclusive. Tenant shall have the option to extend this
Lease for two (2) additional periods of ten (10) years each, provided Tenant is
not then in default of any of its obligations hereunder. However, and
notwithstanding anything to the contrary herein, Tenant's right to exercise its
option to extend the term shall in no event lapse until thirty (30) days after
Tenant receives written notice from Landlord that the period for exercise of the
option to extend will lapse after said thirty (30) days.
Tenant shall exercise its options to extend this Lease by giving
written notice of the exercise of each such option prior to a date six (6)
months, before the
<PAGE> 2
2
end of the initial term of this Lease or the first extension term, as the case
may be, provided Tenant is not then in default of any of its obligations
hereunder.
The extended term shall be upon the same terms, covenants, and
conditions, as provided in this Lease for the initial term, except rent which
shall be as provided in the Rent section, below. Any rightful termination of
this Lease during the initial term or during any extension thereof shall
terminate any and all further rights of renewal or extension hereunder.
Rent.
A. The rent for the first thirty-six (36) months of the lease term
shall be Seven Thousand Seven Hundred Fifty Dollars ($7,750.00) per month
payable in advance, beginning September 1, 1986.
B. The rent for the next twenty-four (24) months of the lease term
shall be Eight Thousand Two Hundred Dollars ($8,200.00) per month payable in
advance, beginning September 1, 1989.
C. On September 1, 1991 and every sixty (60) months thereafter,
during the rental term and, if applicable, the two (2) ten (10) year option
periods, the monthly rental shall be adjusted as the parties agree. In the
absence of agreement, the then existing fair rental value of the Leased Premises
shall be determined as follows:
The then existing fair rental value of the Leased Premises shall be
determined by the average of the appraised rental value determined by
three MAI real estate appraisers; one selected by Landlord; one selected
by Tenant; and the third selected by the first two selected appraisers.
The arbitrators shall be governed by Chapter 50 of the Michigan Revised
Judicature Act, as amended, and a judgment of any Michigan Circuit court
may be rendered upon the award made pursuant to this agreement.
In determining the then existing fair rental value of the Leased
Premises, whether by agreement or arbitration, other rental properties owned by
The Fred C. Ulrich Trust, by The Helen C. Ulrich Trust, by Sandra J. Odell or
the Odell Associates Limited Partnership, any successor thereto or by any other
trust, partnership or entity in which any of the foregoing have a controlling
interest, shall not be utilized or considered in such determination.
PROVIDED, the monthly rental shall not be less than that in effect
for the period immediately preceding adjustment. Further, any percentage of
rental increase for the period of September 1, 1991 through August 31, 1996 only
shall in no event exceed the percentage increase in the consumer price index for
the period of September 1, 1986 through August 31, 1991.
<PAGE> 3
3
PROVIDED, the monthly rental for this initial sixty (60), months of
each of the option periods shall be determined not less than sixty (60) days
prior to the last date for the exercise of the option.
D. All rent payments due hereunder shall be payable in accordance
with the terms of this section at 201 South Main Street, Fourth Floor, Ann
Arbor, Michigan or at such place as Landlord may direct.
Use of Premises, Restrictions, and Quiet Enjoyment. It is understood
and agreed by the parties that Tenant intends to use the Leased Premises for the
operation of a retail bookstore and related retail uses; however, if at any time
during this Lease or any period of extension or renewal thereof Tenant desires
to use and occupy the premises for any other lawful purpose, Tenant may do so
provided that Tenant first obtains the prior written consent of Landlord, which
consent shall not be unreasonably withheld, and provided further that the
premises shall not be used or occupied for any unlawful business, use, or
purpose, nor for any business, use, or purpose deemed extrahazardous or in
violation of any governmental law or regulation presently existing or
subsequently enacted.
Asbestos and Hazardous Waste Materials. Landlord warrants that it
has not installed asbestos on or about the Leased Premises since assuming
responsibility for the Leased Premises after the death of Fred C. Ulrich in
1981. To the best of Landlord's knowledge, information and belief, the Leased
Premises do not contain and have not in the past ten (10) years contained any
hazardous waste material subject to local, state or federal regulations as to
use, storage or disposal.
The parties understand that Tenant intends to continue the use of
the Leased Premises in the same manner as currently conducted. Landlord
recognizes that it is essential to Tenant to continue such use without the cost
of revisions or reconstruction required by any governmental authority.
Therefore, in the event asbestos or any hazardous waste material hereinbefore
described is found to be located on the Leased Premises on the date this
agreement is signed, Landlord, at its sole expense, and in compliance with
applicable law and regulation, shall promptly remove or contain any asbestos or
hazardous waste material within the Leased Premises.
Compliance with Law. Except as otherwise agreed in this Lease or
warranted in this Lease, Tenant shall, at its sole expense, comply with all
laws, orders, and regulations of federal, state and municipal authorities and
with any direction of any public officer, pursuant to law, which shall impose
any duty upon Landlord with respect to the Leased Premises and shall obtain all
licenses or permits which may be required for the conduct of its business within
the terms of this Lease or for the making of repairs, alterations, improvements,
or additions, and Landlord, where necessary, will join with Tenant in applying
for all such permits or licenses.
<PAGE> 4
4
Repairs and Maintenance. Tenant shall, during the term of this Lease
or any renewal or extension thereof, at its sole expense, keep the interior and
exterior, including the roof, of the Leased Premises in as good order and repair
as it is at the date of commencement of this Lease, reasonable wear and tear and
damage by accident, fire, or other casualty excepted. Tenant shall not knowingly
commit or willingly permit to be committed any act or thing contrary to the
rules and regulations prescribed from time to time by the Washtenaw County Board
of Health or which shall be contrary to the rules and regulations of any
federal, state, or municipal authority. Tenant has inspected the premises and is
satisfied with said premises and accepts the premises in its present condition,
subject only to Landlord's representations and undertakings herein.
Alterations and Improvements. Tenant shall have the right, from time
to time and at its sole expense, provided the same do not affect adversely the
structure of the premises, to make such alterations, improvements, modifications
or changes to, or decoration of the interior or exterior of the Leased Premises
as shall be reasonable or appropriate in Tenant's judgment for Tenant's conduct
thereon of its business. Tenant understands and agrees that prior to any change,
alteration, improvement, or modification to either the interior or exterior of
the Leased Premises, including signage, permission shall first be obtained in
writing from Landlord, such permission not to be unreasonably withheld.
Any such alteration, improvement, modification, or change (except
for movable items and trade fixtures) shall, at termination of this Lease or any
extension thereof, become the exclusive property of Landlord, as his interest
may appear, and be surrendered with and as part of the Leased Premises.
Taxes and Assessments. Landlord shall pay all real estate taxes,
except if real estate taxes levied on the Leased Premises exceed Twelve Thousand
Dollars ($12,000.00) per calendar year, Tenant shall pay such excess as
additional rent, payable immediately upon notice from Landlord of the sum due.
Landlord shall also pay any special assessment imposed upon the Leased Premises
for any purpose whatsoever during the initial term of this Lease or any
extension thereof; except if a parking assessment is imposed, Tenant shall pay
any such assessment.
If the city, county, state, or any other political subdivision
within which the Leased Premises is located shall, during the term of this
Lease, impose upon the Landlord any tax or other governmental charge ("non-real
estate tax") in lieu of all or any part of the real estate taxes which, prior to
such imposition, were assessed or levied against the Leased Premises ("real
property taxes"), such non-real property tax shall, for purposes of this
paragraph, be treated as if it were a real estate tax.
Any personal property tax assessed on inventory or goods shall be
paid by Tenant.
<PAGE> 5
5
Insurance. Landlord shall keep the Leased Premises insured against
loss or damage by fire with extended coverage endorsement in an amount
sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies but, in any event, in an amount not less than eighty percent
(80%) of the full insurable value as determined from time to time. The term
"full insurable value" shall mean actual replacement cost (exclusive of
excavation, foundations and footings below the basement floor) without deduction
for physical depreciation. Such insurance shall be issued by financially
responsible insurers duly authorized to do business in the State of Michigan.
Landlord shall pay the cost of fire and extended coverage insurance, except if
the cost of such insurance exceeds Five Thousand Dollars ($5,000.00) annually,
Tenant shall pay such excess as additional rent, payable immediately upon notice
from Landlord of the sum due.
Tenant, at all times during the term of this Lease or any extension
or renewal thereof, at its expense, shall procure, maintain, and keep in force
general public liability insurance for claims for personal injury, death, or
property damage occurring in or about the Leased Premises, with limits of not
less than Five Hundred Thousand Dollars ($500,000.00) in respect to death or
injury to a single person; not less than One Million Dollars ($1,000,000.00) in
respect to any one accident; and not less than One Hundred Thousand Dollars
($100,000.00) in respect to property damage. Tenant shall name Landlord as an
additional insured thereunder.
Tenant shall further procure, maintain, and keep in force building
contents insurance in an amount acceptable and deemed necessary by Tenant.
Tenant shall pay, or reimburse Landlord for, the premiums on a
policy of insurance insuring against loss of rent. Tenant shall also be liable
for plate glass insurance.
Each party agrees to waive any and all claims of subrogation against
the other as to any liability or potential liability of the other to the extent
any such claims are covered from time to time by policies of insurance covering
the Leased Premises.
Tenant shall deliver to Landlord appropriate certificates of
insurance confirming that the insurance to be obtained by Tenant hereunder is in
full force and effect and that prior to any cancellation thereof, notice of such
cancellation shall be given to Landlord.
Utilities and Other Services. Tenant shall make arrangements for and
shall pay, or cause to be paid, charges for any and all gas, electricity, water,
light, heat, air conditioning, power and telephone, or other communication
service used, rendered, or supplied upon or in connection with Tenant's use of
the Leased Premises and shall indemnify and hold Landlord harmless for any
liability or damages on such account.
<PAGE> 6
6
Property Loss, Damage, Etc. Landlord shall not be liable to Tenant
for any loss or damage:
(a) To property of Tenant, Tenant's agents, servants,
employees, visitors, or licensees entrusted to Landlord or Landlord's agents or
employees, or
(b) For any loss of property due to theft, vandalism, or Acts
of God, or
(c) For any injury or damage to persons or property resulting
from falling plaster, steam, gas, electricity, water, rain, or snow which may
leak from any part of said building or from the pipes, appliances, or plumbing
works thereof or from the street or from any place or by dampness, or
(d) For any damage caused by other tenants, subtenants, or
persons in the Leased Premises, or
(e) For interference with the light or other incorporeal
hereditaments or caused by operation in construction of any public or
quasi-public work, or
(f) Any latent defect or for the presence of bugs, vermin, or
insects, if any, in the premises.
Fire, Other Casualty Loss. In all cases where the Leased Premises is
damaged in whole or in part by fire or other casualty, Landlord shall repair the
damage with reasonable dispatch, and if the damage has rendered the Leased
Premises untenantable, in whole or in part, there shall be an apportionment of
the rent until the damage has been repaired except as modified by Tenant's
obligation to insure against rent loss (see page 5 - Insurance). In determining
what constitutes reasonable dispatch, consideration shall be given to delays
caused by strikes, adjustment of insurance, and other causes beyond Landlord's
control.
All insurance proceeds paid by reason of any damage or loss
hereinabove described shall be paid to Landlord to be used by Landlord for the
purposes hereinabove set forth.
Condemnation. If the whole of the Leased Premises, or such portion
thereof as will make the Leased Premises unsuitable for the purposes herein
leased, is condemned for any public use or purpose by any legally constituted
authority, then, in either of such events, this Lease shall cease from the time
when possession is taken by such public authority, and rental shall be accounted
for between Landlord and Tenant as of the date of surrender of possession. Such
termination shall be without prejudice to the rights of either Landlord or
Tenant to recover compensation from the
<PAGE> 7
7
condemning authority for any loss or damage caused by such condemnation. Neither
Landlord nor Tenant shall have any rights in or to any award made to the other
by the condemning authority. If a portion of the Leased Premises is taken by
condemnation but the remaining premises may be still economically used for the
purposes set forth herein, there shall be an equitable apportionment of rent.
Sublet, Assignment. Tenant shall, from time to time, have the right
to sublet all or portions of the Leased Premises for the remainder of the term
or any extension thereof with the prior written approval of Landlord, which
approval Landlord shall not unreasonably withhold. In the event of any sublet of
the Leased Premises contemplated hereunder, Tenant shall remain primarily liable
for the payment of the rent herein reserved and for the performance of all other
terms and conditions of this Lease required to be performed by Tenant.
It is further understood and agreed that this Lease may be assigned
by Tenant upon written approval of the Landlord, such approval not to be
unreasonably withheld. However, Landlord specifically agrees that this Lease may
be assigned to and assumed by any parent or affiliated corporation of the
Company. Landlord may assign this Lease to any person or persons without written
approval of Tenant, provided that any assignee of Landlord agrees to abide by
all of the terms, covenants, and conditions set forth in this Lease.
Surrender at Termination. Tenant shall, on the expiration or the
sooner termination of the lease term, surrender to Landlord the Leased Premises,
including all replacements, changes, additions, and improvements constructed or
placed by Tenant therein, with all equipment in or appurtenant thereto, except
all movable items and trade fixtures installed by Tenant, in good condition and
repair, reasonable wear and tear excepted. Any movable items, trade fixtures,
equipment, or personal property belonging to Tenant or to any other subtenant,
if not removed at such termination and if Landlord shall so elect, shall be
deemed abandoned and become the property of Landlord without any payment or
offset therefor. If Landlord shall not so elect, Landlord may remove such
fixtures or property from the Leased Premises and store them at Tenant's risk
and expense. Tenant shall repair and restore and save Landlord harmless from all
damage to the Leased Premises caused by such removal, whether by Tenant or by
Landlord.
It is further understood and agreed that at the termination of this
Lease or any period of extension or renewal hereunder, Tenant shall surrender
the premises to Landlord and, at the time of such surrender, remove, or cause to
be removed, from the Leased Premises any and all items, of whatever nature and
wheresoever situate on the Leased Premises, that may in any way interfere with
Landlord's subsequent rental of the property as standard commercial real estate.
Waiver. One or more waivers of any breach, covenant, or condition of
this Lease by Landlord shall not be construed as a waiver of such covenant or
<PAGE> 8
8
condition or as a waiver of any subsequent breach of the same covenant or
condition. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of Tenant for any balance due and owing, nor shall any endorsement on any
statement or check nor any letter accompanying any check or payment as rent be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's rights to recover the balance of such rent or
pursue any other remedy provided in this Lease.
Breach, Default. The parties hereto expressly covenant and agree
that in the event there is a breach or default by Tenant in the performance of
any term, covenant, or condition herein contained or hereafter established (and,
with respect to any term, covenant or condition other than payment of rent or
other sums due of Tenant hereunder, such breach is not cured by Tenant within
ten (10) days after written notice thereof), or if proceedings are commenced
against Tenant in any court under a bankruptcy act or for the appointment of a
trustee or receiver of the Tenant's property, either before or after the
commencement of the lease term, Landlord may, upon the giving of proper notice
as provided for by the laws of the State of Michigan, terminate this Agreement
of Lease, and upon Tenant's failure to vacate the premises, Landlord may
re-enter or repossess the Leased Premises by summary proceedings and dispossess
or remove the Tenant or occupants thereof and their effects. Landlord may store
all property of Tenant so removed and Tenant shall pay Landlord the rate of One
Hundred Dollars ($100.00) per day as storage fees. Upon re-entry or
repossession, Landlord shall use all reasonable diligence to relet the Leased
Premises, or any part thereof, and collect from Tenant the difference between
the rent hereby reserved and agreed to be paid by Tenant for the portion of the
term remaining at the time of re-entry or repossession and the amount, if any,
received or to be received under such reletting for such portion of the term. If
the repossessed property is relet pursuant to the terms of this section,
Landlord may collect such rentals which, in his sole discretion, he may deem
advisable, with the right to make alterations and repairs to the premises.
Rentals received by Landlord from such reletting shall be applied as follows:
1. To the payment of any indebtedness, other than rent, due
hereunder from Tenant to Landlord, including all damages, attorney fees, and
costs sustained by Landlord as a result of the default of Tenant.
2. To the payment of rent due and unpaid hereunder.
3. To the payment of any cost of such reletting.
4. To the payment of the cost of any alteration or repair to the
premises.
<PAGE> 9
9
The residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. Should
such rentals received from such reletting during any month be less than the
amount agreed to be paid that month by the Tenant hereunder, then Tenant shall
pay such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly.
No such re-entry and/or taking possession of the premises by
Landlord shall be construed as an election on his part to terminate this Lease
unless written notice of such intent shall be given to Tenant or unless the
termination hereof be decreed by a court of competent jurisdiction.
Should Landlord at any time terminate this Lease for any breach, in
addition to any other remedy he may have, he may recover from Tenant all damages
that may be incurred by reason of such breach, including the cost of recovering
the premises and including the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of this date of term over the then reasonable
rental value of the premises for the remainder of this date of term.
If the Landlord shall breach any of the conditions required to be
performed by him under this Lease and such breach is not cured by Landlord
within ten (10) days after written notice thereof, Tenant may either cure such
breach and deduct the cost thereof from rent subsequently becoming due hereunder
or elect to terminate this Lease upon giving at least thirty (30) days notice to
Landlord of its intention to do so, in which event this Lease shall terminate
upon the date fixed in such notice (unless the Landlord shall have meanwhile
cured such default).
Notwithstanding the foregoing, if it is not reasonably possible for
the Landlord or the Tenant, as the case may be, to cure a stated breach within
ten (10) days after written notice thereof, the other party shall withhold
enforcement of its remedies stated in this section for a reasonable period,
PROVIDED that the party to whom such written notice is given must be pursuing a
cure thereof diligently and in good faith. The immediately preceding sentence of
this paragraph, however, shall not apply to any breach or default by Tenant for
which ten (10) days written notice is not required (including Tenant's failure
to pay rent or other sums due of Tenant hereunder).
Notices. Any notice required to be given by the terms of this Lease
shall be in writing and shall be sent by first class: mail to the last address
of the party to whom the notice is to be given, as designated by such party in
writing. Landlord hereby designates his address as 201 South Main Street, Fourth
Floor, Ann Arbor, Michigan. Tenant hereby designates its address as P.O. Box
80269, Lincoln, Nebraska 68501.
<PAGE> 10
10
Entire Agreement; Severability. This Lease contains the entire
agreement between the parties and shall not be modified in any manner except by
an instrument in writing executed by the parties. If any term or provision of
this Lease or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid and unenforceable, shall not be affected
thereby and each other term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law. The covenants, conditions, and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, personal
representatives, trustees, successors, and assigns.
Reduction of Rent. In consideration of payment by Tenant to Donald
O. Brown, a retired employee of Ulrich's Books, Inc., Tenant's successor in
interest, of the sum of $140.00 per month commencing August 1, 1980, for a
period of ten (10) years, or until the death of the survivor of Donald O. Brown
and his wife, whichever event occurs first, Landlord does hereby reduce the
monthly rental provided for in this Lease by the sum of $140.00 per month,
continuing from August 1, 1980 for ten (10) years, or until the death of the
survivor of Donald O. Brown and his wife, whichever event occurs first.
Joint Default. If Tenant shall breach or default in the performance
of any term, covenant or condition contained or hereafter established in any
other lease with Landlord for other property located in Washtenaw County,
Michigan, such breach or default shall be deemed a breach or default under this
Agreement of Lease.
Access to Leased Premises. If access to the Leased Premises is by
stairway or other areas not within the Leased Premises, Landlord shall provide
all necessary and reasonable access for the benefit of Tenant. If the Leased
Premises includes stairways or other areas that are required for access to other
rental properties not included as part of the Leased Premises, Tenant shall
permit necessary and reasonable access to such other rental properties;
PROVIDED, however, Tenant's consent to such access shall be first obtained.
Tenant shall not unreasonably withhold such consent.
First Refusal Option. The Landlord hereby grants to Tenant a first
refusal option to purchase the Leased Premises during the term of this Lease and
any extension or renewal term. The Landlord shall give written notice to Tenant
of all of the terms and conditions of any proposed offering for sale (including
any unsolicited offer to purchase not attendant to a proposed offering of
Landlord), during the option period, and the Tenant shall have sixty (60) days
thereafter to exercise said option. Should the option not be exercised, the
Landlord may thereafter offer the Leased Premises for sale and may consummate a
sale subject to this Lease to any third party or parties on the terms and
conditions of said written notice within twelve (12) months from the expiration
of Tenant's sixty (60) day period. Any material variation
<PAGE> 11
11
from said terms and conditions shall require a re-submission of the offer to the
Tenant under this option. It is understood that such sale to a third party or
parties may include other properties for additional consideration and under
additional terms and conditions. The Tenant's failure to exercise this option,
or the Tenant's written waiver of this option with respect to any proposed offer
for sale shall not constitute a waiver of the option rights created herein with
respect to any subsequent transaction.
NEBRASKA BOOK COMPANY, INC.
/s/ Todd J. Hunter By: /s/ Bill C. Macy
- --------------------------- ------------------------------
Vice President
/s/ Bruce E. Nevius
- ---------------------------
STATE OF CONNECTICUT )
) ss.:
COUNTY OF FAIRFIELD )
The foregoing instrument was acknowledged before me this 27th day of
August, 1986, by Sandra Odell, General Partner of Odell Associates Limited
Partnership, a Connecticut limited partnership.
/s/ Jane T. Santa
----------------------------------
Notary Public
Fairfield County, Connecticut
My Commission Expires: 3/31/91
<PAGE> 12
12
STATE OF MICHIGAN )
) ss.:
COUNTY OF WASHTENAW)
The foregoing instrument was acknowledged before me this 28th day of
August, 1986, by Bill C. Macy of Nebraska Book Company, Inc., a Kansas
corporation, on behalf of the corporation.
/s/ Marthann L. Acker
----------------------------------
Notary Public
Washtenaw County, Michigan
My Commission Expires: 12/28/88
<PAGE> 13
Schedule A
AGREEMENT OF LEASE
Ulrich Trust - Nebraska Book Company, Inc.
Premises located in the City of Ann Arbor, Washtenaw County,
Michigan, described as:
AS TO 547-549 EAST UNIVERSITY: Commencing at a point in the S line of Lot 21, in
R.S. Smith's Addition, as recorded in Liber 42 of Deeds, page 446, Washtenaw
County Records, 16.59 feet E of the SW corner of Lot 21; thence N 27.44 feet
parallel to the W line of the said lot for a place of beginning; thence
continuing N 16.59 feet E of and parallel to the W line of Lots 20 and 21 in
R.S. Smith's Addition, 54.97 feet; thence E'ly parallel to the N line of South
University Avenue 105.97 feet; thence S'ly along a line which is the
continuation N'ly of the W face of the W wall of Pettibone's store and the W
face of said wall, 82.41 feet to a point in the N line of South University
Avenue, said point being 122.66 feet E of the SW corner of Lot 21; thence N
43.53 feet in the N line of South University Avenue; thence N parallel to the W
line of Lot 21 and in the S'ly extension of the center line of an existing wall
and along the center line of said wall 27.44 feet; thence W parallel to South
University Avenue in the center line of an existing wall and its extension W
62.54 feet to the place of beginning; being a part of said Lots 20 and 21 in
said R.S. Smith's Addition. ALSO commencing at the SW corner of Lot 21 in R.S.
Smith's Addition, as recorded in Liber 42 of Deeds, page 446, Washtenaw County
Records; thence N 27.44 feet along the W line of Lot 21 for a place of
beginning; thence continuing N along said lot line, 54.97 feet; thence E 16.59
feet parallel to South University Avenue; thence S 54.97 feet parallel to the W
line of Lot 21 to a point 27.44 feet N of South University Avenue; thence W
16.59 feet to the place of beginning; being a part of said Lots 20 and 21 in
said R.S. Smith's Addition.
A-1
<PAGE> 14
AGREEMENT OF LEASE
AGREEMENT OF LEASE entered into as of August 1, 1990, by and between
Odell Associates Limited Partnership, a Connecticut limited partnership
registered to transact business in Michigan (hereinafter referred to as
"Landlord") and Nebraska Book Company, Inc., a Kansas corporation (hereinafter
referred to as "Tenant"),
W I T N E S S E T H:
Property Demised. Landlord agrees to lease to Tenant, upon the terms
and conditions hereinafter set forth, the property and all fixtures attached
thereto located at 1115 South University (First Floor and Basement only), Ann
Arbor, Michigan (hereinafter referred to as the "Leased Premises").
Term and Extension. The initial term of this lease shall be for a
period of seventy-three (73) months commencing August 1, 1990 and terminating
August 31, 1996. Tenant shall have the option to extend this lease for two (2)
additional periods of ten (10) years each provided Tenant is not then in default
of any of its obligations, hereunder. The provision for the exercise of the
above options shall be the same as the exercise option provisions of an existing
lease between the parties dated August 27, 1986 on property located at 1111 and
1117 South University, Ann Arbor, Michigan.
Rent. The rent for the first thirteen (13) months of the lease term
shall be One Thousand Nine Hundred Twenty-five Dollars ($1,925.00) per month
payable in advance beginning August 1, 1990.
The rent for the next sixty (60) months and, if applicable, the two
(2) ten (10) year option periods shall be determined in the same manner as
provided in an existing lease between the two parties on property located at
1111 and 1117 South University, Ann Arbor, Michigan under the Rent provision,
Item C on page two of said lease.
<PAGE> 15
2
Other Lease Provisions. All general lease provisions of the above
mentioned existing lease for 1111 and 1117 South University, excepting the
Property Demised and Warranties, Term and Extension, and Rent provisions, shall
be applicable to this lease.
Landlord:
Odell Associates Limited Partnership, a
Connecticut limited partnership
By: /s/ Sandra Odell
------------------------------
General Partner
Nebraska Book Company, Inc.
By: /s/ Bill C. Macy
------------------------------
Vice President
<PAGE> 1
Exhibit 10.14
AGREEMENT OF LEASE
AGREEMENT OF LEASE entered into as of September 1, 1986, by and
between ODELL ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited partnership
registered to transact business in Michigan, 27 Orchard Drive, West Redding,
Connecticut 06896 (hereinafter referred to as "Landlord") and NEBRASKA BOOK
COMPANY, INC., a Kansas corporation with offices at P.O. Box 80269, Lincoln,
Nebraska 68501 (hereinafter referred to as "Tenant"),
W I T N E S S E T H:
Property Demised and Warranties. Landlord agrees to lease to Tenant,
upon the terms and conditions hereinafter set forth, the property and all
fixtures attached thereto located at 1111 South University (Basement, First and
Second Floor) and 1117 South University (First Floor and Basement only), Ann
Arbor, Michigan (hereinafter referred to as the "Leased Premises"), and more
fully described in Schedule A attached hereto and made a part hereof.
Landlord represents and warrants that there are no liens or
encumbrances (except a certain mortgage to Helen C. Ulrich, Trustee, dated as of
January 1, 1983, and recorded on February 23, 1983, in Liber 1865, Page 651 of
the Register of Deeds of Washtenaw County, Michigan) that affect or shall affect
Tenant's use of the property as herein set forth. So long as Tenant shall pay
rental and other sums provided herein and shall keep and perform all the terms,
covenants and conditions on its part contained herein, Landlord covenants Tenant
shall have the right to peaceful and quiet enjoyment of the premises.
Landlord further represents and warrants that he has full right,
power, and authority to enter into this Lease for the term herein set forth and
that there exist on the date this agreement is signed no city, county or state
zoning, building, or use restrictions which would prohibit Tenant from
continuing the use of the Leased Premises in its present manner for the purpose
herein contemplated.
Term and Extension. The initial term of this Lease shall be for a
period of ten (10) years, commencing September 1, 1986 and terminating August
31, 1996, both dates inclusive. Tenant shall have the option to extend this
Lease for two (2) additional periods of ten (10) years each, provided Tenant is
not then in default of any of its obligations hereunder. However, and
notwithstanding anything to the contrary herein, Tenant's right to exercise its
option to extend the term shall in no event lapse until thirty (30) days after
Tenant receives written notice from Landlord that the period for exercise of the
option to extend will lapse after said thirty (30) days.
Tenant shall exercise its options to extend this Lease by giving
written notice of the exercise of each such option prior to a date six (6)
months before the
<PAGE> 2
2
end of the initial term of this Lease or the first extension term, as the case
may be, provided Tenant is not then in default of any of its obligations
hereunder.
The extended term shall be upon the same terms, covenants, and
conditions, as provided in this Lease for the initial term, except rent which
shall be as provided in the Rent section, below. Any rightful termination of
this Lease during the initial term or during any extension thereof shall
terminate any and all further rights of renewal or extension hereunder.
Rent.
A. The rent for the first thirty-six (36) months of the lease term
shall be Two Thousand Eight Hundred Ninety Dollars ($2,890.00) per month payable
in advance, beginning September 1, 1986.
B. The rent for the next twenty-four (24) months of the lease term
shall be Three Thousand One Hundred Dollars ($3,100.00) per month payable in
advance, beginning September 1, 1989.
C. On September 1, 1991 and every sixty (60) months thereafter,
during the rental term and, if applicable, the two (2) ten (10) year option
periods, the monthly rental shall be adjusted as the parties agree. In the
absence of agreement, the then existing fair rental value of the Leased Premises
shall be determined as follows:
The then existing fair rental value of the Leased Premises shall be
determined by the average of the appraised rental value determined
by three MAI real estate appraisers; one selected by Landlord; one
selected by Tenant; and the third selected by the first two selected
appraisers. The arbitrators shall be governed by Chapter 50 of the
Michigan Revised Judicature Act, as amended, and a judgment of any
Michigan Circuit court may be rendered upon the award made pursuant
to this agreement.
In determining the then existing fair rental value of the Leased
Premises, whether by agreement or arbitration, other rental properties owned by
The Fred C. Ulrich Trust, by The Helen C. Ulrich Trust, by Sandra J. Odell or
the Odell Associates Limited Partnership, any successor thereto or by any other
trust, partnership or entity in which any of the foregoing have a controlling
interest, shall not be utilized or considered in such determination.
PROVIDED, the monthly rental shall not be less than that in effect
for the period immediately preceding adjustment. Further, any percentage of
rental increase for the period of September 1, 1991 through August 31, 1996 only
shall in
<PAGE> 3
3
no event exceed the percentage increase in the consumer price index for the
period of September 1, 1986 through August 31, 1991.
PROVIDED, the monthly rental for this initial sixty (60) months of
each of the option periods shall be determined not less than sixty (60) days
prior to the last date for the exercise of the option.
D. All rent payments due hereunder shall be payable in accordance
with the terms of this section at 27 Orchard Drive, West Redding, Connecticut or
at such place as Landlord may direct.
Use of Premises, Restrictions, and Quiet Enjoyment. It is understood
and agreed by the parties that Tenant intends to use the Leased Premises for the
operation of a retail bookstore and related retail uses; however, if at any time
during this Lease or any period of extension or renewal thereof Tenant desires
to use and occupy the premises for any other lawful purpose, Tenant may do so
provided that Tenant first obtains the prior written consent of Landlord, which
consent shall not be unreasonably withheld, and provided further that the
premises shall not be used or occupied for any unlawful business, use, or
purpose, nor for any business, use, or purpose deemed extrahazardous or in
violation of any governmental law or regulation presently existing or
subsequently enacted.
Asbestos and Hazardous Waste Materials. Landlord warrants that it
has not installed asbestos on or about the Leased Premises since after the death
of Fred C. Ulrich in 1981. To the best of Landlord's knowledge, information and
belief, the Leased Premises do not contain and have not past ten (10) years
contained any hazardous waste material subject to local, state or federal
regulations as to use, storage or disposal.
The parties understand that Tenant intends to continue the use of
the Leased Premises in the same manner as currently conducted. Landlord
recognizes that it is essential to Tenant to continue such use without the cost
of revisions or reconstruction required by any governmental authority.
Therefore, in the event asbestos or any hazardous waste material hereinbefore
described is found to be located on the Leased Premises on the date this
agreement is signed, Landlord, at its sole expense, and in compliance with
applicable law and regulation, shall promptly remove or contain any asbestos or
hazardous waste material within the Leased Premises.
Compliance with Law. Except as otherwise agreed in this Lease or
warranted in this Lease, Tenant shall, at its sole expense, comply with all
laws, orders, and regulations of federal, state and municipal authorities and
with any direction of any public officer, pursuant to law, which shall impose
any duty upon Landlord with respect to the Leased Premises and shall obtain all
licenses or permits which may be required for the conduct of its business within
the terms of this Lease
<PAGE> 4
4
or for the making of repairs, alterations, improvements, or additions, and
Landlord, where necessary, will join with Tenant in applying for all such
permits or licenses.
Repairs and Maintenance. Tenant shall, during the term of this Lease
or any renewal or extension thereof, at its sole expense, keep the interior and
exterior, including the roof (for the roof, as to 1111 South University only),
of the Leased Premises in as good order and repair as it is at the date of
commencement of this Lease, reasonable wear and tear and damage by accident,
fire, or other casualty excepted. Tenant shall not knowingly commit or willingly
permit to be committed any act or thing contrary to the rules and regulations
prescribed from time to time by the Washtenaw County Board of Health or which
shall be contrary to the rules and regulations of any federal, state, or
municipal authority. Tenant has inspected the premises and is satisfied with
said premises and accepts the premises in its present condition, subject only to
Landlord's representations and undertakings herein.
Alterations and Improvements. Tenant shall have the right, from time
to time and at its sole expense, provided the same do not affect adversely the
structure of the premises, to make such alterations, improvements, modifications
or changes to, or decoration of the interior or exterior of the Leased Premises
as shall be reasonable or appropriate in Tenant's judgment for Tenant's conduct
thereon of its business. Tenant understands and agrees that prior to any change,
alteration, improvement, or modification to either the interior or exterior of
the Leased Premises, including signage, permission shall first be obtained in
writing from Landlord, such permission not to be unreasonably withheld.
Any such alteration, improvement, modification, or change (except
for movable items and trade fixtures) shall, at termination of this Lease or any
extension thereof, become the exclusive property of Landlord, as his interest
may appear, and be surrendered with and as part of the Leased Premises.
Taxes and Assessments. Landlord shall pay all real estate taxes.
Landlord shall also pay any special assessment imposed upon the Leased Premises
for any purpose whatsoever during the initial term of this Lease or any
extension thereof; except if a parking assessment is imposed, Tenant shall pay
any such assessment.
If the city, county, state, or any other political subdivision
within which the Leased Premises is located shall, during the term of this
Lease, impose upon the Landlord any tax or other governmental charge ("non-real
estate tax") in lieu of all or any part of the real estate taxes which, prior to
such imposition, were assessed or levied against the Leased Premises ("real
property taxes"), such non-real property tax shall, for purposes of this
paragraph, be treated as if it were a real estate tax.
Any personal property tax assessed on inventory or goods shall be
paid by Tenant.
<PAGE> 5
5
Insurance. Landlord shall keep the Leased Premises insured against
loss or damage by fire with extended coverage endorsement in an amount
sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies but, in any event, in an amount not less than eighty percent
(80%) of the full insurable value as determined from time to time. The term
"full insurable value" shall mean actual replacement cost (exclusive of
excavation, foundations and footings below the basement floor) without deduction
for physical depreciation. Such insurance shall be issued by financially
responsible insurers duly authorized to do business in the State of Michigan.
Landlord shall pay the cost of fire and extended coverage insurance.
Tenant, at all times during the term of this Lease or any extension
or renewal thereof, at its expense, shall procure, maintain, and keep in force
general public liability insurance for claims for personal injury, death, or
property damage occurring in or about the Leased Premises, with limits of not
less than Five Hundred Thousand Dollars ($500,000.00) in respect to death or
injury to a single person; not less than One Million Dollars ($1,000,000.00) in
respect to any one accident; and not less than One Hundred Thousand Dollars
($100,000.00) in respect to property damage. Tenant shall name Landlord as an
additional insured thereunder.
Tenant shall further procure, maintain, and keep in force building
contents insurance in an amount acceptable and deemed necessary by Tenant.
Tenant shall pay, or reimburse Landlord for, the premiums on a
policy of insurance insuring against loss of rent. Tenant shall also be liable
for plate glass insurance.
Each party agrees to waive any and all claims of subrogation against
the other as to any liability or potential liability of the other to the extent
any such claims are covered from time to time by policies of insurance covering
the Leased Premises.
Tenant shall deliver to Landlord appropriate certificates of
insurance confirming that the insurance to be obtained by Tenant hereunder is in
full force and effect and that prior to any cancellation thereof, notice of such
cancellation shall be given to Landlord.
Utilities and Other Services. Tenant shall make arrangements for and
shall pay, or cause to be paid, charges for any and all gas, electricity, water,
light, heat, air conditioning, power and telephone, or other communication
service used, rendered, or supplied upon or in connection with Tenant's use of
the Leased Premises and shall indemnify and hold Landlord harmless for any
liability or damages on such account.
<PAGE> 6
6
Property Loss, Damage, Etc. Landlord shall not be liable to Tenant
for any loss or damage:
(a) To property of Tenant, Tenant's agents, servants,
employees, visitors, or licensees entrusted to Landlord or Landlord's agents or
employees, or
(b) For any loss of property due to theft, vandalism, or Acts
of God, or
(c) For any injury or damage to persons or property resulting
from falling plaster, steam, gas, electricity, water, rain, or snow which may
leak from any part of said building or from the pipes, appliances, or plumbing
works thereof or from the street or from any place or by dampness, or
(d) For any damage caused by other tenants, subtenants, or
persons in the Leased Premises, or
(e) For interference with the light or other incorporeal
hereditaments or caused by operation in construction of any public or
quasi-public work, or
(f) Any latent defect or for the presence of bugs, vermin, or
insects, if any, in the premises.
Fire, Other Casualty Loss. In all cases where the Leased Premises
is damaged in whole or in part by fire or other casualty, Landlord shall repair
the damage with reasonable dispatch, and if the damage has rendered the Leased
Premises untenantable, in whole or in part, there shall be an apportionment of
the rent until the damage has been repaired except as modified by Tenant's
obligation to insure against rent loss (see page 5 - Insurance). In determining
what constitutes reasonable dispatch, consideration shall be given to delays
caused by strikes, adjustment of insurance, and other causes beyond Landlord's
control.
All insurance proceeds paid by reason of any damage or loss
hereinabove described shall be paid to Landlord to be used by Landlord for the
purposes hereinabove set forth.
Condemnation. If the whole of the Leased Premises, or such portion
thereof as will make the Leased Premises unsuitable for the purposes herein
leased, is condemned for any public use or purpose by any legally constituted
authority, then, in either of such events, this Lease shall cease from the time
when possession is taken by such public authority, and rental shall be accounted
for between Landlord and Tenant as of the date of surrender of possession. Such
termination shall be without prejudice to the rights of either Landlord or
Tenant to recover compensation from the
<PAGE> 7
7
condemning authority for any loss or damage caused by such condemnation. Neither
Landlord nor Tenant shall have any rights in or to any award made to the other
by the condemning authority. If a portion of the Leased Premises is taken by
condemnation but the remaining premises may be still economically used for the
purposes set forth herein, there shall be an equitable apportionment of rent.
Sublet, Assignment. Tenant shall, from time to time, have the right
to sublet all or portions of the Leased Premises for the remainder of the term
or any extension thereof with the prior written approval of Landlord, which
approval Landlord shall not unreasonably withhold. In the event of any sublet of
the Leased Premises contemplated hereunder, Tenant shall remain primarily liable
for the payment of the rent herein reserved and for the performance of all other
terms and conditions of this Lease required to be performed by Tenant.
It is further understood and agreed that this Lease may be assigned
by Tenant upon written approval of the Landlord, such approval not to be
unreasonably withheld. However, Landlord specifically agrees that this Lease may
be assigned to and assumed by any parent or affiliated corporation of the
Company. Landlord may assign this Lease to any person or persons without written
approval of Tenant, provided that any assignee of Landlord agrees to abide by
all of the terms, covenants, and conditions set forth in this Lease.
Surrender at Termination. Tenant shall, on the expiration or the
sooner termination of the lease term, surrender to Landlord the Leased Premises,
including all replacements, changes, additions, and improvements constructed or
placed by Tenant therein, with all equipment in or appurtenant thereto, except
all movable items and trade fixtures installed by Tenant, in good condition and
repair, reasonable wear and tear excepted. Any movable items, trade fixtures,
equipment, or personal property belonging to Tenant or to any other subtenant,
if not removed at such termination and if Landlord shall so elect, shall be
deemed abandoned and become the property of Landlord without any payment or
offset therefor. If Landlord shall not so elect, Landlord may remove such
fixtures or property from the Leased Premises and store them at Tenant's risk
and expense. Tenant shall repair and restore and save Landlord harmless from all
damage to the Leased Premises caused by such removal, whether by Tenant or by
Landlord.
It is further understood and agreed that at the termination of this
Lease or any period of extension or renewal hereunder, Tenant shall surrender
the premises to Landlord and, at the time of such surrender, remove, or cause to
be removed, from the Leased Premises any and all items, of whatever nature and
wheresoever situate on the Leased Premises, that may in any way interfere with
Landlord's subsequent rental of the property as standard commercial real estate.
Waiver. One or more waivers of any breach, covenant, or condition
of this Lease by Landlord shall not be, construed as a waiver of such covenant
or
<PAGE> 8
8
condition or as a waiver of any subsequent breach of the same covenant or
condition. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of Tenant for any balance due and owing, nor shall any endorsement on any
statement or check nor any letter accompanying any check or payment as rent be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's rights to recover the balance of such rent or
pursue any other remedy provided in this Lease.
Breach, Default. The parties hereto expressly covenant and agree
that in the event there is a breach or default by Tenant in the performance of
any term, covenant, or condition herein contained or hereafter established (and,
with respect to any term, covenant or condition other than payment of rent or
other sums due of Tenant hereunder, such breach is not cured by Tenant within
ten (10) days after written notice thereof), or if proceedings are commenced
against Tenant in any court under a bankruptcy act or for the appointment of a
trustee or receiver of the Tenant's property, either before or after the
commencement of the lease term, Landlord may, upon the giving of proper notice
as provided for by the laws of the State of Michigan, terminate this Agreement
of Lease, and upon Tenant's failure to vacate the premises, Landlord may
re-enter or repossess the Leased Premises by summary proceedings and dispossess
or remove the Tenant or occupants thereof and their effects. Landlord may store
all property of Tenant so removed and Tenant shall pay Landlord the rate of One
Hundred Dollars ($100.00) per day as storage fees. Upon re-entry or
repossession, Landlord shall use all reasonable diligence to relet the Leased
Premises, or any part thereof, and collect from Tenant the difference between
the rent hereby reserved and agreed to be paid by Tenant for the portion of the
term remaining at the time of re-entry or repossession and the amount, if any,
received or to be received under such reletting for such portion of the term. If
the repossessed property is relet pursuant to the terms of this section,
Landlord may collect such rentals which, in his sole discretion, he may deem
advisable, with the right to make alterations and repairs to the premises.
Rentals received by Landlord from such reletting shall be applied as follows:
1. To the payment of any indebtedness, other than rent, due
hereunder from Tenant to Landlord, including all damages, attorney fees, and
costs sustained by Landlord as a result of the default of Tenant.
2. To the payment of rent due and unpaid hereunder.
3. To the payment of any cost of such reletting.
4. To the payment of the cost of any alteration or repair to the
premises.
<PAGE> 9
9
The residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. Should
such rentals received from such reletting during any month be less than the
amount agreed to be paid that month by the Tenant hereunder, then Tenant shall
pay such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly.
No such reentry and/or taking possession of the premises by Landlord
shall be construed as an election on his part to terminate this Lease unless
written notice of such intent shall be given to Tenant or unless the termination
hereof be decreed by a court of competent jurisdiction.
Should Landlord at any time terminate this Lease for any breach, in
addition to any other remedy he may have, he may recover from Tenant all damages
that may be incurred by reason of such breach, including the cost of recovering
the premises and including the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of this date of term over the then reasonable
rental value of the premises for the remainder of this date of term.
If the Landlord shall breach any of the conditions required to be
performed by him under this Lease and such breach is not cured by Landlord
within ten (10) days after written notice thereof, Tenant may either cure such
breach and deduct the cost thereof from rent subsequently becoming due hereunder
or elect to terminate this Lease upon giving at least thirty (30) days notice to
Landlord of its intention to do so, in which event this Lease shall terminate
upon the date fixed in such notice (unless the Landlord shall have meanwhile
cured such default).
Notwithstanding the foregoing, if it is not reasonably possible for
the Landlord or the Tenant, as the case may be, to cure a stated breach within
ten (10) days after written notice thereof, the other party shall withhold
enforcement of its remedies stated in this section for a reasonable period,
PROVIDED that the party to whom such written notice is given must be pursuing a
cure thereof diligently and in good faith. The immediately preceding sentence of
this paragraph, however, shall not apply to any breach or default by Tenant f or
which ten (10) days written notice is not required (including Tenant's failure
to pay rent or other sums due of Tenant hereunder).
Notices. Any notice required to be given by the terms of this Lease
shall be in writing and shall be sent by first class: mail to the last address
of the party to whom the notice is to be given, as designated by such party in
writing. Landlord hereby designates his address as 27 Orchard Drive, West
Redding, Connecticut. Tenant hereby designates its address as P.O. Box 80269,
Lincoln, Nebraska 68501.
Entire Agreement; Severability. This Lease contains the entire
agreement between the parties and shall not be modified in any manner except by
an
<PAGE> 10
10
instrument in writing executed by the parties. If any term or provision of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid and unenforceable, shall not be affected
thereby and each other term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law. The covenants, conditions, and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, personal
representatives, trustees, successors, and assigns.
Joint Default. If Tenant shall breach or default in the performance
of any term, covenant or condition contained or hereafter established in any
other lease with Landlord for other property located in Washtenaw County,
Michigan, such breach or default shall be deemed a breach or default under this
Agreement of Lease
Access to Leased Premises. If access to the Leased Premises is by
stairway or other areas not within the Leased Premises, Landlord shall provide
all necessary and reasonable access for the benefit of Tenant. If the Leased
Premises includes stairways or other areas that are required for access to other
rental properties not included as part of the Leased Premises, Tenant shall
permit necessary and reasonable access to such other rental properties;
PROVIDED, however, Tenant's consent to such access shall be first obtained.
Tenant shall not unreasonably withhold such consent.
First Refusal Option as to 1111 South University Only. The Landlord
hereby grants to Tenant a first refusal option to purchase that portion of the
Leased Premises commonly known as 1111 South University Avenue during the term
of this Lease and any extension or renewal term. The Landlord shall give written
notice to Tenant of all of the terms and conditions of any proposed offering for
sale (including any unsolicited offer to purchase not attendant to a proposed
offering of Landlord), during the option period, and the Tenant shall have sixty
(60) days thereafter to exercise said option. Should the option not be
exercised, the Landlord may thereafter offer said property for sale and may
consummate a sale subject to this Lease to any third party or parties on the
terms and conditions of said written notice within twelve (12) months from the
expiration of Tenant's sixty (60) day period. Any material variation from said
terms and conditions shall require a re-submission of the offer to the Tenant
under this option. It is understood that such sale to a third party or parties
may include 1117 South University (or other properties) for additional
consideration and under additional terms and conditions. The Tenant's failure to
exercise this option, or the Tenant's written waiver of this option with respect
to any proposed offer for sale shall not constitute a waiver of the option
rights created herein with respect to any subsequent transaction.
IN WITNESS WHEREOF, the parties have herewith set their hands and
seals as of the day and year first above written.
<PAGE> 11
11
WITNESS: LANDLORD:
ODELL ASSOCIATES LIMITED
PARTNERSHIP, a Connecticut
limited partnership
/s/ Ann Grasso
- ----------------------
/s/ Stacey B. Ericson By: /s/ Sandra Odell
- ---------------------- -------------------------------
Sandra Odell, General Partner
<PAGE> 12
12
IN WITNESS WHEREOF, the parties have herewith set their hands and
seals as of the day and year first above written.
WITNESS: LANDLORD:
/s/ Ora E. Howe /s/ John B. DeVine
- ---------------------- -------------------------------
John B. DeVine, Successor
/s/ Gordon Beeman Trustee of The Fred C. Ulrich
- ---------------------- Trust, as amended
NEBRASKA BOOK COMPANY, INC.
/s/ Todd J. Hunter By: /s/ Bill C. Macy
- ---------------------- ----------------------------
Vice President
/s/ Bruce E. Nevius
- ----------------------
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENAW)
The foregoing instrument was acknowledged before me this 26th day of
August, 1986, by John B. DeVine, Successor Trustee of The Fred C. Ulrich Trust,
as amended.
/s/ Ora E. Howe
-----------------------------
Notary Public
Washtenaw County, Michigan
My Commission Expires: 3-6-90
<PAGE> 13
13
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENAW)
The foregoing instrument was acknowledged before me this 28th day of
August, 1986, by Bill C. Macy of Nebraska Book Company, Inc., a Kansas
corporation, on behalf of the corporation.
/s/ Marthann L. Acker
-----------------------------
Notary Public
Washtenaw County, Michigan
My Commission Expires:
<PAGE> 14
Schedule A
AGREEMENT OF LEASE
Ulrich Trust - Nebraska Book Company, Inc.
Premises located in the City of Ann Arbor, Washtenaw County,
Michigan, described as:
The basement, first and second floor of that portion of the
following described premises that is commonly known as 1111 South
University Avenue, Ann Arbor, Michigan:
AS TO 1111 - 1113 SOUTH UNIVERSITY: Beginning at a point in the North line of
South University Avenue 122.66 feet East of the SW corner of Lot 21, R. S.
Smith's Addition to the City of Ann Arbor, as recorded in Liber 42 of Deeds,
page 446 and 447, Washtenaw County Records; thence East in the North line of
South University Avenue 34.70 feet; thence N'ly 82.0 feet to a point 157.26 feet
East of the West line of Lot 20 in said Addition; thence West parallel to South
University Avenue 34.70 feet; thence S'ly along a line which is the continuation
N'ly of the West face of the West wall of the existing building and along the
West face of the existing wall 82.00 feet to the Place of Beginning, being a
part of Lots 20, 21 and 29, R. S. Smith's Addition to the City of Ann Arbor.
The first floor and basement only of that portion of the following
described premises that is commonly known as 1117 South University Avenue,
Ann Arbor, Michigan:
AS TO 1115 - 1117 SOUTH UNIVERSITY: Beginning at a point in the North line of
South University Avenue 157.36 feet East of the SW corner of Lot 21, R. S.
Smith's Addition to the City of Ann Arbor, as recorded in Liber 42 of Deeds,
pages 446 and 447, Washtenaw County Records; thence East in the North line of
South University Avenue 41.72 feet to the SE corner of Lot 29; thence N'ly 92.0
feet in the East line of said Lot 29; thence West parallel to South University
Avenue 41.82 feet; thence S'ly 92.0 feet to the Place of Beginning, being a part
of Lot 29, R.S. Smith's Addition to the City of Ann Arbor.
<PAGE> 15
[Chisholm & Dames Letterhead]
April 26, 1992
Mr. Paul Rosser
General Manager
Ulrich Bookstore
549 East University
Ann Arbor, MI 48107
Dear Paul,
This letter will give you the authority to use the parking lot located at 609
East University for private parking. The city will remove their meters on April
30, 1992.
The only restriction we foresee at this time is the need to keep the access open
to the stores on South University that back up to the lot. This access should be
maintained as in the past. I informed the Oasis and Normandy Flowers of this
change and told them to contact you if they had any questions.
The rent for the lot is $600.00 per month, payable on the first of each month.
Please let me know if you have any questions.
Sincerely,
/s/ Jack H. Chisholm
Jack H. Chisholm
Property Manager
JHC/ec
<PAGE> 1
Exhibit 10.15
LEASE
LANDLORD:
HOGARTH MANAGEMENT
527 East Liberty
Ann Arbor, Michigan
TENANT:
NEBRASKA BOOK COMPANY
6400 Cornhusker Highway
Lincoln, Nebraska
<PAGE> 2
LEASE
Hogarth Management - Nebraska Book Company, Inc.
Lease Index
Page
----
1. TERM - OPTION TO EXTEND......................................... 1
2. RENT............................................................ 1
3. POSSESSION - CONDITION OF PREMISES.............................. 4
4. CREDIT FOR LEASEHOLD IMPROVEMENTS............................... 5
5. USE OF PREMISES................................................. 7
6. SIGNS AND TRADE SYMBOLS......................................... 8
7. MAINTENANCE AND SANITATION...................................... 8
8. ALTERATION AND REPAIR........................................... 9
9. UTILITY SERVICES................................................ 9
10. INDEMNITY AND INSURANCE......................................... 9
11. TAXES AND ASSESSMENTS........................................... 11
12. ASSIGNMENT OR SUBLETTING........................................ 12
13. MORTGAGE, ATTORNMENT............................................ 13
14. EMINENT DOMAIN.................................................. 13
15. DESTRUCTION OF PREMISES......................................... 14
16. BANKRUPTCY - INSOLVENCY......................................... 14
17. DEFAULT RE-ENTRY REMEDIES...................................... 15
i
<PAGE> 3
Page
----
18. SURRENDER OF PREMISES........................................... 16
19. HOLDING OVER.................................................... 16
20. FIXTURES AND PERSONAL PROPERTY.................................. 16
21. REIMBURSEMENT................................................... 16
22. CONSENTS BY LANDLORD............................................ 17
23. NOTICES......................................................... 17
24. LITIGATION, COURT COSTS, ATTORNEYS' FEES........................ 17
25. QUIET ENJOYMENT................................................. 18
26. GENERAL......................................................... 18
27. MEMORANDUM OF LEASE............................................. 18
28. BROKER'S AND AGENT'S COMMISSION................................. 18
29. FORCE MAJEURE................................................... 18
30. LATE CHARGE - INTEREST ON OVERDUE AMOUNTS....................... 18
31. TRANSFER OF LANDLORD'S INTEREST................................. 19
32. MEMBERSHIP IN STATE STREET AREA ASSOCIATION..................... 19
33. CONTINGENCY..................................................... 19
ii
<PAGE> 4
LEASE
HOGARTH MANAGEMENT - NEBRASKA BOOK COMPANY, INC.
THIS LEASE is made and entered into this 12th day of October, 1988,
by and between HOGARTH MANAGEMENT, a Michigan Co-Partnership, whose address is
527 East Liberty, #209, Ann Arbor, Michigan 48104, hereinafter referred to as
"Landlord" and NEBRASKA BOOK COMPANY, a Kansas corporation, whose address is
6400 Cornhusker Highway, Lincoln, Nebraska 68501, hereinafter referred to as
"Tenant";
W I T N E S S E T H:
FOR AND IN CONSIDERATION of the rent hereinafter reserved and upon
the covenants and conditions hereof, Landlord does hereby lease to Tenant the
entire premises located at 317 South State Street, Ann Arbor, Michigan,
hereinafter referred to as the "Building" or the "Premises," which building and
the land upon which the building is located including all appurtenances and
hereditaments pertaining to the building are hereinafter referred to as the
"Building Complex." The legal description of the land upon which the Building is
located is attached hereto as Exhibit A.
1. TERM - OPTION TO EXTEND. The initial term of this Lease shall
commence on July 1, 1989 or such earlier date as the parties shall mutually
agree upon. This date shall hereinafter be referred to as the "Commencement
Date." The initial term of this Lease shall end at midnight on June 30th, 1999.
Upon the condition that there is no default by Tenant in the
performance of any provision of this Lease, Tenant may extend the term of this
Lease for one (1) additional period of ten (10) years. Tenant shall exercise
this option for an extended term by notifying Landlord in writing at least one
hundred and eighty (180) days prior to the expiration of the initial term. If
Tenant exercises the option to extend the term of this Lease, all of the terms
and conditions set forth in this Lease shall continue to apply during the
extended term, except that there shall be no privilege to extend the term of
this Lease for any period of time beyond the expiration of the extended term.
2. RENT. Rent shall begin on the Commencement Date. All rental
payments shall be paid to Landlord at its office in Ann Arbor, Michigan set
forth above or at such other place as Landlord may from time to time designate
in writing as the place for payment of rent for the aforesaid premises, without
deductions or offsets, except as provided in paragraph 4(c).
<PAGE> 5
(a) Minimum Rent. Tenant shall pay Fixed Minimum Rent
(hereinafter called "Minimum Rent") in equal monthly installments of $23,333.33
each, in advance on the first day of July 1989 and on the first day of each
month thereafter during the term of this Lease. Concurrent with the execution of
this Lease, Tenant has paid to Landlord an amount equal to Minimum Rent for one
(1) month, which amount shall be applied by Landlord to the first installment of
Minimum Rent which becomes due hereunder.
(i) On July 1st, 1990 and on July 1st of each year
thereafter (the "Rental Adjustment Date"), the Minimum Rent payable during
the succeeding twelve-month period shall be determined by increasing or
decreasing the rent payable during the preceding Lease Year in proportion
to the increase or decrease, if any, in the CPI during the twelve-month
period ending on March 31 immediately prior to the Rental Adjustment Date.
In no event, however, shall Minimum Rent ever be reduced below $23,333.33
per month.
(ii) For purposes of this agreement, "CPI" shall
mean the Consumer Price Index, for all Urban Consumers published by the
Bureau of Labor Statistics of the U.S. Department of Labor, U.S. City
Average, All Items (1982-84 = 100), or any successor index.
(b) Percentage Rent. In addition to the Minimum Rent payable
under paragraph (a) above, Tenant shall pay to Landlord, for each Lease Year
during the term of this Lease as Percentage Rent, a sum equal to the amount, if
any, by which four (4%) percent of Gross Sales of the Tenant (as defined herein)
during the Lease Year exceeds the Minimum Rent payable during such Lease Year as
set forth in paragraph (a) above. Percentage rental shall be paid as of the end
of each calendar quarter in the amount by which 4% of the aggregate Gross Sales
for the portion of the Lease Year ending as of the end of such calendar quarter
shall have exceeded the aggregate of all payment of Minimum Rent and Percentage
Rent paid by Tenant during such Lease Year, such payments of Percentage Rent to
be paid not later than thirty (30) days after the end of each calendar quarter.
At the option of Landlord, Tenant may provide Landlord with its good faith
estimate of Gross Sales prior to each Lease Year, and Tenant shall, in such
case, make monthly payments of Percentage Rent equal to one-twelfth (1/12) of
the amount of Percentage Rent which would be due from Tenant based upon its
estimate of Gross Sales. This option may be exercised annually, and the exercise
of such option by Landlord shall not be binding in any subsequent Lease Year. At
the conclusion of each Lease Year, the payments of Percentage Rent required to
be paid by Tenant shall be determined based upon Tenant's actual Gross Sales,
and Tenant shall pay the Landlord any deficiency or Landlord shall refund to
Tenant any overpayment as the case may be within seventy-five (75) days after
the end of such Lease Year. In no event, however, shall the rent to be paid by
Tenant and retained by Landlord for any Lease Year be less than the Minimum Rent
provided in paragraph (a) above.
2
<PAGE> 6
(i) The term "Lease Year" shall mean a twelve- month
period beginning April 1 and ending March 31; provided however, that the
initial Lease Year shall commence July 1, 1989 and end March 31, 1990, and
the final Lease Year shall commence April 1, 1999 and end June 30th, 1999.
(ii) The term "Gross Sales" as used herein shall be
construed to include the entire amount of the sales price, whether for
cash or otherwise, of all sales of merchandise (including gift and
merchandise certificates), services and other receipts whatsoever of all
business conducted (including, without limitation, interest, time price
differential, finance charges, service charges, credit and layaway sales)
in or from the premises, including mail or telephone orders received or
filled at the premises, deposits not refunded to purchasers, orders taken,
although said orders may be filled elsewhere, sales to employees, sales
through vending machines or other devices. A sale shall be deemed to have
occurred at the time when Tenant receives payment for such merchandise or
services. Gross Sales shall not include, however, any sums collected and
paid out for any sales or direct excise tax imposed by any duly
constituted governmental authority, nor shall it include the exchange of
merchandise between the stores or divisions of Tenant, if any, where
stores and divisions of Tenant, if any, where such exchanges are made
solely for the convenient operation of the business of Tenant and not for
the purpose of consummating a sale which has theretofore been made in or
from the premises and/or for the purpose of depriving Landlord of the
benefit of a sale which otherwise would have been made in or from the
premises, nor the amount of returns to shippers or manufacturers, nor the
amount of any cash or credit refund made upon any sale where the
merchandise sold, or some part thereof, is thereafter returned by
purchaser and accepted by Tenant, nor sales of Tenant's fixtures.
(iii) On or before the last day of each calendar
month during the term of this Lease, Tenant shall prepare and deliver to
Landlord a statement of Gross Sales made using the preceding calendar
month along with copies of any sales tax reports filed with the State of
Michigan. In addition, within seventy-five (75) days after the expiration
of each Lease Year, Tenant shall prepare and deliver to Landlord a
statement of Gross Sales during the preceding calendar year, certified to
be correct by an independent certified public accountant. Tenant shall
furnish similar statements for its licensees, concessionaires and
subtenants, if any. All such statements shall be in such form as Landlord
may require. If any such certified statement discloses error in the
calculation of the Percentage Rental for any period, appropriate
adjustment of the Percentage Rental shall be made, subject, however, to
Landlord's rights under subparagraph (v) hereof.
3
<PAGE> 7
(iv) Tenant shall keep in the City of Lincoln,
Nebraska, a permanent, accurate set of books and records of all sales of
merchandise and revenue derived from business conducted in the premises,
and all supporting records such as tax reports, banking records, cash
register tapes, sales and other sales records. All such books and records
shall be retained and preserved for at least twenty-four (24) months after
the end of the calendar year to which they relate, and shall be subject to
inspection and audit by Landlord and its agents at reasonable times.
(v) In the event that Landlord is not satisfied with
any monthly statements or certified annual statement of Gross Sales
submitted by Tenant, Landlord shall have the right to have its auditors
make a special audit of the books and records of Tenant, wherever located,
pertaining to sales made in or from the premises during the period in
question. If such statements are found to be incorrect to an extent of
more than two percent (2%) from the figure submitted by Tenant, Tenant
shall pay for such audit. Tenant shall promptly pay to Landlord any
deficiency, or Landlord shall promptly refund to Tenant any overpayment,
as the case may be, which is established by such audit.
3. POSSESSION - CONDITION OF PREMISES. The Landlord shall give
Tenant access to the Building on January 1, 1989, or at an earlier date upon the
mutual agreement of the parties, so that Tenant may commence its leasehold
improvements prior to the Commencement Date of this Lease. The date that Tenant
is entitled to possession of the Building shall be referred to herein as the
"Possession Date." Except as provided in paragraph 7 and subparagraphs (a) and
(b) below, the Tenant agrees to accept the Building in an "as-is" condition as
of the date of this Lease. The Landlord makes no warranties to the Tenant
regarding the Building, its structural integrity, or its suitability for the
purposes of Tenant. The Landlord shall have no liability to Tenant for any
latent defects in the Building which are not known to Landlord.
The parties agree that:
(a) As of the Possession Date the Building will be in
"broom-clean" condition, and all tenants will have vacated the building; and
(b) Landlord will be responsible for removal of all asbestos
located in the Building as of the Possession Date. Landlord agrees that, prior
to the Possession Date, it will remove all asbestos as identified in the report
prepared by Testing Engineers & Consultants, Inc. dated June 23, 1988; provided,
however, that if, despite its best efforts, the Landlord has been unable to
complete the asbestos removal in the Building by the Possession Date, the
Landlord may continue to have access to the Building after the Possession Date
for the purposes of completing the asbestos removal in a diligent and
expeditious manner. Tenant shall be furnished with
4
<PAGE> 8
copies of all documentation pertaining to such asbestos removal upon its
completion. It is specifically understood and agreed that the Tenant shall, as
part of its leasehold improvements to the Building, remove and replace the
existing roof of the Building, and it is further specifically agreed that in
connection with the removal and replacement of the roof, the Landlord shall be
solely responsible for all costs and expenses incurred in asbestos removal from
the roof. In no event shall Tenant have any liability or responsibility for
removal of asbestos contained in the Building as of the Possession Date.
4. CREDIT FOR LEASEHOLD IMPROVEMENTS. The Landlord agrees to pay, or
reimburse at the option of Tenant, any amounts paid or incurred by Tenant for
Qualified Leasehold Improvements (as defined herein) up to a maximum
reimbursement of Five Hundred Thousand Dollars ($500,000). Qualified Leasehold
Improvements in excess of Five Hundred Thousand ($500,000) and up to Five
Hundred Seventy-Five Thousand Dollars ($575,000) shall be paid solely by Tenant.
If Qualified Leasehold Improvements exceed $575,000, the Landlord shall pay, or
reimburse, Tenant for fifty percent (50%) of the amount by which the Qualified
Leasehold Improvements exceed $575,000. Requests for payment of, or
reimbursement for, Qualified Leasehold Improvements shall be made not more
frequently than twice during each calendar month.
(a) Expenditures by Tenant for improvements to the Building
shall constitute "Qualified Leasehold Improvements" only if:
(i) The expenditure is made for a physical
improvement to the Building pursuant to plans and specifications prepared
by an architect acceptable to Landlord, which plans and specifications
have received written approval in advance by Landlord; and
(ii) The Tenant has provided Landlord with copies
of all invoices for which payment is being sought, or paid invoices for
which reimbursement is being sought, together with a certificate from the
Tenant's architect certifying that the work for which reimbursement or
payment is being sought has been substantially completed; and
(iii) The Landlord has, at its option, had an
opportunity to inspect the Building to determine that the improvement for
which reimbursement is being sought has been made; and
(iv) The expenditure is either for the removal of
asbestos or facade improvements as contemplated by subparagraphs (b)(iii)
and (iv), or for one of the specified expenses set forth in Exhibit B
attached hereto.
5
<PAGE> 9
(b) The obligation of the Landlord to reimburse Tenant for
expenses paid by Tenant for Qualified Leasehold Improvements shall be subject to
the following additional conditions:
(i) It is contemplated that the plans and
specifications for improvements to the Building prepared by Tenant's
architect will result in all three floors of the Building being brought
into compliance with all applicable building code requirements, including
the installation of a sprinkler system for fire suppression purposes on
all floors within the Building;
(ii) The Landlord retains specific rights to review
any plans for the facade of the Building (including all specifications and
color schemes, and to withhold its consent to any plans for the facade of
the Building which are not sensitive to the unique visibility of the
Building and its importance to the surrounding State Street retailing
area;
(iii) Not less than $75,000 of the $500,000.00
reimbursement for Qualified Leasehold Improvements shall be reimbursed
only for improvements to the facade of the Building;
(iv) The costs incurred by the Landlord in removing
asbestos from the Building, as required under paragraph 3(b), shall be
deducted from the amounts which Landlord is obligated to pay for Qualified
Leasehold Improvements up to a maximum of Fifty Thousand Dollars
($50,000). Any expenditures by Landlord for asbestos removal in excess of
$50,000 shall not affect or reduce the amounts available under this
paragraph for Qualified Leasehold Improvements.
(v) The location of any elevator within the Building
will be subject to the specific approval of the Landlord, and Landlord may
disapprove of the proposed location of any elevator by Tenant if such
location would not be conducive (in the sole discretion of the Landlord)
to the maximization of the rental potential of the Building upon the
termination of this Lease.
(c) In the event that Tenant submits a request for payment or
reimbursement of Qualified Leasehold Improvements which satisfies all of the
conditions and requirements of this paragraph 4, and if Landlord fails to
provide payment or reimbursement in accordance with such request within ten (10)
business days from the date of the request, then Tenant shall have the right to
offset the amount of the payment which was not made by Landlord against the
payment of Minimum Rent next becoming due. Further, if Landlord fails to provide
payment or reimbursement in accordance with such request within ten (10)
business days from the date of the request, interest shall accrue on the amount
of such request from the date
6
<PAGE> 10
of the request until payment or reimbursement is made at a rate of one and
one-half (1.5%) percent per month.
(d) It is specifically understood and agreed that the Landlord
shall have no obligation to make any improvements to the Building, and that all
costs in renovating the Building (including architect fees, permits, licenses,
builder's risk insurance and other insurance costs, bonds, etc.) shall be borne
solely by Tenant, subject only to the obligation of Landlord to reimburse Tenant
for Qualified Leasehold Improvements as provided in this paragraph 4, and the
obligation of the Landlord to remove asbestos from the Building as provided
under paragraph 3(b).
5. USE OF PREMISES.
(a) Tenant shall use and occupy the Building for the operation
of a retail college bookstore. Except to the extent limited by the provisions of
subparagraph (b), the merchandise mix may include new and used textbooks,
workbooks, study aids, technical and reference books, trade books, periodicals,
school and office supplies, art and engineering supplies, clothing, gifts,
personal-care items, snacks, greeting cards and other merchandise that is
ordinarily sold in college book stores.
(b) There shall be no limitation on the display and/or sale of
new or used textbooks and/or other periodicals assigned or recommended for
current or future courses at the University of Michigan or any other
post-secondary institution in Washtenaw County, Michigan, or workbooks or study
aids relating to the foregoing (collectively referred to as "Exempt Products").
Not more than seven hundred fifty (750) square feet of retail space within the
Building may be devoted to the sale of books (hardcover or paperback) or
periodicals which are not Exempt Products.
(c) Tenant shall not use the Building, or permit the use of
the Building, or any portion thereof, for any activity which constitutes a
violation of any valid law, order or regulation of any governmental authority.
Tenant shall not permit any objectionable noise or odor to be emitted from the
Building, or permit anything to the done in the Building which tends to create a
nuisance or disturb Tenants in adjacent buildings.
(d) The Tenant agrees that the Building will be open for
business not less than six (6) days per week and not less than forty-eight (48)
hours per week (except for nationally recognized holidays and two (2) additional
floating holidays). Any cessation of the business activities of the Tenant
within the Building, or any substantial reduction in the number of hours that
Tenant is open for business in the Building, shall be deemed to be an attempt by
the Tenant to evade the payment of Percentage Rent as provided under paragraph
2(b), and Tenant shall continue to be obligated to pay Percentage Rent based
upon reasonable estimates of gross sales which Tenant would have generated from
the operation of its business in the Building
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if it had been open for business in accordance with the requirements of this
paragraph 5.
(e) During the term of this Lease, in the event Tenant or any
person, firm or corporation who, or which, controls or is controlled by Tenant,
shall directly or indirectly, either individually or as a partner or stockholder
or otherwise, own, operate or become financially interested in any business
located within a radius of 500 feet from the outside boundary of the Building
Complex which engages in activities of the type permitted under paragraph 5(a)
above, then, Gross Sales, for purposes of paragraph 2(b) of any such business or
businesses within said radius shall be included in the Gross Sales of the Tenant
for purposes of calculation of Percentage Rent. The foregoing shall not apply to
any sales of Ulrich's Book Store from its current location at 549 East
University and adjacent addresses. The foregoing shall also not apply to any
sales by Michigan Book and Supply at its current location at 341 East Liberty
Street from and after the date of this Lease through December 31, 1991.
6. SIGNS AND TRADE SYMBOLS. Any permanent or temporary exterior
signage, or any permanent window signage, used in and about the Leased Premises
shall be subject to the prior written approval of Landlord. Any temporary window
signage shall be in good taste. If requested by Landlord, Tenant shall remove
any exterior signs affixed to the Building at the termination of this Lease and
repair any damage to the Building caused by such removal.
7. MAINTENANCE AND SANITATION. From and after the Possession Date,
Tenant shall use the Building, and the premises located therein in a careful and
proper manner, and repair, at its own expense, all damage caused by it, and
Tenant shall, at all times, keep the Building in good repair and condition,
including the repair and replacement (if necessary) of the roof, and any
mechanical, electrical, and/or HVAC systems in the Building. Any repairs or
replacements shall be made with materials of like quality. Should the Tenant
fail to make any required repair or replacement as herein provided within thirty
(30) days (or such shorter interval as may be reasonably specified by the
Landlord), after notice by the Landlord of the need therefor, the Landlord may,
at its option, and in addition to all of the remedies, cause such repairs or
replacements to be made and may add the costs thereof, which costs, together
with 10% of the amount of such costs to compensate Landlord for its efforts,
shall be immediately due and payable. Any amounts due and payable to Landlord
pursuant to this paragraph shall bear interest at the rate of 18% per annum
until paid.
The Landlord shall have the right to inspect the Building upon
reasonable advance notice and during normal business hours.
Tenant shall make, at the Tenant's sole expense, any
improvements or alterations to the Building if such improvements or alterations
are
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required by law or public authority. Tenant shall make no major structural
changes in the Building unless the written consent of the Landlord has first
been obtained. Tenant shall keep the exterior of the Building free of graffiti
and posters and will, in general, maintain the entire Building in a clean and
sanitary condition.
Prior to the Possession Date, the Landlord shall maintain the
Building in its current condition. From and after the Possession Date, and
during the term of this Lease, the sole obligation of the Landlord shall be to
maintain the structure of the Building (for purposes of this paragraph, the term
"structure" shall include the walls and foundation of the Building, but shall
not include the roof of the Building). Notwithstanding the foregoing, the
Landlord shall not be obligated to make any repairs to the structure of the
Building if such repairs are required because of leasehold improvements made by
the Tenant, or result from Tenant's occupancy and/or utilization of the
Building, or are caused by the failure of the Tenant to adequately perform its
repair and maintenance obligations under this Lease.
Tenant shall provide and maintain trash receptacles, with
covers thereon, about the premises in which to place any trash and cause such
trash to be removed from the area as often as required to maintain a sanitary
condition. Tenant shall keep the sidewalks abutting the premises clear and shall
not permit any business or display or merchandise to be operated or maintained
in front of the premises without the prior consent of the Landlord. Tenant shall
be responsible for the general maintenance and repair of all sidewalks adjacent
to the Building, including snow removal, and for the repair and maintenance of
all windows and doors in the Building.
8. ALTERATION AND REPAIR. Upon completion of the renovations
and improvements to the Building as contemplated by paragraph 4, Tenant shall
not make any structural alterations or additions upon said premises without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. Tenant shall have the right to make interior non-structural
alterations and repairs without first obtaining consent of Landlord. Landlord
hereby consents to Tenant making such interior alterations and improvements to
the premises as Tenant deems necessary and appropriate from time to time.
9. UTILITY SERVICES. Tenant shall be responsible for all
utility charges relating to its occupancy of the Building from and after the
Possession Date, or the date it takes possession of the Building, if earlier,
and Tenant shall be responsible for all costs incurred in establishing utility
service to the Building. Landlord shall have no obligation or liability to
Tenant in the event that utilities services to the Building are interrupted for
any reason other than the actions of Landlord, its employees or agents.
10. INDEMNITY AND INSURANCE. Tenant covenants that Landlord
shall not be liable for any damage or liability of any kind or for any
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injury to or death of persons or damage to property of Tenant or any other
person from and after the Possession Date, from any cause whatsoever, by reason
of the use, occupancy and enjoyment of the premises by Tenant or any person
thereon or holding under said Tenant, and that Tenant will indemnify and save
harmless Landlord from all liability whatsoever on account of any such real or
claimed damage or injury and from all liens, claims and demands arising out of
the use of the premises and its facilities or any repairs or alterations which
Tenant may make upon said premises, but Tenant shall not be liable for damage or
injury occasioned by the negligence of Landlord, its agents, servants or
employees. This obligation to indemnify shall include reasonable legal counsel
and investigative costs and all other reasonable costs, expenses and liabilities
from the first notice that any claim or demand is to be made or may be made.
Landlord and Tenant hereby waive any rights each may have
against the other on account of any loss or damage occasioned to Landlord or
Tenant, as the case may be, their respective property, the premises, or its
contents or to other portions of the Building Complex, arising from any risk
generally covered by fire and extended coverage insurance policies then in use
in the state where the Building Complex is situated; and the parties each, on
behalf of their respective insurance companies insuring the property of either
Landlord or Tenant against any such loss, waive any right of subrogation that
such companies may have against Landlord or Tenant, as the case may be. Landlord
and Tenant covenant with each other that they will each obtain for the benefit
of the other a waiver of any right of subrogation from their respective
insurance companies.
From and after the Possession Date, Tenant will maintain, at
its expense, the following types of insurance:
(a) Public Liability and Property Damage. Tenant will
maintain, at its expense, public liability and property damage insurance having
limits of not less than Two Million Dollars ($2,000,000) per occurrence insuring
against any and all liability of the insured with respect to said premises or
arising out of the maintenance, use or occupancy thereof. All insurance shall
insure the performance of Tenant of the two indemnity agreements contained
herein, and may be provided by blanket policies. Landlord shall be named as an
additional insured on all public liability and property damage insurance
policies procured by Tenant pursuant to this Paragraph.
(b) Fire and Casualty Insurance. Tenant shall keep the
Building and the improvements located therein covered by fire and extended
coverage insurance in an amount equal to 100% of the replacement value of the
Building with the Landlord named as the loss payee. It is further agreed that in
the event of loss under any such policy, the insurance proceeds shall be paid
out upon architect's certificates for the expense of repairing or rebuilding the
Building or improvements therein which have been damaged or destroyed; provided,
however, that it shall first
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appear to the satisfaction of Landlord that the amount of insurance money,
together with the funds available from Tenant, shall at all times be sufficient
to pay for the completion of said repairs and rebuilding. Upon completion of
said repairs and rebuilding, free and clear of all liens of mechanics and
materialmen and others, any surplus of insurance monies shall be paid to Tenant.
At the request of Landlord, a mortgage clause may be included
in said policies covering Landlord's mortgagee. Executed certificates of
Insurance shall be delivered to Landlord within ten (10) days after receipt of
written request therefor to Tenant. All policies of insurance delivered to
Landlord must contain a provision that the company writing said policy will give
to Landlord thirty (30) days notice in writing in advance of any cancellation or
lapse of the effective date or any reduction in the amounts of insurance.
11. TAXES AND ASSESSMENTS. Tenant agrees to pay all taxes,
assessments and governmental charges of any kind and nature levied or assessed
against the Building Complex from and after the Possession Date. Real estate
taxes payable with respect to the first and last years during the term of this
Lease shall be prorated between the parties based upon the fiscal years of the
various taxing authorities and treating taxes as having been paid in advance.
All taxes and assessments or other governmental charges shall be paid prior to
the date such taxes or assessments become delinquent, and Tenant further agrees
to deliver to Landlord duplicate receipts or photocopies thereof showing the
payment of all said taxes and assessments within 30 days after payment of same.
(a) Tenant shall not be required to pay any tax, assessment,
or other charge on or against the Building Complex so long as Tenant shall, in
good faith and with due diligence, contest the same or the validity thereof by
appropriate legal proceedings which shall have the effect of preventing the
collection of same; provided, however, that pending any such legal proceedings,
Tenant shall give Landlord such reasonable security as may be demanded by
Landlord to ensure payment of the amount of taxes or assessments as finally
determined to be due and payable, together with all interest and penalties
thereon. In the event that Tenant at any time institutes suit to recover any
tax, assessment or other charge paid by Tenant under protest in Landlord's name,
Tenant shall have the right, at its own expense, to institute and prosecute such
suit or suits in Landlord's name, in which event Tenant covenants and agrees to
indemnify Landlord and save it harmless against all costs, charges or liability
in connection with any such suit. All funds recovered as a result of any such
suit shall belong to Tenant.
(b) Notwithstanding the foregoing, in the event that any
assessment is made against the Building Complex which may be paid over a period
of years, the Tenant shall be obligated only for any annual portion of such
assessment, and any interest charge thereon, which becomes due and payable
during the term of this Lease.
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12. ASSIGNMENT OR SUBLETTING. Tenant agrees not to assign or in any
manner transfer this Lease or any estate or interest therein without the prior
written consent of the Landlord, and not to sublet said premises or any part or
parts thereof or allow anyone to come in with, through or under it without the
like consent of Landlord. Consent by Landlord to one or more assignments of this
Lease or to one or more subletting of said leased premises shall not be deemed
to be a waiver of the requirement to obtain Landlord's consent to any future
subletting or assignment. Landlord's consent to a proposed assignment or
subletting shall not be unreasonably withheld, but Landlord may reasonably
refuse to approve a proposed assignment or sublease if the proposed Tenant's
business usage is not compatible, in the sole judgement of Landlord, with the
business activities of other retail tenants in the South State Street retail
area within which the Building Complex is located, or if the proposed Tenant is
not, in the sole judgment of Landlord, financially able to comply with the
provisions of this Lease. It is specifically agreed by Landlord that Tenant may
assign this Lease to another tenant who will be using the Building for a use
other than that permitted under paragraph 5(a), and the Landlord may not
withhold its consent to a proposed sublease or assignment to a tenant whose
usage of the Building would not otherwise be permitted under paragraph 5(a) as
long as such sublease or assignment meets the other requirements set forth in
this paragraph. Any sublease or assignment shall contain an express agreement of
the sublessee or assignee to be bound by all the terms and conditions of this
Lease, specifically including the restrictive provisions contained in paragraph
5(b) hereof. Any assignment or subletting in violation of this section shall be
deemed to be a default under the terms of this Lease.
In the event that Tenant desires to assign this Lease or
sublease all or a portion of the Building Complex, Tenant shall provide Landlord
with an executed copy of the proposed sublease or assignment, showing all of the
terms and conditions of said sublease or assignment. Landlord may condition its
consent to a proposed assignment or sublease upon an adjustment in the rental
provisions of paragraph 2 in the event that, in the reasonable opinion of
Landlord, the Percentage Rent under paragraph 2(b) would, or could be materially
affected as a result of such assignment or sublease. Landlord may also condition
its consent to an assignment of this Lease or a sublease of all or a portion of
the Building Complex upon an adjustment in the rental provisions of paragraph 2
in the event that the base rent to be paid by the proposed assignee or subtenant
exceeds the per square foot minimum rent payable under paragraph 2(a), it being
the intent that any excess rent (determined on a per square footage basis) which
the Tenant would receive as a result of the assignment or sublease shall be paid
to Landlord.
In the event that the Tenant desires to assign this Lease or
sublease the entire Building, the Landlord may, within thirty (30) days from the
date that the proposed sublease or assignment is presented to Landlord for its
approval, elect, by written notice to Tenant, to terminate this Lease as of the
effective date of the proposed sublease or assignment, and in such event,
neither party shall have any
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further rights, duties or obligations under this Lease from and after the date
of such termination.
In the event that Tenant, with or without the consent of the
Landlord, does assign or in any manner transfer this Lease or any estate or
interest therein, or sublets all or any portion of the premises, Tenant shall in
no way be released from any of its obligations under this Lease.
13. MORTGAGE, ATTORNMENT. Upon the written request of Landlord or of
any lessor under a sale or leaseback of the land and/or building in which the
premises are situated or of any mortgagee or beneficiary of Landlord, Tenant
will from time to time in writing subordinate its rights hereunder to the
interest of any such lessor as well as to the lien of any mortgage or deed of
trust now or hereafter in force against the land and building of which the
premises are a part or against any buildings hereafter placed upon the land of
which the premises are a part and to all advances made or hereafter to be made
upon the security thereof.
The provisions of this section to the contrary notwithstanding
and so long as Tenant is not in default beyond any applicable cure period
hereunder, this Lease shall remain in full force and effect for the full term
hereof, and any document subordinating Tenant's interest herein to any ground
lease or to the lien of any mortgagee or beneficiary shall so state. In the
event any proceedings are brought for foreclosure or to exercise the power of
sale under any mortgage or deed of trust made by Landlord covering the premises,
provided that such purchaser recognizes Tenant's rights under this Lease and
assumes Landlord's obligations hereunder, Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as Landlord under
this Lease. Landlord shall obtain from any current or future mortgagee, an
agreement, in recordable form, setting forth the nondisturbance provisions as
stated herein. Within thirty (30) days after written request therefor by
Landlord, Tenant agrees to deliver in recordable form a certificate addressed to
any proposed mortgagee, beneficiary or purchaser or to Landlord, certifying that
this Lease is in full force and effect (if such is the case) and that there are
no defenses or offsets thereto (or stating those defenses or offsets) by Tenant.
14. EMINENT DOMAIN. In the event that all of the Building Complex
(or so much thereof that the balance of said Building Complex cannot be used for
the uses set forth in this Lease) shall be taken or condemned for a public or
quasi-public use or purpose by any competent authority, then and in either of
such events, this Lease shall terminate when possession of the Building Complex
shall be required for such use or purpose, and any award, compensation or
damages shall be paid to and be the property of the Landlord, except for the
portion of any award attributable to the value of leasehold improvements made by
Tenant (not including any leasehold improvements made by Tenant (not including
any leasehold improvements made pursuant to paragraph 4), moving expenses and
other Tenant- related compensation.
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In the event that only a part of the Building Complex shall be taken
or condemned for a public or quasi-public use or purpose by any competent
authority, and as a result the balance of said premises can be used for the same
purposes as before such taking or condemnation, this Lease shall not terminate,
and Tenant, at its sole cost and expense, shall repair and restore the Building
and all improvements therein. Any award paid as a consequence of such taking or
condemnation shall be paid to Tenant and shall be applied to the costs of said
repair and restoration. Any sums remaining after such application shall be paid
to Landlord. In no event shall Tenant have any obligation to expend more than
the condemnation award. There shall be no abatement or reduction in the rent
because of such taking unless such taking shall reduce the area of the Building,
in which case there shall be a pro-rata abatement, or reduction in the rental
otherwise due under paragraph 2.
15. DESTRUCTION OF PREMISES. Tenant further agrees that in the case
of damage to or destruction of the Building Complex or any of the improvements
or fixtures or equipment therein, by fire or other casualty, it will promptly,
at its own expense, restore the same to substantially its original condition and
with a substantially similar quality of construction; provided that upon
completion of such repairs, restoration or rebuilding, the value and rental
value of the Building Complex shall be substantially equal to the value and
rental value of the Building Complex immediately prior to the happening of such
fire or other casualty. Rent shall abate during the period of such repair.
Before commencing any renovation or restoration involving an
estimated cost of more than Twenty-Five Thousand Dollars ($25,000.00):
(a) Plans and specifications, together with an estimated cost,
shall be prepared by a reputable licensed architect, and such plans and
specifications shall be approved in advance by Landlord; and
(b) Tenant shall provide to Landlord such assurances as
Landlord shall reasonably require that the funds available from the proceeds of
any insurance, together with the funds available from Tenant, shall be
sufficient to ensure payment for all repairs and renovations free and clear of
all liens.
16. BANKRUPTCY - INSOLVENCY. Tenant agrees that in the event all or
substantially all of Tenant's assets be placed in the hands of a receiver or
trustee, and such receivership continues for a period of thirty (30) days, or
should Tenant make an assignment for the benefit of creditors or be finally
adjudicated a bankrupt, or should Tenant institute any proceedings under the
Bankruptcy Act as the same now exists or under any amendment thereof which may
hereafter be enacted, or under any other act relating to the subject of
bankruptcy wherein Tenant seeks to be adjudicated a bankrupt or to be discharged
of its debts or to effect a plan of liquidation, composition or reorganization,
or should any involuntary proceeding be filed against Tenant under such
bankruptcy laws and such proceeding not be removed
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within ninety (90) days thereafter, then this Lease or any interest in and to
the premises shall not become an asset in any of such proceedings and, in any
such event and in addition to any and all rights or remedies of Landlord
hereunder or by law provided, it shall be lawful for Landlord to declare the
term hereof ended and to re-enter the premises and take possession thereof and
remove all persons therefrom, and Tenant shall have no further claim thereon or
hereunder. The provisions of this section 17 shall also apply to any Guarantor
of this Lease. In no event shall this Lease or any interest of the Tenant
therein be assigned or transferred by operation of law without the expressed
written consent of Landlord.
17. DEFAULT RE-ENTRY REMEDIES. In the event of any breach of any of
the terms of this Lease by Tenant and provided such breach is not cured within
ten (10) days of notice thereof from Landlord to Tenant as to defaults in
payment of rents due hereunder, or within thirty (30) days after notice of
default is given Tenant as to any other default hereof; provided, however, that
such thirty (30) day period shall be extended as may be reasonably necessary to
allow Tenant reasonable time to cure the same, provided Tenant exercises due
diligence in curing the same, then Landlord, besides other rights and remedies
it may have under the laws then in force, shall have the immediate right of
re-entry and may remove all persons and property from the premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. Should Landlord elect to re-enter or
should it take possession pursuant to legal proceedings, it may either terminate
this Lease or it may, without terminating this Lease, re-let said premises or
any part thereof for such term or terms and at such rental and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable, with
the right to make alterations and repairs to said premises. Rentals received by
Landlord from such re-letting shall be applied; first, to the payment of any
indebtedness, other than rent, due hereunder; second, to the payment of rent due
and unpaid hereunder; third, to the payment of any cost of such re-letting;
fourth, to the payment of the cost of any alterations and repairs to the
premises; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. Should
such rentals received from such re-letting during any month be less than that
agreed to be paid during that month by Tenant hereunder, then Tenant shall pay
such deficiency to Landlord monthly. Tenant shall also pay as soon as
ascertained the cost and expense incurred by Landlord in such reletting or in
making such alterations and repairs. No such re-entry or taking possession of
said premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such re-letting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach.
Should Landlord at any time terminate this Lease, in addition to any other
remedy it may have, it may recover from Tenant all damages it may incur by
reason of such breach, including the cost of recovering the premises and
including the worth at the time of such termination of the excess, if any, of
the amount of rent and charges equivalent to rent
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reserved in this Lease for the remainder of the stated term over the then
reasonable rental value of the premises for the remainder of the stated term.
For the purposes of this section 17, the rental agreed to be paid by
Tenant or the amount of rental payable by Tenant shall be deemed to be the
minimum rental and all other sums required to be paid by Tenant pursuant to the
terms of this Lease.
In the event of default beyond any applicable grace period, all of
Tenant's fixtures, furniture, equipment, improvements, additions, alterations
and other personal property shall remain on the premises and, in that event and
continuing during the length of said default, Landlord shall have the right to
take the exclusive possession of same and to use same, rent or charge free,
until all defaults are cured or, at its option, at any time during the term of
this Lease, to require Tenant to forthwith remove same.
18. SURRENDER OF PREMISES. Tenant shall, upon expiration or
termination of the term hereby created, surrender the premises in good condition
and repair, reasonable wear and tear excepted. Tenant shall promptly surrender
all keys for the premises at the place then fixed for payment of rent and shall
inform Landlord of combinations on any locks and safes on the premises.
19. HOLDING OVER. If Tenant shall hold over after the term of this
Lease without the written consent of Landlord, Tenant shall become a Tenant on a
month-to-month basis upon all the terms, covenants and conditions herein
specified, including payment of rent at the rate of one hundred fifty percent
(150%) of the rent during the Lease year immediately preceding the holdover
period as set forth in paragraph 2.
20. FIXTURES AND PERSONAL PROPERTY. Any trade fixtures, signs and
other personal property of Tenant shall remain the property of Tenant, and
Landlord agrees that Tenant shall have the right, provided Tenant be not in
default beyond any applicable grace period under the terms of this Lease at any
time and from time to time, to remove any and all of its trade fixtures, signs
and other personal property which it may have stored in or installed in the
premises. Tenant at its expense shall immediately repair any damage occasioned
to the premises by reason of the removal of any such trade fixtures, signs and
other personal property and, upon expiration or earlier termination of this
Lease, shall leave the premises in a neat and clean condition, free of debris.
Tenant shall not be obligated to remove any of its leasehold improvements. All
other improvements to the premises by the Tenant, including but not limited to
floor coverings, carpeting and partitions, shall become the property of Landlord
upon expiration or earlier termination of this Lease.
21. REIMBURSEMENT. All covenants and terms herein contained to be
performed by Tenant shall be performed by it at its expense and, if Landlord
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shall pay any sum of money or do any act which required the payment of money by
reason of the failure of Tenant to perform such covenant or term, the sum or
sums of money so paid shall be considered as additional rental and shall be
payable by Tenant on the first of the month next succeeding such payment
together with interest at the maximum rate permitted by law or eighteen percent
(18%) per annum, whichever is lower.
22. CONSENTS BY LANDLORD. Whenever under this Lease provision is
made for Tenant to secure the written consent or approval of Landlord, such
consent or approval shall be in writing and shall not be unreasonably withheld
or delayed.
23. NOTICES. Any notice, demand, request or other instrument which
may be or is required to be given under this Lease shall be deemed effective and
validly given if delivered in person and evidenced by a copy receipted by the
addresses or sent by United States certified or registered mail, return receipt
requested, adequate postage prepaid and shall be addressed:
(a) If to Landlord: Hogarth Management
527 East Liberty #209
Ann Arbor, Michigan 48104
With a copy to: Phillip J. Bowen
700 City Center Building
Ann Arbor, MI 48104
or at such other address as Landlord shall designate by written notice, and
(b) If to Tenant: Bruce Nevius
Nebraska Book Company
6400 Cornhusker Highway
Lincoln, Nebraska 68501
With a copy to: Charles W. Borgsdorf
126 South Main Street
Ann Arbor, MI 48104
or at such other address as Tenant shall designate by written notice.
24. LITIGATION, COURT COSTS, ATTORNEYS' FEES. In the event that at
any time either Landlord or Tenant shall institute any action or proceeding
against the other relating to the provisions of this Lease or any default
hereunder, then and in that event, the prevailing party in such action or
proceedings shall be entitled to recover from the other party its reasonable
costs, expenses and attorneys' fees which shall be deemed to have accrued on the
commencement of such
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action or proceeding. The parties waive trial by jury in any action, proceeding
or counterclaim brought by either of them against the other on any matters
whatsoever arising under this Lease. This Lease shall be governed by, construed,
and enforced in accordance with the laws of the state of Michigan.
25. QUIET ENJOYMENT. So long as Tenant complies with the terms and
conditions hereto to be kept and observed by Tenant, Landlord agrees that Tenant
shall have the peaceful and quiet enjoyment of the premises without interference
from Landlord or anyone claiming through, by or under Landlord.
26. GENERAL. Time is of the essence of this Lease, and the terms and
conditions hereof shall extend to and be binding upon the heirs, executors,
successors and assigns of the parties hereto, and any mention of the singular
shall include the plural and the plural shall include the singular.
27. MEMORANDUM OF LEASE. At the request of either party, the parties
shall execute and deliver a recordable memorandum or short-form lease sufficient
to put third parties on constructive notice of the interests of the parties
hereunder.
28. BROKER'S AND AGENT'S COMMISSION. Each of the parties represents
and warrants to the other that it has not caused any broker, agent, finder or
other party to be entitled to a fee or commission by reason of the Lease.
29. FORCE MAJEURE. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reasons of a like nature not the fault of, or
under the control of, the party delayed in performing work or doing acts
required under the terms of this Lease, then performance of such act shall be
excused for the period of the delay and the period for the performance of any
such act shall be extended for a period equivalent to the period of such delay.
The provisions of this Section 29 shall not excuse Tenant from the prompt
payment of minimum rent, percentage rent, additional rent or any other payments
required by the terms of this Lease.
30. LATE CHARGE - INTEREST ON OVERDUE AMOUNTS. If any installment of
rent or other payment provided for under this Lease which is due from Tenant is
not received by Landlord when due, or within a grace period of ten (10) days
thereafter, Tenant shall pay to Landlord an additional sum equal to five percent
(5%) of the overdue amount as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. Acceptance of any late charge shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
or prevent
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<PAGE> 22
Landlord from exercising any other rights or remedies available to it. Late
charges are immediately due and payable.
Rent and all other amounts due to Landlord under this Lease which
are not paid within thirty (30) days from the date due shall bear interest at
the rate of one and one-half percent (1-1/2%) per month from the date due until
paid; provided, however, that if this percentage rate shall exceed the lawful
rate of interest which Landlord is entitled to charge under applicable law, then
the actual rate of interest shall be such lesser amount as applicable law may
allow.
31. TRANSFER OF LANDLORD'S INTEREST. For purposes of this Lease,
"Landlord" shall mean only the owner, receiver, conservator, trustee or the
mortgage in possession for the time being of the land and building of which the
demised premises form a part. In the event of any transfer, conveyance or
assignment of said land and building, the transferor shall be and hereby is
entirely relieved of all of its obligations and covenants of Landlord as set
forth hereunder, and it shall be deemed to construe without further agreement
between the parties or their successors in interest or between the parties and
the transferee of said land and building, that the transferee of the land and
building has assumed and agreed to any and all covenants and obligations of
Landlord hereunder.
32. MEMBERSHIP IN STATE STREET AREA ASSOCIATION. During the term of
this Lease and any extensions, Tenant shall at all times participate as a member
in good standing of the State Street Area Association.
33. CONTINGENCY. This Lease shall be contingent upon the
determination by the parties that the estimated cost of the Qualified Leasehold
Improvements to the Building as defined in paragraph 4, do not exceed Eight
Hundred Seventy-Five Thousand Dollars ($875,000). To assist Tenant in
determining the estimated cost of Qualified Leasehold Improvements, Landlord
agrees to provide, and pay for, a structural analysis of the Building by
Ehlert/Bryan, Inc., which analysis shall be completed and made available to the
Tenant on or before October 1, 1988. Tenant shall, at its expense, cause
Tenant's architect to prepare schematic drawings of all proposed leasehold
improvements to the Building, and to advise the parties, on or before November
8, 1988, of the architect's best estimate of the actual cost of the proposed
leasehold improvements which constitute Qualified Leasehold Improvements.
In the event that the architect's estimate of the actual cost of the
proposed Qualified Leasehold Improvements is $875,000 or less, then this
contingency shall be deemed to be removed, and this Lease shall be in full force
and effect, specifically including the provisions of paragraph 4 which identify
the Landlord's obligation for the payment or reimbursement of expenses for
Qualified Leasehold Improvements. The parties specifically acknowledge that
Landlord shall be obligated to pay, or reimburse Tenant, for Qualified Leasehold
Improvements under
19
<PAGE> 23
paragraph 4 even if the actual costs of Qualified Leasehold Improvements exceed
the architect's estimate and/or exceed $875,000.
If the estimated cost by the architect of the Qualified Leasehold
Improvements to the Building exceed $875,000, then:
(a) Landlord may terminate this Lease, by written notice to
Tenant, unless Tenant agrees, in writing, on or before November 15, 1988 to pay
all costs for Qualified Leasehold Improvements in excess of $875,000; and
(b) Tenant may terminate this Lease unless Landlord agrees, in
writing, on or before November 15, 1988, to pay all costs for Qualified
Leasehold Improvements in excess of $875,000.
LANDLORD:
HOGARTH MANAGEMENT,
a Michigan Co-Partnership
By: /s/ Thomas P. Borders
--------------------------------
Thomas P. Borders, Partner
TENANT:
NEBRASKA BOOK COMPANY, INC.
a Kansas Corporation
By: /s/ Todd J. Hunter
--------------------------------
Its: Executive Vice President
20
<PAGE> 24
EXHIBIT A
Description of Real Estate
Lots "C" and "D" in John Orr's Subdivision according to the recorded plat
thereof; also the land platted as a private alley ten feet wide adjoining said
lots on the east. Also lot "E" in John S. Orr's Subdivision according to the
recorded plat thereof. Together with the fee in the alley running north and
south along the west side of lot "E" and the fee as one of the tenants in common
with all the others of lots in said subdivision, to the Court in the rear of lot
"E", subject however to the use of all of said alley excepting the south
forty-six feet thereof and of said Court in connection therewith, forever, as a
private alley for all owners of lots in said subdivision as completely as though
said alley and Court were, in fact, dedicated as a public alley; excepting from
the above described premises, that certain piece or parcel of land conveyed by
Bradley M. Thompson, Francis M. Hamilton, Gottlieb Wild, David Wild, (agent G.H.
Wild) to Roscoe B. Huston, Irvin Huston and Corwin Huston by a warranty deed
dated June 12, 1909 and recorded June 25, 1909 in Liber 178 of Deeds page 18,
also excepting that part of said court conveyed to Selby A. Moran by deed dated
April 11, 1930 and recorded in Liber 295 of Deeds on page 179. Also a right of
way over the south twelve feet of lot eleven in block two south, range ten east
of the Eastern Addition to the City of Ann Arbor, and also all of the rights of
the Ann Arbor Savings Bank in right of way conveyed in the agreement dated June
28, 1923 and recorded in Liber 240 of Deeds page 410 and in the deed dated June
10, 1930 and recorded in Liber 295 of Deeds on page 150, said rights of way to
be used in common with all persons holding of record any rights therein; also
known as the Trick Building situated on the northeast corner of South State
Street and North University Avenue, Ann Arbor, Washtenaw County, Michigan.
<PAGE> 25
Exhibit B to lease between
HOGARTH MANAGEMENT, as Landlord
NEBRASKA BOOK COMPANY, INC., as Tenant
"QUALIFIED LEASEHOLD IMPROVEMENTS"
In addition to the facade and asbestos allowances specifically
described in the lease, the tenant improvement allowance provided by landlord
may be applied only to the following specific improvements:
DEMOLITION:
Demolition of all non-load bearing interior partitions not required
by tenant.
Demolition of all exposed, abandoned wiring and piping.
Demolition of material necessary for openings for one three-stop
elevator and one open stair serving all three current levels.
STRUCTURE:
Repair any existing damage or deterioration to the existing
structure that causes the structure to be unsuitable for tenant's use.
Seal and fill vault under sidewalk adjacent to the southeast corner
of the building.
Reinforce the existing structure as necessary to allow a live load
of 75 pounds per square foot on the existing second level and a live load of 150
pounds per square foot on the existing first floor level
STAIRS:
Modify two existing stairwells to satisfy existing code
requirements.
Construct one new open stair to all three levels.
ELEVATOR:
Construction of pit, foundation, and masonry shaft for one elevator
serving all three current levels.
<PAGE> 26
Installation of one three stop elevator suitable for passengers and
freight.
<PAGE> 27
Exhibit B
Page Two
FIRE SUPPRESSION SYSTEM:
Construct and install new water service to building sufficient for
new fire suppression system.
Install sprinkler system together with all necessary valves and
controls for three non-subdivided floors.
Install code required "deluge system" for new open stair.
ELECTRICAL SYSTEM:
Install new electrical service to building sufficient for its new
use and code requirements.
Install new electrical panels sufficient for the building's new use
and code requirements.
Install exit and emergency lighting as required by code.
MECHANICAL SYSTEM:
Install new air handling units and duct work sufficient for three
non-subdivided floors.
Install new air conditioning units including connection to new air
handling units.
Connect existing boiler to new air handling units.
Install and connect new thermostatic controls to new air handling
units and other equipment as necessary.
REST ROOMS:
Modify existing or construct new non-public rest rooms as required
by code.
<PAGE> 28
ROOF:
Replace the existing roof.
<PAGE> 29
Exhibit B
Page Three
The following items are not "Qualified Leasehold Improvements":
All electrical distribution from the main panel.
Lighting throughout the building.
Ceiling finish on all levels.
Floor coverings on all levels.
Wall finish work and fixtures on all levels.
Interior and exterior signage.
All modifications and new construction of interior walls, floors,
and ceilings for tenant's requirements.
Any modifications to the sprinkler system or mechanical duct system
required by tenant's modifications or new construction of interior walls,
floors, and ceilings.
Any additions to the existing building. All alarm systems and fire
extinguishers.
All phone and computer equipment with related wiring and
connections.
<PAGE> 1
Exhibit 10.16
INDUSTRIAL REAL ESTATE LEASE
ARTICLE I
BASIC TERMS
This Article I contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article I explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: June 22, 1987.
Section 1.02. Landlord: Cypress Land Company, a California Limited
Partnership.
Address of Landlord: 2630 El Presidio Street, Long Beach,
California, 90810
Section 1.03. Tenant: Nebraska Book Company, Inc., a Kansas
corporation.
Address of Tenant: 6400 Cornhusker Highway, P.O. Box 80529, Lincoln,
Nebraska 68501-0529, with additional notices to: 6590 Darin Way, Cypress,
California 90630.
Section 1.04. Property: (Include street address, approximate square
footage and description) 6590 Darin Way, Cypress, California 90630, consisting
of approximately 63,792 square foot concrete tilt-up industrial building. See
legal description attached hereto as Exhibit "A".
Section 1.05. Lease Term: One hundred and twenty (120) months
beginning on September 1, 1987 or such other date as is specified in this Lease,
and ending on August 31, 1997.
Section 1.06. Permitted Uses: (See Section 5.01) Textbook operation,
offices and warehousing.
Section 1.07. Tenant's Guarantor: (If none, so state) None.
Section 1.08. Landlord's Broker: (See Article Fourteen) (If none, so
state) Coldwell Banker Commercial Real Estate Services.
Section 1.09. Tenant's Broker: (If none, so state.) Coldwell Banker
Commercial Real Estate Services.
<PAGE> 2
2
Section 1.10. Commission Payable to Landlord's Broker: (See Article
Fourteen) Per separate written agreement.
Section 1.11. Initial Security Deposit: (See Paragraphs 3.03 and
13.03(c)) $24,879.00(*)
Section 1.12. Vehicle Parking Spaces Allocated to Tenant: (See
Multi-Tenant Facility Lease Rider, if attached) N/A
Section 1.13. Rent and Other Charges Payable by Tenant: (See
paragraph 15 of Rider)
(a) Base Rent: Twenty-Four Thousand Eight Hundred Seventy-Nine
Dollars ($24,879.00) per month for the first thirty (30) months, as provided in
Section 3.01, and shall be increased on the first day of the(**) after the
Commencement Date, in accordance with the increase in the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index for Urban
Wage Earners and Clerical Workers (all Items for the Los Angeles/Long Beach
Statistical Area on the basis of 1967 = 100 [the "Index"]), as provided in
Section 3.02. See Rider Paragraph 25.
(b) Other Periodic Payments: (i) Real Property Taxes (See
Section 4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See
Section 4.04); (iv) Common Area Charges (See Section 4.05); (v) Impounds for
Insurance Premiums and Property Taxes (See Section 4.08); (vi) Maintenance,
Repairs and Alterations (See Article Six).
Section 1.14. Riders: The following Riders are attached to and made
a part of this Lease: (If none, so state) Paragraphs 15 through 29.
ARTICLE II
LEASE TERM
Section 2.01. Lease of Property for Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term.
- ----------
(*) Paid to Landlord on execution of Lease. See paragraph 26 of Rider.
(**) Thirty-first (31st), sixty-first (61st) and ninety-first (91st) months
("Rental Adjustment Dates")
<PAGE> 3
3
The Lease Term is for the period stated in Section 1.05 above and shall begin
and end on the dates specified in Section 1.05 above, unless the beginning or
end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
first date specified in Section 1.05 above. Landlord's non-delivery of the
Property to Tenant on that date shall not affect this Lease or the obligations
of Tenant under this Lease. However, the Commencement Date shall be delayed
until possession of the Property is delivered to Tenant. The Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If Landlord does not deliver possession of the Property
to Tenant within sixty (60) days after the first date specified in Section 1.05
above, Tenant may elect to cancel this Lease by giving written notice to
Landlord within ten (10) days after the 60-day period ends. If Tenant gives such
notice, the Lease shall be canceled and neither Landlord nor Tenant shall have
any further obligations to the other. If Tenant does not give such notice,
Tenant's right to cancel the lease shall expire and the Lease Term shall
commence upon the delivery of possession of the Property to Tenant. If delivery
of possession of the Property to Tenant is delayed, Landlord and Tenant shall,
upon such delivery, execute an amendment to this Lease setting forth the
Commencement Date and expiration date of the Lease.
Section 2.03. Early Occupancy. If Tenant occupies the Property prior
to the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. Holding Over. Tenant shall vacate the Property upon
the expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages incurred by Landlord
from any delay by Tenant in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except the Base Rent then in effect shall be
increased by twenty-five percent (25%).
<PAGE> 4
4
ARTICLE III
BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.13(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. Cost of Living Increases. The Base Rent shall be
increased at the times specified in Paragraph 1.13(a) above, in proportion to
the increase in the Index which has occurred between the first month of the
Lease Term and the month in which the rent is to be increased. Landlord shall
notify Tenant of each increase by delivering a written statement setting forth
the Indices for the appropriate months, the percentage increase between those
two Indices, and the new amount of the Base Rent. The Base Rent shall not be
reduced from the last previous adjusted Base Rent by reason of any decrease in
the Index. Tenant shall pay the new Base Rent from its effective date until the
next periodic increase. Landlord's notice may be given after the effective date
of the increase since the Index for the appropriate month may be unavailable on
the effective date. In such event, Tenant shall pay Landlord the necessary
rental adjustment for the months elapsed between the effective date of the
increase and Landlord's notice of such increase within ten (10) days after
Landlord's notice. If the format or components of the Index are materially
changed after the Date of Lease, Landlord shall substitute an index which is
published by the Bureau of Labor Statistics or similar agency and which is most
nearly equivalent to the Index in effect on the Date of Lease. Landlord shall
notify Tenant of the substituted Index, which shall be used to calculate the
increase in the Base Rent unless Tenant objects in writing within fifteen (15)
days after receipt of Landlord's notice. If Tenant objects, the substitute Index
shall be determined in accordance with the rules and regulations of the American
Arbitration Association. The cost of such arbitration shall be borne equally by
Landlord and Tenant.
Section 3.03. Security Deposit Increases. Each time the Base Rent is
increased, Tenant shall deposit additional funds with Landlord sufficient to
increase the Security Deposit to an amount which bears the same relationship to
the adjusted Base Rent as the initial Security Deposit bore to the initial Base
Rent; if such Security Deposit is required under Section 1.11 and paragraph 26
of the Rider.
Section 3.04. Termination; Advance Payments. Upon termination of
this Lease under Article Seven (Damage or Destruction), Article Eight
(Condemnation) or any other termination not resulting from Tenant's default, and
after Tenant has vacated the Property in the manner required by this Lease, an
<PAGE> 5
5
equitable adjustment shall be made concerning advance rent, any other advance
payments made by Tenant to Landlord, and accrued real property taxes, and
Landlord shall refund the unused portion of the Security Deposit to Tenant or
Tenant's successor.
ARTICLE IV
OTHER CHANGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other
than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, all Additional Rent shall be paid with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Real Property Taxes. (See paragraph 20 of Rider)
(a) Payment of Taxes. Tenant shall pay all real property taxes
on the Property during the Lease Term. Subject to Paragraph 4.02(c) and Section
4.08 below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Tenant shall promptly furnish Landlord with
satisfactory evidence that the real property taxes have been paid. Landlord
shall reimburse Tenant for any real property taxes paid by Tenant covering any
period of time prior to or after the Lease Term. If Tenant fails to pay the real
property taxes when due, Landlord may pay the taxes and Tenant shall reimburse
Landlord for the amount of such tax payment as Additional Rent.
(b) Definition of "Real Property Tax." "Real property tax"
means: (i) any fee, license fee, license tax, business license fee, commercial
rental tax, levy, charge, assessment, penalty or tax imposed by any taxing
authority against the Property or land upon which the Property is located; (ii)
any tax on the Landlord's right to receive, or the receipt of, rent or income
from the Property or against Landlord's business of leasing the Property; (iii)
any tax assessment (subject to paragraph 20.2 of Rider) or charge for fire
protection, streets, sidewalks, road maintenance, refuse or other services
provided to the Property by any governmental agency; (iv) any tax imposed upon
this transaction or based upon a re-assessment of the Property due to a change
in ownership or transfer of all or part of Landlord's interest in the Property;
and (v) any change or fee replacing any tax previously included within the
definition of real property tax. "Real property tax" does not, however, include
Landlord's federal or state income, franchise, inheritance or estate taxes.
<PAGE> 6
6
(c) [deleted]
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately
from the Property.
(ii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for the personal
property within fifteen (15) days after the Tenant receives a written
statement from Landlord for such personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to
have the assessed valuation of the Property reduced or may initiate proceedings
to contest the real property taxes. If required by law, Landlord shall join in
the proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
Section 4.03. Utilities. Tenant shall pay, directly to the
appropriate supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Property. On the Commencement Date, utilities servicing the
Property shall be separately metered.
Section 4.04. Insurance Premiums. (See section 23 of Rider)
(a) Liability Insurance. During the Lease Term, Tenant shall
maintain a policy of comprehensive public liability insurance at Tenant's
expense, insuring Landlord against liability arising out of the ownership, use,
occupancy or maintenance of the Property. The initial amount of such insurance
shall be at least $1,000,000 per occurrence, and shall be subject to periodic
increase based
<PAGE> 7
7
upon inflation, increased liability awards, recommendation of professional
insurance advisers, and other relevant factors. However, the amount of such
insurance shall not limit Tenant's liability nor relieve Tenant of any
obligation hereunder. The policy shall contain cross-liability endorsements, if
applicable, and shall insure Tenant's performance of the indemnity provisions of
Paragraphs 5.04(a), (b) and (e). Tenant shall, at Tenant's expense, maintain
such other liability insurance as Tenant deems necessary to protect Tenant. If
possible, the policies will contain a provision whereby Landlord and Tenant
waive subrogation rights.
(b) Hazard and Rental Income Insurance. During the Lease Term,
Tenant shall maintain policies of insurance at Tenant's expense, covering loss
of or damage to the Property in the full amount of its replacement value. Such
policies shall provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risks), sprinkler leakage, earthquake sprinkler
leakage, and Inflation Guard endorsement, and any other perils (except flood and
earthquake, unless required by any lender holding a security interest in the
Property) which Landlord deems necessary. Tenant shall obtain insurance coverage
for Tenant's fixtures, equipment or building improvements installed by Tenant in
or on the Property. Tenant shall, at Tenant's expense, maintain such primary or
additional insurance on its fixtures, equipment and building improvements as
Tenant deems necessary to protect its interests. During the Lease Term, Tenant
shall also maintain a rental income insurance policy at Tenant's expense, with
loss payable to Landlord in an amount equal to one year's Base Rent, estimated
real property taxes and insurance premiums. Tenant shall not do or permit to be
done anything which invalidates any such insurance policies.
(c) Payment of Premiums; Insurance Policies. Subject to
Section 4.05, Tenant shall pay all premiums for the insurance policies covering
the Property described in Paragraphs 4.04(a) and (b) within fifteen (15) days
after receipt by Tenant of a copy of the premium statement or other evidence of
the amount due. If the Lease Term expires before the expiration of the insurance
policy period, Tenant's liability for insurance premiums shall be prorated on an
annual basis. All insurance shall be maintained with companies holding a
"General Policyholder's Rating" of B+ or better, as set forth in the most
current issue of "Best's Insurance Guide." Tenant shall be liable for the
payment of any deductible amount under Landlord's insurance policies.
Section 4.05. Rules and Regulations. Tenant shall pay monthly, in
advance, its pro rata share of common area maintenance and repair costs as
reasonably determined by Landlord. Tenant shall also comply with Landlord's
rules and regulations respecting the management, care and safety of the common
areas of such buildings and grounds, including parking areas, landscaped areas,
walkways, hallways and other facilities provided for the common use and
convenience of other occupants. Notice of such rules and regulations will be
posted or given to Tenant.
<PAGE> 8
8
Tenant shall pay for any increase in the property insurance premiums for such
buildings caused by Tenant's acts, omissions, use or occupancy of the Property.
Section 4.06. Late Charges. Tenant's failure to pay rent promptly
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to four percent (4%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment. If Tenant pays and Landlord accepts
payment of such late charge and the delinquent amount relating to such late
charge, then Landlord agrees to waive the interest charges relating to such
delinquent amount and late charge under Section 4.07.
Section 4.07. Interest on Past Due Obligations. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.08. Impounds for Insurance Premiums and Real Property
Taxes. If requested by any ground lessor or lender to whom Landlord has granted
a security interest in the Property, or if Tenant is more than ten (10) days
late in the payment of rent more than once in any consecutive twelve (12) month
period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the
annual real property taxes and/or insurance premiums payable by Tenant under
this Lease, together with each payment of Base Rent. Such payments shall be held
by Landlord in a non-interest bearing impound account. The amount of real
property taxes and insurance premiums when unknown shall be reasonably estimated
by Landlord. Funds in the impound account shall be applied by Landlord to the
payment of real property taxes and insurance premiums when due. Any deficiency
of funds in the impound account shall be paid by Tenant to Landlord upon written
request. If Tenant defaults under this Lease, Landlord may apply any funds in
the impound account to any obligation then due under this Lease.
<PAGE> 9
9
ARTICLE V
USE OF PROPERTY
(See paragraph 21 of Rider)
Section 5.01. Permitted Uses. Tenant may use the Property only for
the Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, covenants, conditions and restrictions, or governmental regulation or
order, which annoys or interferes with the rights of tenants of the development
of which the Property is part, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
substantial and non-substantial actions necessary to comply with all applicable
statutes, ordinances, rules, regulations, orders, covenants, conditions and
restrictions, and requirements regulating the use by Tenant of the Property,
including the Occupational Safety and Health Act.
Section 5.03. Signs and Auctions. Tenant shall not place any signs
on the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auctions or sheriff's sales at the Property.
Section 5.04. Indemnity. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property;
(c) any breach or default in the performance of Tenant's obligations under this
Lease; (d) any misrepresentation or breach of warranty by Tenant under this
Lease; or (e) other acts or omissions of Tenant. Tenant shall defend Landlord
against any such cost, claim or liability at Tenant's expense with counsel
reasonably acceptable to Landlord or, at Landlord's election, Tenant shall
reimburse Landlord for any legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the consideration to
Landlord, Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Property arising from any cause, and Tenant hereby
waives all claims in respect thereof against Landlord, except for any claim
arising out of Landlord's gross negligence or willful misconduct.
Section 5.05. Landlord's Access. Landlord or its agents may enter
the Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties, or for any other purpose Landlord deems
necessary. Landlord shall give Tenant prior notice of such entry, except in the
case of an emergency. Landlord may place customary "For Sale" or "For Lease"
signs on the Property.
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Section 5.06. Quiet Possession. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE VI
CONDITION OF PROPERTY;
MAINTENANCE, REPAIRS AND ALTERATIONS
(See paragraphs 16 and 19 of Rider)
Section 6.01. Existing Conditions. Except as set forth in any rider
requiring Landlord to perform work on the Property prior to the Commencement
Date and paragraph 27 of the Rider, Tenant accepts the Property in its condition
as of the execution of the Lease, subject to all recorded matters, laws,
ordinances, and governmental regulations and orders. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use.
Section 6.02. Exemption of Landlord from Liability. Landlord shall
not be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property or upon other portions of any building of which the
Property is a part, or from other sources or places; or (d) any act or omission
of any other tenant of any building of which the Property is a part. Landlord
shall not be liable for any such damage or injury even though the cause of or
the means of repairing such damage or injury are not accessible to Tenant.
Section 6.03. Tenant's Obligations.
(a) Subject to paragraphs 24 and 27 of the Rider, Tenant shall
keep the Property (including all structural, nonstructural, interior, exterior,
and landscaped areas, portions, systems and equipment) in good order, condition
and repair during the Lease Term. Tenant shall promptly replace any portion of
the Property or system or equipment in the Property which cannot be fully
repaired, regardless of whether the benefit of such replacement extends beyond
the Lease Term. Tenant shall also maintain a preventive maintenance contract
providing for the regular inspection and maintenance of the heating and air
conditioning system by a licensed heating and air conditioning contractor.
However, Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive
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maintenance of the heating and air conditioning system, at Tenant's expense. It
is the intention of Landlord and Tenant that, at all times during the Lease
Term, Tenant shall maintain the Property in an attractive, first-class and fully
operative condition.
(b) All of Tenant's obligations to maintain and repair shall
be accomplished at Tenant's sole expense. If Tenant fails to maintain and repair
the Property, Landlord may, on ten (10) days' prior notice (except that no
notice shall be required in case of emergency) enter the Property and perform
such repair and maintenance on behalf of Tenant. In such case, Tenant shall
reimburse Landlord for all costs so incurred immediately upon demand.
Section 6.04. Landlord's Obligations. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord
shall have absolutely no responsibility to repair, maintain or replace any
portion of the Property at any time. Tenant waives the benefit of any present or
future law which might give Tenant the right to repair the Property at
Landlord's expense or to terminate the Lease due to the condition of the
Property.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed Five Thousand Dollars
($5,000) in cost cumulatively over the Lease Term and which are not visible from
the outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
will be accomplished in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and
material furnished to the Property. Tenant shall give Landlord at least ten (10)
days' prior written notice of the commencement of any work on the Property.
Landlord may elect to record and post notices of non-responsibility on the
Property.
Section 6.06. Condition upon Termination. Upon the termination of
the Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which Tenant
was not otherwise obligated to remedy under any provision of this Lease.
However, Tenant shall not be obligated to repair any damage which Landlord is
required to repair under Article Seven (Damage or Destruction). In addition,
Landlord may require
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Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the termination of the Lease and to restore
the Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of the Lease, except that Tenant may remove any of Tenant's
machinery, trade fixtures or equipment which can be removed without material
damage to the Property. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or equipment
without Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; carpets or other floor coverings; heaters, air conditioners or any
other heating or air conditioning equipment; fencing or security gates; or other
similar building operating equipment and decorations.
ARTICLE VII
DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property. Tenant shall notify
Landlord in writing immediately upon the occurrence of any damage to the
Property. If the Property is only partially damaged and if the proceeds received
by Landlord from the insurance policies described in Paragraph 4.04(b) are
sufficient to pay for the necessary repairs, this Lease shall remain in effect
and Landlord shall repair the damage as soon as reasonably possible. Landlord
may elect to repair any damage to Tenant's fixtures, equipment, or improvements.
If the insurance proceeds received by Landlord are not sufficient to pay the
entire cost of repair, or if the cause of the damage is not covered by the
insurance policies which Tenant maintains under Paragraph 4.04(b), Landlord may
elect either to (a) repair the damage as soon as reasonably possible, in which
case this Lease shall remain in full force and effect, or (b) terminate this
Lease as of the date the damage occurred. Landlord shall notify Tenant within
thirty (30) days after receipt of notice of the occurrence of the damage,
whether Landlord elects to repair the damage or terminate the Lease. If Landlord
elects to repair the damage, Tenant shall pay Landlord the "deductible amount"
(if any) under the insurance policies. If Landlord elects to terminate this
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs, except
that, upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice. If the damage to the
Property occurs during the last six (6) months of the Lease Term, Landlord may
elect to terminate this Lease as of the date the damage occurred, regardless of
the sufficiency of any insurance proceeds. In such event,
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Landlord shall not be obligated to repair or restore the Property and Tenant
shall have no right to continue this Lease. Landlord shall notify Tenant of its
election within thirty (30) days after receipt of notice of the occurrence of
the damage.
Section 7.02. Total or Substantial Destruction. If the Property is
totally or substantially destroyed by any cause whatsoever, this Lease shall
terminate as of the date the destruction occurred regardless of whether Landlord
receives any insurance proceeds, and in such event, Landlord shall receive all
rental continuation insurance proceeds, and all insurance proceeds insuring the
Premises, and Tenant shall pay to Landlord any deductible amount under any
insurance policies. If the destruction was caused by an intentional act or
omission of Tenant, and such act voids an insurance policy or is not covered by
insurance, then this Lease shall terminate, however, Tenant shall pay Landlord
the difference between the actual cost of rebuilding and any insurance proceeds
received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired. However,
the reduction shall not exceed the sum of one year's payment of Base Rent,
insurance premiums and real property taxes. Except for such possible reduction
in Base Rent, insurance premiums and real property taxes, Tenant shall not be
entitled to any compensation, reduction, or reimbursement from Landlord as a
result of any damage, destruction, repair or restoration of or to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a lease
in the event of the substantial destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE VIII
CONDEMNATION
(See Paragraph 28 of Rider)
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building, which is
located on the Property, is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the
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other within ten (10) days after receipt of written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning authority
takes possession). If neither Landlord nor Tenant terminates this Lease, this
Lease shall remain in effect as to the portion of the Property not taken, except
that the Base Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property, or specifically designated in such award as Tenant's "bonus
value" of Tenant's leasehold interest and for Tenant's relocation expenses; and
(c) third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise. If
this Lease is not terminated, Landlord shall repair any damage to the Property
caused by the Condemnation, except that Landlord shall not be obligated to
repair any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not sufficient to
pay for such repair, Landlord shall have the right to either terminate this
Lease or make such repair at Landlord's expense.
ARTICLE IX
ASSIGNMENT AND SUBLETTING
(See paragraph 22 of Rider)
Section 9.01. Landlord's Consent Required. No portion of the
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer, operation
of law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord shall grant or withhold its consent as
provided in Section 9.04 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
corporation, any change in a controlling interest of the voting stock of the
corporation shall require Landlord's consent, subject to Section 9.02.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or
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change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
Section 9.04. Landlord's Election. Tenant's request for consent to
any transfer described in Section 9.01 above shall be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and rent and security
deposit payable under any assignment or sublease), and any other information
Landlord deems relevant. Landlord shall have the right (a) to withhold consent,
if reasonable; (b) to grant consent; or (c) if the transfer is a sublease of the
Property or an assignment of this Lease, to terminate this Lease as of the
effective date of such sublease or assignment, in which case Landlord may elect
to enter into a direct lease with the proposed assignee or subtenant.
Section 9.05. No Merger. No merger shall result from Tenant's
sublease of the Property under this Article Nine. Tenant's surrender of this
Lease or the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord thereunder.
ARTICLE X
DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the performance of
all covenants and conditions.
Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in Section
4.04;
(b) If Tenant fails to pay rent or any other charge required
to be paid by Tenant, as and when due;
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(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the difference between the rent (or any other consideration) paid in connection
with such assignment or sublease and the rent payable by Tenant hereunder.
Section 10.03. Remedies. On the occurrence of any material default
by Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
(a) Terminate Tenant's right to possession of the Property by
any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which had
been earned at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which would have been earned after termination until the time of the
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been paid for the balance of the term after the time of the award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; and (iv) any other amount necessary to compensate
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Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under the Lease or which in the ordinary course of things would
be likely to result therefrom, including, but not limited to, any costs or
expenses incurred by Landlord in maintaining or preserving the Property after
such default, the cost of recovering possession of the Property, expenses of
reletting, including necessary renovation or alteration of the Property,
Landlord's reasonable attorneys' fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii) above,
the "worth at the time of the award" is computed by allowing interest on unpaid
amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as
may then be the maximum lawful rate. As used in subpart (iii) above, the "worth
at the time of the award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
1%. If Tenant shall have abandoned the Property, Landlord shall have the option
of (i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned the
Property. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder;
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.04. Cumulative Remedies. Landlord's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
ARTICLE XI
PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. However, Tenant's right to quiet possession of the
Property during the Lease Term shall not be disturbed if Tenant pays the rent
and performs all of Tenant's obligations under this Lease and is not otherwise
in default. If any ground lessor, beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, deed of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage
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whether this Lease is dated prior or subsequent to the date of said ground
lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver
any instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. Such subordination and
attornment documents may contain such provisions as are customarily required by
any ground lessor, beneficiary under a deed of trust or mortgagee. If Tenant
fails to do so within ten (10) days after written request, Tenant hereby makes,
constitutes and irrevocably appoints Landlord, or any transferee or successor of
Landlord, the attorney-in-fact of Tenant to execute and deliver any such
instrument or document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been canceled or terminated; (iii) that the last date of payment of the Base
Rent and other charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why); and (v) such other matters as may be reasonably required
by Landlord or the holder of a mortgage, deed of trust or lien to which the
Property is or becomes subject. Tenant shall deliver such statement to Landlord
within ten (10) days after Landlord's request. Any such statement by Tenant may
be given by Landlord to any prospective purchaser or encumbrancer of the
Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord
within such ten (10) day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
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Section 11.05. Tenant's Financial Condition. Tenant, within ten (10)
days after written request from Landlord, shall provide credit and bank
references as are reasonably required by Landlord or Landlord's lender, to
verify the creditworthiness of Tenant.
ARTICLE XII
LEGAL COSTS
Section 12.01. Legal Proceedings. Tenant shall reimburse Landlord,
upon demand, for any costs or expenses incurred by Landlord in connection with
any breach or default of Tenant under this Lease, whether or not suit is
commenced or judgement entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. Such attorneys' fees and costs shall be paid by the losing party in such
action. Tenant shall also indemnify Landlord against and hold Landlord harmless
from all costs, expenses, demands and liability incurred by Landlord if Landlord
becomes or is made a party to any claim or action (a) instituted by Tenant, or
by any third party against Tenant, or by or against any person holding any
interest under or using the Property by license of or agreement with Tenant; (b)
for foreclosure of any lien for labor or material furnished to or for Tenant or
such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs incurred by Landlord in any
such claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color,
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sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Waiver of Subrogation. Landlord and Tenant each
hereby waive any and all rights of recovery against the other, or against the
officers, employees, agents or representatives of the other, for loss of or
damage to its property or the property of others under its control, if such loss
or damage is covered by any insurance policy in force (whether or not described
in this Lease) at the time of such loss or damage. Upon obtaining the policies
of insurance described herein, Landlord and Tenant shall give notice to the
insurance carrier or carriers of the foregoing mutual waiver of subrogation.
Section 13.03. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
the transfer. However, each Landlord shall deliver to its transferee all funds
previously paid by Tenant if such funds have not yet been applied under the
terms of this Lease.
(b) Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to Landlord and to
any ground lessor, mortgagee or beneficiary under any deed of trust encumbering
the Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
(c) Upon the execution of this Lease, Tenant shall deposit
with Landlord a cash Security Deposit in the amount set forth in Section 1.11
above. Landlord may apply all or part of the Security Deposit to any unpaid rent
or other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
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Section 13.04. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.05. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees,
contractors, invitees, successors or others using the Property with Tenant's
expressed or implied permission.
Section 13.06. Incorporation of Prior Agreements; Modifications.
This Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.07. Notices. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.03 above, except that upon
Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery or attempted delivery in accordance with this Section 13.07. Either
party may change its notice address upon written notice to the other party.
Section 13.08. Waivers. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.09. No Recordation. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded.
Section 13.10. Binding Effect; Choice of Law. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
<PAGE> 22
22
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.11. Corporate Authority; Partnership Authority. If Tenant
is a corporation, each person signing this Lease on behalf of Tenant represents
and warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person signing this Lease for Tenant represents and warrants that he is a
general partner of the partnership, that he has full authority to sign for the
partnership and that this Lease binds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.12. Joint and Several Liability. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.13. Force Majeure. If Landlord or Tenant cannot perform
any of its obligations due to events beyond Landlord's control, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond Landlord's or Tenant's
control include, but are not limited to, acts of God, war, civil commotion,
labor disputes, strikes, fire, flood or other casualty, shortages of labor or
material, government regulation or restriction and weather conditions. However,
nothing in this Section 13.13 shall forgive or extend the time for any rent or
monetary amounts required to be paid by Tenant under this Lease, and this
Section 13.13 shall not apply to such items required to be paid by Tenant.
Section 13.14. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. The delivery of this Lease by
Landlord to Tenant shall not be deemed to be an offer and shall not be binding
upon either party until executed and delivered by both parties.
<PAGE> 23
23
ARTICLE XIV
BROKERS
Section 14.01. [deleted]
Section 14.02. [deleted]
Section 14.03. No Other Brokers. Tenant represents and warrants to
Landlord that the brokers named in Sections 1.08 and 1.09 above are the only
agents, brokers, finders or other parties with whom Tenant has dealt who are or
may be entitled to any commission or fee with respect to this Lease or the
Property.
Section 14.04. Landlord Responsible. Landlord represents and
warrants to Tenant that Landlord shall be responsible, and shall hold Tenant
harmless regarding same, for commissions to be paid to the Brokers specified in
Sections 1.08 and 1.09 as to the transaction regarding this Lease.
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
Signed on June 22, 1987 CYPRESS LAND COMPANY,
a California limited partnership
at Long Beach, California
---------------------------------
By: /s/ Brian L. Harvey
-----------------------------
Brian L. Harvey,
General Partner
By:
-----------------------------
Its:
----------------------------
"LANDLORD"
<PAGE> 24
24
Signed on June 22, 1987 NEBRASKA BOOK COMPANY, INC.,
a Kansas corporation
at Lincoln, Nebraska
---------------------------------
By: /s/ Bill C. Macy
-----------------------------
Bill C. Macy
Vice President
By:
-----------------------------
Its:
----------------------------
"TENANT"
<PAGE> 25
RIDER TO
INDUSTRIAL REAL ESTATE LEASE DATED JUNE 22, 1987
BY AND BETWEEN
CYPRESS LAND COMPANY, A CALIFORNIA LIMITED PARTNERSHIP
AND
NEBRASKA BOOK COMPANY, INC., A KANSAS CORPORATION
15. Rent Reduction. The Base Rent amount referenced in Section
1.13(a), but no other amounts, for the months of September, October, November
and December, 1987, and January and February, 1988, shall be reduced on a
monthly basis by the amount of Eight Thousand Nine Hundred Twelve and no/100
Dollars ($8,912.00) per month. However, in no event shall the Base Rent be
reduced for the months specified in the preceding sentence (or any portion
thereof), which are after the commencement date of the lease (or sublease or
assignment of any portion of such premises) of Tenant's present facility to a
lessee, other than Tenant, which facility is located on Knott Avenue, Garden
Grove, California.
16. Landlord Improvements. Landlord shall, at Landlord's sole cost
and expense: (i) recarpet the existing improved office areas on the Property,
and (ii) improve the one warehouse office room by adding carpeting, a heating,
ventilating and air conditioning system and "drop" ceiling. Landlord shall also
install ceiling fans to circulate air, per Tenant's reasonable specifications,
in the warehouse area. All of the improvements installed under this paragraph 17
shall be and become part of the Property and may not be removed by the Tenant
during the Lease Term, or upon termination of the Lease. Tenant agrees to repair
and maintain all of the improvements under this paragraph in compliance with the
terms of the Lease. Tenant shall be deemed to have approved and accepted all
improvements under this paragraph 17, if Landlord does not receive written
notice of disapproval of Tenant (specifying and itemizing the specific reasons
for such disapproval) within the later of: (i) sixty (60) days after the
Commencement Date of the Lease or (ii) thirty (30) days after completion of such
improvements.
17. Common Area Maintenance. The Tenant shall pay common area
maintenance, repair and other common area costs pursuant to Section 4.05 of the
Lease.
18. Sign Criteria. Tenant shall not place any sign upon the Property
without Landlord's prior written consent. Landlord reserves the right to approve
the size, type and appearance of any sign. All signs shall comply with any
requirements of the City of Cypress and the requirements of Landlord. Landlord
may require that any sign be installed only by companies approved by Landlord,
provided such sign companies charge rates reasonably competitive with other
companies in the general area.
<PAGE> 26
2
19. Maintenance and Repairs. In addition to the provisions described
in Article VI of the Lease, Landlord shall have the right in Landlord's
discretion, to require Tenant to utilize maintenance and landscape companies,
approved by Landlord, to keep in good order, condition and repair, the Property
and landscaping of the Property, including but not limited to the painting of
the exterior and interior of any improvements on the Property, and the repair
and maintenance of the parking areas, all at periodic intervals (provided such
companies used by Landlord charge rates reasonably competitive with other
companies in the general area). All such costs and expenses shall be paid by the
Tenant directly or to Landlord upon billing by the Landlord, and shall be
treated as monetary amounts due Landlord under the terms of the Lease.
20. Real Property Taxes.
20.1 Landlord may, in Landlord's sole discretion, pay the real
property taxes (due under Section 4.02 of the Lease) to the appropriate
governmental authority, and have Tenant pay such amount to Landlord, by Landlord
delivering evidence of payment of such amount to Tenant. If Tenant does not pay
over any such amounts to Landlord, within thirty (30) days of Landlord's
delivery of evidence of such payment to Tenant, then Tenant shall be required to
pay such amount to Landlord with Tenant's next rental installment, together with
interest from the date of Landlord's payment of such tax at the lesser of 15% or
the maximum interest rate then allowable by law. If Tenant continues to fail to
pay such amount to Landlord, then such amount shall be treated as a failure of
Tenant to pay Landlord a monetary amount due under the terms of the Lease.
20.2 In the event any special assessments for a specific
public capital improvement, such as for a specific sewer system or specific road
(but excluding special assessments for general improvements, maintenance, road
maintenance or traffic control, all of which shall be paid as provided in the
last sentence of this paragraph 20.2) are levied against the Property during the
term of this Lease or any extension thereof, Tenant shall pay for Tenant's share
of such special assessment, based upon the useful life of the specific public
capital improvement. The total amount of such special assessment that the Tenant
shall be required to pay shall be determined by multiplying the total amount of
such special assessment by a fraction, the numerator of which shall be the
number of months remaining under the Lease term on the date that such special
assessment is assessed, and the denominator of which is the number of months of
the useful life of such specific public capital improvement. If a special
assessment for a specific public capital improvement may be paid in installments
(whether annual, monthly or otherwise), then the Landlord, at Landlord's
discretion, may elect to pay such assessment in installments and to equitably
charge Tenant for Tenant's portion of the installments. If the Landlord and the
Tenant cannot agree upon the useful life of any such specific public capital
improvement to be financed by the special assessment, the useful life shall be
determined by a consensus of three engineers, each party naming
<PAGE> 27
3
one, and those two engineers naming a third engineer, with the costs of the
three engineers being paid equally by Tenant and Landlord. Tenant shall be
responsible for paying the entire special assessments for all other special
assessments assessed during the Lease Term and any extended terms, including but
not limited to, maintenance, road maintenance or traffic control, general
improvements, and other public uses; provided, however, if such other special
assessments may be paid in installments to the appropriate governmental
authority, then Landlord agrees to elect to pay such other special assessment in
installments, and Tenant shall be responsible for those installments due for, or
pertaining to, that period of time covering the Lease term or any extensions
thereof.
21. CC&RS. Tenant acknowledges that the Lease and Tenant's leasehold
interest under the Lease is subordinate to covenants, conditions and
restrictions promulgated or recorded in connection with the Property and as a
requirement of any parcel map, and any amendments or modifications thereto.
Tenant agrees to execute and acknowledge any document evidencing the
subordination described in this paragraph requested by Landlord from time to
time. Tenant agrees to comply with all of the provisions of such covenants,
conditions and restrictions, including but not limited to use and maintenance of
the Property, provisions for earth berms, landscaping, parking, storage and
waste removal, trucking and loading, drainage care, maintenance and repair of
signs. Tenant shall be responsible for all costs of maintenance, and any
assessments or charges, pertaining to such covenants, conditions and
restrictions, as related to Tenant's Property or a proportionate amount for any
common area.
22. Assignment. In the event Tenant assigns, transfers or subleases
all or any portion of the Property (except to a Tenant affiliate under Section
9.02), then in addition to all of the Landlord's other rights and amounts to be
paid to Landlord under the Lease, Landlord shall have the right to elect to: (i)
release Tenant from all other obligations under the Lease as to the portion of
the Property assigned, leased or subleased from the date of the occupancy of the
Property, and require that Tenant immediately pay to Landlord all amounts or
premiums paid or to be paid to Tenant or other person, or rental amounts paid
greater than the Base Rent, for such assignment, transfer or sublease (if only
part of the Property is assigned, transferred or subleased, then the calculation
of amounts, premiums or rental amounts to be paid shall be based upon the
proportionate square footage assigned, transferred or subleased, as the case may
be); or (ii) to hold Tenant liable under the terms of Section 9.03, and Tenant
shall immediately pay to Landlord one-half (1/2) of all amounts or premiums paid
or to be paid to Tenant or other person, or rental amounts paid greater than the
Base Rent, for such assignment, transfer or sublease (if only part of the
Property is assigned, transferred or subleased, then the calculation of amounts,
premiums or rental amounts to be paid shall be based upon the proportionate
square footage assigned, transferred or subleased, as the case may be). This
Paragraph 22 shall apply also to transfers described in Section 9.03. Tenant
shall be required to provide Landlord at least thirty (30) days' prior written
notice of Tenant's assignment
<PAGE> 28
4
transfer or sublease of all or any portion of the Property, along with financial
statements and income tax returns of the proposed assignee, transferee or
sublessee for the immediate preceding three (3) years, and the immediate
preceding quarter, in order that Landlord may have the necessary information to
make Landlord's election under this Paragraph 22. Landlord shall make its
election under this Paragraph 22 upon receipt of the information in the
preceding sentence, and after the sublease or assignment has been executed by
Tenant and such assignee or sublessee, by providing written notice to Tenant of
such election.
23. Insurance. In addition to the provisions at Section 4.04 of the
Lease, the following provisions shall apply regarding insurance:
23.1 If Tenant fails to maintain insurance policies or to pay
timely any insurance premiums required under the Lease, then Landlord may obtain
any necessary insurance required under the Lease and/or pay such premiums, and
in such event Tenant shall be considered in default under the Lease and shall
owe such premium amount and other amounts to Landlord as additional rent.
23.2 All property insurance and rental income insurance shall
provide for all payments of losses thereunder to Landlord. Such insurance shall
contain an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by no less than two percent (2%) per quarter
in any year; provided, however, that Tenant shall have the right to prove to
Landlord and Landlord's representatives that the Property is insured for its
full replacement cost under the terms of this Lease in order to not have such
automatic 2% quarterly increase apply in such year.
23.3 The deductible amount of any insurance shall not exceed
$2,000 per occurrence, and Tenant shall be liable for such deductible amount.
23.4 Tenant shall, prior to the Commencement Date, deliver to
Landlord copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with loss payable clauses as required by
the Lease. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Landlord. Tenant shall, at least thirty (30) days prior to the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof to
Tenant, which amount shall be payable by Tenant immediately to Landlord as
additional rent, and Tenant shall be considered in default under the Lease.
Tenant shall not do, or permit to be done, anything which shall invalidate the
insurance policies required under this Lease. If Tenant does, or permits to be
done, anything which shall increase the cost of such insurance policies, then
Tenant shall forthwith upon Landlord's demand reimburse Landlord for any
additional premiums attributable to any act or omission or operation of Tenant
causing such increase in the cost of insurance.
<PAGE> 29
5
24. Roof. Landlord agrees to repair and maintain the roof, at
Landlord's expense (except due to damage caused by Tenant). Landlord shall
commence repair and maintenance of the roof within a reasonable period of time
after Landlord receives written notice from Tenant indicating the requirement
for same, and Landlord shall proceed with due diligence to repair the roof after
receipt of such notice. If Landlord fails to commence repairing the roof after
written notice from Tenant or to proceed with due diligence to repair same, then
Tenant may repair such roof after written notice to Landlord of Landlord's
noncompliance with the repairing of the roof, and in such event, Tenant may
offset rent otherwise due to Landlord to reimburse Tenant for the cost of
repairing the roof (provided Tenant uses repair persons at reasonably
competitive market rates in the general area). Landlord's obligation to maintain
the roof under this paragraph shall not make Landlord liable for any
consequential damages from the roof, and Landlord shall be exempt from such
liability pursuant to the terms of Section 6.02 of the Lease.
25. Limits on Rent Adjustments. On each specified Rental Adjustment
Date for the adjustments under Section 1.13(a), the Base Rent shall increase a
minimum of four percent (4%) multiplied times each twelve (12) month period (or
a proportionate amount for any period less than 12 months) cumulative, and a
maximum of eight percent (8%) multiplied times each 12-month period (or a
proportionate amount for any period less than 12 months) cumulative, between the
last immediately preceding Rental Adjustment Date (or the Lease Commencement
Date, if there is no previous Rental Adjustment Date), and the Rental Adjustment
Date on which the Base Rent is to be adjusted.
26. Security Deposit. The following language shall be added to
Section 1.11: "Provided that if, as of August 31, 1988, Tenant has fully
complied with all of Tenant's obligations to be performed during the first
twelve (12) months of the Lease, and Tenant has not been in default of the
payment of a monetary amount due under the terms of the Lease, then the entire
Security Deposit shall be returned to Tenant, without interest. If Tenant at any
time during this Lease should assign, sublease, transfer, by operation of law or
otherwise, the Property to another person, whether or not the Landlord consents
to same under the terms of Article 9 (except if such assignment, sublease or
transfer is to a Tenant affiliate as defined in Section 9.02), then the
sublessee, assignee or transferee, as the case may be, shall be required to pay
to Landlord the Security Deposit described in Sections 1.11 and 3.03.
27. Landlord Warranties. In order to induce Tenant to execute this
Lease, Landlord represents to Tenant as follows:
27.1 The Property on the Commencement Date shall be in
attractive, first class and fully operative condition.
27.2 The Property is on the date hereof and will be on the
Commencement Date in structurally good and sound condition.
<PAGE> 30
6
27.3 The Property on the date hereof and on the Commencement
Date will comply with all government rules, laws, ordinances, regulations or
requirements, of any kind whatsoever (including without limitation, all building
codes, zoning codes, and police and fire regulations), and will on the
Commencement Date comply with all private restrictions, conditions and covenants
including without limitation the Declaration of Covenants, Conditions and
Restrictions for Cypress Corporate Center, a copy of which has been presented to
Tenant by Landlord, except as to any special requirements because of Tenant's
use of the Premises or caused by Tenant's modifications of the Premises.
27.4 The Property does not contain on the Commencement Date of
the Lease any asbestos nor any hazardous waste material subject to federal,
state or local regulations as to use, contact, storage or disposal, including,
without limitation, hazardous waste or materials subject to regulation by the
Environmental Protection Agency or the Occupational Safety and Health Acts of
the United States of America. In the event asbestos or hazardous waste material,
or any effects thereof, are found to have existed on the Property as of the
Commencement Date, Landlord, at its sole expense, and in compliance with
applicable laws and regulations, shall promptly remove such asbestos or
hazardous waste or material, or the effects thereof, from the Property.
27.5 On the Commencement Date, Landlord has fee title to the
Property.
If Tenant's acts cause a breach of an above representation or
warranty (except for paragraph 27.5), then Landlord shall not be responsible for
same.
28. Condemnation. The following shall be added at the end of Article
8: "If the portion of the Property taken under the power of eminent domain by
the governmental authority is the area utilized to park cars on the Property,
and such taking of the parking area makes it economically unfeasible for the
Tenant to utilize the Property, then the Tenant may, at Tenant's option, serve
notice upon the Landlord to terminate the Lease; provided, however, that in such
event, the Landlord may elect to provide to Tenant similar numbers of parking
spaces on Landlord's other property in the immediate area, in which event this
Lease shall remain in effect. In no event shall Tenant receive any portion of a
condemnation award, have any rights to terminate this Lease, nor shall there be
any reduction in rent, or the taking of any portion of the Property which is not
occupied by the Building or used as a parking area on the Property."
29. Option to Extend. Provided that Tenant is not in default of any
provisions of the Lease, Tenant shall have two options to extend the Lease term,
upon the same terms and conditions (except as provided in paragraphs 29.1
through 29.3 below). The first option period shall be for a term of five (5)
years, commencing on September 1, 1997, and ending on August 31, 2002 ("First
Extended Term"), and the
<PAGE> 31
7
second option period shall commence September 1, 2002, and shall end on August
31, 2007 ("Second Extended Term"). The Tenant may only exercise the option for
the First Extended Term if this Lease is in effect, and Tenant is not in default
under any provision of the Lease on the date of exercise. Tenant may only
exercise the option for the Second Extended Term if this Lease is in effect and
Tenant is not in default under any provision of the Lease on the date of
exercise, and Tenant has properly exercised the option for the First Extended
Term.
29.1 If Tenant desires to extend the term of the Lease for the
First Extended Term or the Second Extended Term, as the case may be, then Tenant
shall provide notice to Landlord of such intention, in writing, at least six (6)
months, but no sooner than eight (8) months, prior to the commencement date of
the First Extended Term or the Second Extended Term, as the case may be. The
Base Rent that Tenant shall be required to pay to Landlord as rent for the
Property, in advance, on the first day of each month for the First Extended Term
or the Second Extended Term, as the case may be (as adjusted under paragraph
29.3) and Tenant's right to exercise Tenant's option for the First Extended Term
or the Second Extended Term, as the case may be, shall be determined as follows:
(a) Upon Tenant's delivery to Landlord of Tenant's
intention to extend the Lease term for the First Extended Term or the Second
Extended Term, as the case may be, Tenant and Landlord shall negotiate a monthly
Base Rent amount for the applicable extended term of the Lease equal to the Fair
Market Rental Value of the Property. For purposes of this paragraph 29, the term
"Fair Market Rental Value" shall mean the monthly rental amount (excluding
taxes, utilities, common area costs, insurance and other similar costs, which
shall be additional rent during the applicable extended term) for which
properties similar to the Property within a 5-mile radius of the Property are
being rented on the date of the negotiations or appraisal, as the case may be
(but in no event sooner than six months prior to the commencement date of the
applicable extended term).
(b) If Tenant and Landlord can not for any reason agree
in writing as to the monthly Fair Market Rental Value, within twenty (20) days
after Landlord's receipt of Tenant's intention to exercise the option, then
Tenant and Landlord shall each appoint a separate appraiser qualified to
appraise real estate leases of a similar nature to the Lease, who is certified
as an MAI appraiser, and: (1) require such appraiser to submit in writing to
Tenant and Landlord, within thirty (30) days after Landlord's receipt of
Tenant's intention to exercise the option, a determination of the monthly Fair
Market Rental Value of the Property, and (2) request such appraisers to utilize
their respective appraisals to agree with each other in writing on the Fair
Market Rental Value for the applicable extended term. If the two appraisers
cannot agree in writing on the Fair Market Rental Value within such 30-day
period, then the two appraisers shall appoint a third qualified appraiser who is
certified as an MAI appraiser. The third appraiser shall, within fifty (50) days
after Landlord's receipt of Tenant's intention to exercise the option, determine
and
<PAGE> 32
8
submit to Tenant and Landlord in writing the monthly Fair Market Rental Value of
the Lease for the extended term. The third MAI appraiser shall be provided with
copies of the first two MAI appraisals. The decision of the third MAI appraiser
shall be final. Each party shall pay the expenses of their respective
appraisers. The expenses of the third MAI appraiser shall be paid equally by
Tenant and Landlord.
29.2 Upon determination of the Fair Market Rental Value of the
Property for the First Extended Term or the Second Extended Term, as the case
may be, the Tenant shall have ten (10) days after delivery to the Tenant of the
determination of such value (or the negotiation of such Fair Market Rental
Value, as the case may be) to deliver written notice to Landlord of Tenant's
election to extend the term of this Lease for the First Extended Term or Second
Extended Term, as the case may be. Time is of the essence in providing notices
and in making elections of the options under this Section 29. Upon Landlord's
receipt of Tenant's election to exercise the option for the First Extended Term
or the Second Extended Term, as the case may be, Tenant may not revoke such
election to exercise such option, and such option shall be deemed exercised. If
Tenant fails to provide the required notice of intent or the notice to exercise
such option by the dates specified herein, then such option shall expire and be
of no further force or effect.
29.3 The Base Rent (as determined under paragraph 29.1) during
the First Extended Term and the Second Extended Term shall be increased (without
the application of paragraph 25) on the 31st month of the First Extended Term
and the 31st month of the Second Extended Term, as the case may be, in
accordance with the increase in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical
Workers (all Items for the Los Angeles, Long Beach, Anaheim Statistical Area on
the Basis of 1967 = 100 (the "Index"), as provided in Section 3.02 of the Lease.
In determining the increase under Section 3.02, the commencement date of the
First Extended Term or the Second Extended Term, as the case may be, should be
used in lieu of the "first month of the Lease Term."
<PAGE> 33
9
Lessor and Lessee have executed this Rider to Lease on the date of
the Lease.
"LESSOR" "LESSEE"
CYPRESS LAND COMPANY, A NEBRASKA BOOK COMPANY, INC.,
CALIFORNIA LIMITED PARTNERSHIP A KANSAS CORPORATION
By: /s/ Brian L. Harvey By: /s/ Bill C. Macy
---------------------------- -----------------------------
Brian L. Harvey, Bill C. Macy,
General Partner Vice President
<PAGE> 34
10
EXHIBIT "A"
Property Description
Parcel 2, in the City of Cypress, County of Orange, State of California, as
shown on a Parcel Map filed in Book 149, Pages 45 and 46 of Parcel Maps, in the
office of the County Recorder of said County.
<PAGE> 35
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is entered into this
28th day of April, 1997 by and between Cypress Land Company, a California
limited partnership ("Landlord"), and Nebraska Book Company, Inc., a Kansas
corporation ("Tenant"), based upon the following:
A. Landlord has leased to Tenant the property known as 6590 Darin Way,
Cypress, California 90630 pursuant to a Lease dated June 22, 1987 ("Lease")
consisting of an approximately 63,792 square feet industrial building
("Building"), which Building is more particularly described on Exhibit "A" to
the Lease.
B. Landlord and Tenant desire to extend the term of the Lease for an
additional sixty (60) months beginning on September 1, 1997 and ending on August
31, 2002.
NOW, THEREFORE, the parties hereto agree as follows:
1. Term. The term of the Lease shall be extended for sixty (60)
months, beginning September 1, 1997 and ending August 31, 2002 ("Extended Lease
Term").
2. Base Rent. The Base Rent for the first thirty (30) months of the
Extended Lease Term shall be Twenty-Seven Thousand Four Hundred Thirty Dollars
and Fifty-Six Cents ($27,430.56) per month. The Base Rent shall be increased on
the first day of the thirty-first (31st) month of the Extended Lease Term, as
provided in Sections 1.13(a) and 3.02 of the Lease, this Paragraph 2, and
Paragraph 3 of this Amendment. The term "Index" at Paragraph 1.13(a) shall be
modified to be the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index for All Urban Consumers (all items for the
geographic statistical area of Los Angeles-Anaheim-Riverside on the basis of
1982-1984 = 100).
3. Limits on Rent Adjustments. On the thirty-first (31st) month
Rental Adjustment Date of the Extended Lease Term under Section 1.13(a) (and any
subsequent Second Extended Term), the Base Rent shall increase a minimum of
three percent (3%) multiplied times each twelve (12) month period (or a
proportionate amount for any period less than 12 months) cumulative, and a
maximum of seven percent (7%) multiplied times each twelve (12) month period (or
a proportionate amount for any period less than 12 months) cumulative, between
the commencement date of the Extended Lease Term (or Second Extended Term, as
the case may be) and the Rental Adjustment Date on which the Base Rent is to be
adjusted.
4. Improvements to Property. Landlord shall, at Landlord's cost and
expense, paint the interior and exterior of the Building, clean the lobby carpet
(or
<PAGE> 36
2
replace it if needed), replace carpeting in the general office area and all of
the second floor, replace the vinyl tile flooring in the men's restroom, and
replace all the suspended ceiling tiles of the Building ("New Improvements").
Landlord and Tenant shall initial the plans for such New Improvements. The
materials and labor to be used in such New Improvements and other items
pertaining to the design of the New Improvements shall be in the sole and
absolute discretion of the Landlord. All of the New Improvements shall be and
become part of the Property and may not be removed by Tenant upon termination of
the Lease. Tenant may not offset any amounts regarding any items claimed for
such New Improvements. Such New Improvements shall be subject to the repair and
maintenance provisions of the Lease.
5. Destruction and Damage. Section 7.02 of the Lease shall be
deleted, and a new paragraph 7.02 shall be inserted in lieu thereof to read as
follows:
"Section 7.02. Substantial Destruction and Damage Caused by Tenant. If the
Property is substantially or totally destroyed by any cause whatsoever
(i.e., the damage to the property is greater than the partial damage as
described in Section 7.01), and regardless of whether Landlord receives
any insurance proceeds, this Lease shall terminate as of the date that the
destruction occurred. Notwithstanding the preceding sentence, if the
Property can be rebuilt within eight (8) month after the date of
destruction, Landlord may elect to rebuild the Property, in which case
this Lease shall remain in full force and effect. Landlord shall notify
Tenant of such election within thirty (30) days after Tenant's written
notice to Landlord of the occurrence of total or substantial destruction.
If the insurance proceeds received by Landlord are not sufficient to pay
the entire cost of repair or reconstruction, and damage (whether partial
or complete) was caused by an act, omission or negligence by Tenant or
Tenant's employee, customer, licensee, visitor, contractor, invitee or
agent, then this Lease shall remain in full force, and Tenant shall pay
the cost (including any insurance deductible amounts), if any, of the
repairs or reconstruction not covered by insurance."
6. Hazardous Materials. A new Section 5.07 shall be added to the
Lease to read as follows:
"5.07. Compliance with Environmental Laws. Tenant shall not use, produce,
process, manufacture, generate, treat, store or dispose of any Hazardous
Material (as such term is defined below) in, on or under the Property or
use the Property for any such purposes which are in violation of any
environmental laws, or release any Hazardous Material into any air, soil,
surface, water or ground water at, on or about the Property. Tenant
assumes the risk that environmental laws may change in the future. Tenant
shall comply and shall cause all persons using the Property to comply with
all environmental laws. Tenant shall remediate and remove any Hazardous
Material from the Property upon termination of the Lease (except Hazardous
<PAGE> 37
3
Material placed upon the Property by Landlord). In the event that any
Hazardous Material is present or released on or under the Property, which
are or may violate an environmental law, Tenant shall give immediate
notice to Landlord. If there is a release or threatened release of
Hazardous Material in, on or under the Property during the term of the
Lease, Tenant shall promptly clean up and remove all such Hazardous
Material and restore the Property in order to be in compliance with all
environmental laws. Hazardous Material shall mean any substance or
material that is described as a toxic or hazardous substance, waste or
material in any environmental law, whether federal, state or local and
includes asbestos, petroleum products (including crude oil),
polychlorinated biphenyls, formaldehyde, radon gas, radioactive matter,
medical waste and chemicals which cause cancer or reproductive toxicity.
7. Increase in Liability Insurance Coverage. The One Million Dollar
($1,000,000) amount at Section 4.04(a) shall be changed to Two Million Dollars
($2,000,000).
8. Second Option to Extend the Term of the Lease. Tenant shall have
the option to extend the Lease for the "Second Extended Term" described in
Paragraph 29 of the Lease, provided that the Tenant complies with the provisions
under Paragraph 29 (other than having exercised the First Extended Term option).
Tenant shall only have this Second Extended Term option to extend the term of
the Lease.
9. Deleted Provisions. Sections 2.02, 2.03, 15, 16, 25 and the First
Extended Term option of Section 29 of the Lease shall not apply during the
Extended Lease Term.
10. Commencement Date. The phrase "Commencement Date" at Paragraph
27 shall mean the original Commencement Date of the Lease, and not the
commencement date of the Extended Term.
11. Other Provisions. All of the terms and provisions of the Lease
shall continue to apply, except as modified by this Amendment, and the parties
hereto hereby reaffirm all of such terms and provisions of the Lease.
12. Miscellaneous. This Amendment is the only agreement between the
parties hereto pertaining to the extension of the Lease, and there are no other
<PAGE> 38
4
representations or agreements, other than this Amendment and the Lease. Any
amendments hereto must be in writing and signed by Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first above written.
"Landlord"
Cypress Land Company,
a California limited partnership
By: Harvico, Inc. a California
corporation, General Partner
/s/ Brian L. Harvey
----------------------------
Brian L. Harvey, President
"Tenant"
Nebraska Book Company, Inc.,
a Kansas Corporation
By: /s/ Mark W. Oppegard
----------------------------
Its: President
<PAGE> 1
Exhibit 12
NBC ACQUISITION CORP. AND SUBSIDIARY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIVE SEVEN
MONTHS MONTHS YEAR
YEARS ENDED ENDED ENDED ENDED NINE MONTHS ENDED
MARCH 31, AUGUST 31, MARCH 31, MARCH 31, DECEMBER 31,
--------------------------- ---------- --------- --------- -----------------
1993 1994 1995 1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from
continuing operations $15,276 $14,090 $15,570 $14,542 $(3,468) $ 5,759 $ 4,966 $ 6,643
Add:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 704 616 766 952 6,035 10,760 8,286 7,979
Interest portion of lease rentals 1,093 1,169 1,297 574 804 1,517 1,119 1,410
------- ------- ------- ------- ------- ------- ------- -------
Pre-tax income from
continuing operations,
as adjusted $17,073 $15,875 $17,633 $16,068 $ 3,371 $18,036 $14,371 $16,032
======= ======= ======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness $ 704 $ 616 $ 766 $ 952 $ 6,035 $10,760 $ 8,286 $ 7,979
Interest portion of lease rentals 1,093 1,169 1,297 574 804 1,517 1,119 1,410
------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges $ 1,797 $ 1,785 $ 2,063 $ 1,526 $ 6,839 $12,277 $9,405 $ 9,389
======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges 9.5 8.9 8.5 10.5 0.5 1.5 1.5 1.7
======= ======= ======= ======= ======= ======= ======= =======
(1)
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $3,468,000.
<PAGE> 2
NBC ACQUISITION CORP. AND SUBSIDIARY
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LAST
TWELVE
YEAR NINE MONTHS MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997
Pro forma pre-tax income (loss) from continuing
operations $ (3,915) $ (1,282) $ (1,687)
-------- -------- --------
Fixed charges:
Interest expense and amortization of deferred finance
charges on all indebtedeness - pro forma 21,378 16,398 21,595
Interest portion of lease rentals 1,517 1,410 1,517
-------- -------- --------
Total fixed charges $ 22,895 $ 17,808 $ 23,112
======== ======== ========
Total earnings and fixed charges $ 18,980 $ 16,526 $ 21,425
======== ======== ========
Pro forma ratio of earnings to fixed charges (1) (2) (3)
======== ======== ========
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $3,915,000.
(2) Earnings were insufficient to cover fixed charges by $1,282,000.
(3) Earnings were insufficient to cover fixed charges by $1,687,000.
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF HOLDINGS
Nebraska Book Company, Inc., a Kansas Corporation.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of NBC
Acquisition Corp. on Form S-4 of our reports dated May 16, 1997 and May 24,
1996, appearing in the Prospectus, which is part of this Registration Statement,
and of our report dated May 16, 1997 relating to the financial statement
schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 16, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report (and to all references to our Firm) included in or made a part of
this Form S-4 Registration Statement for NBC Acquisition Corp.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
March 16, 1998
<PAGE> 1
Exhibit 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
==========================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
==========================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street
New York, New York 10036-1532
(Address of principal (Zip Code)
executive offices)
None
(Name, address and telephone number of agent for service)
==========================
NBC ACQUISITION CORP.
(Exact name of obligor as specified in its charter)
KANSAS 00-0000000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 South 19th Street
Lincoln, Nebraska 68501
(Address of principal executive offices) (Zip Code)
10.75% Senior Subordinated Notes due 2009
(Title of the indenture securities)
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
==========================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
==========================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street
New York, New York 10036-1532
(Address of principal (Zip Code)
executive offices)
None
(Name, address and telephone number of agent for service)
==========================
NEBRASKA BOOK COMPANY, INC.
(Exact name of obligor as specified in its charter)
KANSAS 00-0000000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 South 19th Street
Lincoln, Nebraska 68501
(Address of principal executive offices) (Zip Code)
8.75% Senior Subordinated Notes due 2008
(Title of the indenture securities)
<PAGE> 3
- 2 -
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
and 15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 4
- 3 -
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form
T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of February 20, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 20th of
February 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Gerald F. Ganey
-------------------------------
Gerald F. Ganey
Senior Vice President
<PAGE> 5
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
February 20, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/
-------------------------------
Gerald F. Ganey
Senior Vice President
<PAGE> 6
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1997
-----------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 80,246
Short-Term Investments 386,006
Securities, Available for Sale 661,596
Loans 1,774,551
Less: Allowance for Credit Losses 16,202
----------
Net Loans 1,758,349
Premises and Equipment 61,477
Other Assets 124,499
----------
Total Assets $3,072,173
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 686,507
Interest Bearing 1,773,254
----------
Total Deposits 2,459,761
Short-Term Credit Facilities 295,342
Accounts Payable and Accrued Liabilities 149,775
----------
Total Liabilities $2,904,878
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,235
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,524
----------
Total Stockholder's Equity 167,295
----------
Total Liabilities and
Stockholder's Equity $3,072,173
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
February 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,256,414
<SECURITIES> 0
<RECEIVABLES> 40,694,072
<ALLOWANCES> 239,296
<INVENTORY> 52,362,287
<CURRENT-ASSETS> 99,871,547
<PP&E> 27,842,384
<DEPRECIATION> 5,044,920
<TOTAL-ASSETS> 156,350,244
<CURRENT-LIABILITIES> 41,903,778
<BONDS> 77,773,780
0
0
<COMMON> 28,039
<OTHER-SE> 35,801,980
<TOTAL-LIABILITY-AND-EQUITY> 156,350,244
<SALES> 144,922,261
<TOTAL-REVENUES> 144,922,261
<CGS> 91,496,544
<TOTAL-COSTS> 91,496,544
<OTHER-EXPENSES> 39,483,183
<LOSS-PROVISION> 53,523
<INTEREST-EXPENSE> 7,246,194
<INCOME-PRETAX> 6,642,817
<INCOME-TAX> 2,657,127
<INCOME-CONTINUING> 3,985,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,985,690
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,976,964
<SECURITIES> 7,000,000
<RECEIVABLES> 15,561,571
<ALLOWANCES> 239,296
<INVENTORY> 44,288,392
<CURRENT-ASSETS> 71,649,069
<PP&E> 25,436,653
<DEPRECIATION> 3,534,097
<TOTAL-ASSETS> 127,169,260
<CURRENT-LIABILITIES> 15,713,371
<BONDS> 79,260,024
0
0
<COMMON> 28,000
<OTHER-SE> 31,669,179
<TOTAL-LIABILITY-AND-EQUITY> 127,169,260
<SALES> 172,600,193
<TOTAL-REVENUES> 172,600,193
<CGS> 110,465,930
<TOTAL-COSTS> 110,465,930
<OTHER-EXPENSES> 46,691,941
<LOSS-PROVISION> 159,602
<INTEREST-EXPENSE> 9,523,609
<INCOME-PRETAX> 5,759,111
<INCOME-TAX> 2,324,619
<INCOME-CONTINUING> 3,434,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,434,492
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.16
</TABLE>
