<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
YOUNG AMERICA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MINNESOTA 8980 41-1892816
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
717 FAXON ROAD
YOUNG AMERICA, MINNESOTA 55397 (612)467-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
YOUNG AMERICA HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MINNESOTA 8980 41-0983697
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
717 FAXON ROAD
YOUNG AMERICA, MINNESOTA 55397 (612)467-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES D. WEIL
CHIEF EXECUTIVE OFFICER
717 FAXON ROAD
YOUNG AMERICA, MINNESOTA 55397 (612)467-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
FREDERICK M. BACHMAN, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 408-2400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 5/8% Series B Senior Subordinated Notes
due 2006..................................... $80,000,000 100% $80,000,000 $23,600
- ---------------------------------------------------------------------------------------------------------------------------------
Guarantees of the 11 5/8% Series B Senior
Subordinated Notes........................... $80,000,000 (2) (2) (2)
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) This Registration Statement covers the guarantees to be issued by Young
America Holdings, Inc. of Young America Corporation's obligations under the
11 5/8% Series B Senior Subordinated Notes. Such guarantees are to be issued
for no additional consideration, and therefore no registration fee is
required.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT COVERS THE REGISTRATION OF AN AGGREGATE
PRINCIPAL AMOUNT OF $80,000,000 OF 11 5/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2006 (THE "NEW NOTES") OF YOUNG AMERICA CORPORATION ("YOUNG AMERICA") THAT
MAY BE EXCHANGED FOR EQUAL PRINCIPAL AMOUNTS OF YOUNG AMERICA'S OUTSTANDING
11 5/8% SENIOR SUBORDINATED NOTES DUE 2006 (THE "OLD NOTES"). THIS REGISTRATION
STATEMENT ALSO COVERS THE REGISTRATION OF THE NEW NOTES FOR RESALE BY BT ALEX.
BROWN INCORPORATED IN MARKET-MAKING TRANSACTIONS. THE COMPLETE PROSPECTUS
RELATING TO THE EXCHANGE OFFER (THE "EXCHANGE OFFER PROSPECTUS") FOLLOWS THIS
EXPLANATORY NOTE. FOLLOWING THE EXCHANGE OFFER PROSPECTUS ARE CERTAIN PAGES OF
THE PROSPECTUS RELATING SOLELY TO SUCH MARKET-MAKING TRANSACTIONS (THE "MARKET-
MAKING PROSPECTUS"), INCLUDING ALTERNATE FRONT AND BACK COVER PAGES, A SECTION
ENTITLED "RISK FACTORS -- TRADING MARKET FOR THE NEW NOTES" TO BE USED IN LIEU
OF THE SECTION ENTITLED "RISK FACTORS -- LACK OF PUBLIC MARKET FOR THE NEW
NOTES" AND ALTERNATE SECTIONS ENTITLED "USE OF PROCEEDS" AND "PLAN OF
DISTRIBUTION". IN ADDITION, THE MARKET-MAKING PROSPECTUS WILL NOT INCLUDE THE
FOLLOWING CAPTIONS (OR THE INFORMATION SET FORTH UNDER SUCH CAPTIONS) IN THE
EXCHANGE OFFER PROSPECTUS: "PROSPECTUS SUMMARY -- THE EXCHANGE OFFER", "RISK
FACTORS -- CONSEQUENCES OF FAILURE TO EXCHANGE" AND "-- NECESSITY TO COMPLY WITH
EXCHANGE OFFER PROCEDURES, "THE EXCHANGE OFFER" AND "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES". ALL OTHER SECTIONS OF THE EXCHANGE OFFER PROSPECTUS WILL BE
INCLUDED IN THE MARKET-MAKING PROSPECTUS.
<PAGE> 3
YOUNG AMERICA CORPORATION
YOUNG AMERICA HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; Selected
Historical and Pro Forma Consolidated
Financial Data
4. Terms of the Transaction................... Prospectus Summary; The Exchange Offer;
Description of the Notes
5. Pro Forma Financial Information............ Unaudited Pro Forma Consolidated Financial
Data
6. Material Contracts with the Company Being
Acquired................................... *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Plan of Distribution
8. Interests of Named Experts and Counsel..... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
10. Information With Respect to S-3
Registrants................................ *
11. Incorporation of Certain Information by
Reference.................................. *
12. Information With Respect to S-2 or S-3
Registrants................................ *
13. Incorporation of Certain Information by
Reference.................................. *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants.......... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Description of The
New Credit Facility; Experts
15. Information With Respect to S-3
Companies.................................. *
16. Information With Respect to S-2 or S-3
Companies.................................. *
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. *
18. Information if Proxies, Consents or
Authorization Are to be Solicited.......... *
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or
in an Exchange Offer....................... Management; Security Ownership of Certain
Beneficial Owners and Management; Certain
Transactions
</TABLE>
- ---------------
* Not applicable or answer is in the negative.
<PAGE> 4
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.
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 9, 1998
YOUNG AMERICA CORPORATION
OFFER TO EXCHANGE UP TO $80,000,000 OF ITS
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OF ITS OUTSTANDING
11 5/8% SENIOR SUBORDINATED NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
Young America Corporation ("Young America") hereby offers upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer") to
exchange $1,000 principal amount of 11 5/8% Series B Senior Subordinated Notes
due 2006 (the "New Notes") of Young America for each $1,000 principal amount of
the issued and outstanding 11 5/8% Senior Subordinated Notes due 2006 (the "Old
Notes," the Old Notes and the New Notes, collectively, the "Notes") of Young
America from the Holders (as defined herein) thereof. As of the date of this
Prospectus, there is $80,000,000 aggregate principal amount of the Old Notes
outstanding. The terms of the New Notes are identical in all material respects
to the Old Notes, except that the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore will
not bear legends restricting their transfer and will not contain certain
provisions providing for the payment of additional interest on the Old Notes
under certain circumstances relating to the Registration Rights Agreement (as
defined herein), which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer.
Interest on the New Notes will accrue from February 23, 1998 and will be
payable semi-annually in arrears on February 15 and August 15 of each year,
commencing August 15, 1998 at the rate of 11 5/8% per annum. No interest will be
paid on Old Notes that are accepted for exchange.
The New Notes will be redeemable, in whole or in part, at the option of
Young America on or after February 15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time, or from time to time, on or prior to February 15, 2001,
Young America, at its option, may redeem, with the net cash proceeds of one or
more Equity Offerings (as defined herein), up to 35% of the aggregate principal
amount of the Notes issued under the Indenture (as defined herein), at a
redemption price equal to 111.625% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of redemption; provided that at least
65% of the aggregate principal amount of the Notes issued under the Indenture
remains outstanding immediately following such redemption.
The New Notes will be general unsecured obligations of Young America and
will be subordinated in right of payment to all existing and future Senior Debt
(as defined herein) of Young America, including indebtedness under the New
Credit Facility (as defined herein). The New Notes will rank pari passu in right
of payment with any future senior subordinated indebtedness of Young America and
will rank senior in right of payment to all other subordinated obligations of
Young America. The New Notes will be unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis by Young America's parent, Young
America Holdings, Inc. ("Holdings"), and any future domestic Restricted
Subsidiaries (as defined herein) of Young America having total book equity value
in excess of $1.0 million (the "Subsidiary Guarantors"). The Guarantees will be
general unsecured obligations of Holdings and the Subsidiary Guarantors and will
be subordinated in right of payment to all existing and future Guarantor Senior
Debt (as defined herein). The Guarantees will rank pari passu with any future
senior subordinated indebtedness of Holdings and the Subsidiary Guarantors and
will rank senior in right of payment to all other subordinated obligations of
Holdings and the Subsidiary Guarantors. As of December 31, 1997, on a pro forma
basis after giving effect to the offering of the Old Notes and the New Credit
Facility, the Holdings and Young America would have had approximately $0.4
million of Senior Debt outstanding (consisting of obligations under undrawn
letters of credit) under a commitment for up to $10.0 million (subject to
availability under the terms of the New Credit Facility, which would have been
approximately $9.0 million as of December 31, 1997). See "Capitalization."
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The New Notes are being offered hereby in order to satisfy
certain obligations of Young America and Holdings contained in the Registration
Rights Agreement. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued to
third parties, Young America and Holdings believe that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of Young America or Holdings within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to participate
in the distribution of such New Notes and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes.
Notwithstanding the foregoing, each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for such Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from Young America). See "Plan of Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. Young America does not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotations system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
Young America will not receive any proceeds from the Exchange Offer.
However, pursuant to the terms of the Registration Rights Agreement, Young
America and Holdings will pay all of the expenses incident to the Exchange
Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn as
provided herein at any time prior to the Expiration Date (as defined herein).
The Exchange Offer is subject to certain customary conditions.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS IN CONNECTION WITH THE EXCHANGE OFFER AND
IN EVALUATING AN INVESTMENT IN THE NEW NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 5
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN STATEMENTS
OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING THE FUTURE FINANCIAL POSITION OF YOUNG AMERICA AND
HOLDINGS, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES
OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN
ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND",
"ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE" OR THE NEGATIVE THEREOF OR
VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH YOUNG AMERICA AND HOLDINGS
BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THEY CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS OF YOUNG AMERICA AND HOLDINGS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO YOUNG AMERICA OR HOLDINGS OR
PERSONS ACTING ON THEIR BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
AVAILABLE INFORMATION
Young America and Holdings have filed with the Commission a Registration
Statement on Form S-4 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the Securities Act with
respect to the New Notes being offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain portions
of which have been omitted pursuant to the rules and regulations promulgated by
the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may also be obtained at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such
materials can also be inspected on the Internet at http://www.sec.gov.
Upon consummation of the Exchange Offer, Young America and Holdings will
become subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information statements and other
information with the Commission. Such materials filed by Young America and
Holdings with the Commission may be inspected, and copies thereof obtained, at
the places, and in the manner, set forth above.
Young America has agreed that whether or not it is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, it will deliver to the
Trustee and to each holder of the Notes, within 15 days after it is or would
have been required to file such with the Commission, annual and quarterly
financial
i
<PAGE> 6
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission, if Young America were subject to
the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by its certified
independent public accountant as such would be required in such reports to the
Commission, and, in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required. In addition, from and after the effectiveness of the Exchange Offer
Registration Statement (as defined herein) or the Shelf Registration Statement
(as defined herein), as the case may be, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Young America and
Holdings will also, for so long as any Old Notes remain outstanding, make
available to each holder of Old Notes in connection with any sale thereof and
any prospective purchaser of such Old Notes, the information required by Rule
144A(d)(4) under the Securities Act in order to permit resales of such Old Notes
pursuant to Rule 144A.
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, risk factors and financial
statements, including the related notes, appearing elsewhere in this Prospectus.
Unless otherwise referred to herein or the context otherwise requires,
references to "Young America" shall mean Young America Corporation, a Minnesota
corporation, and references to "Holdings" shall mean Young America Holdings,
Inc., a Minnesota corporation (formerly known as Young America Corporation) and
the parent of Young America. References to the "Company" shall mean Young
America, or where the context requires, its predecessor, Holdings, as
appropriate. See "The Recapitalization." Unless otherwise indicated, all
references to fiscal years in this Prospectus are to the fiscal years ending on
December 31 of each year.
THE COMPANY
Young America is a leading provider of a wide range of consumer interaction
processing ("CIP") services to large consumer product and consumer service
companies. The Company's more than 200 clients include such well-known companies
as PepsiCo, Inc., Anheuser-Busch Companies, Inc., General Mills, Inc., R.J.
Reynolds Tobacco Company, Eastman Kodak Company and Hewlett-Packard Co. The
Company's CIP services provide a link between its clients and their customers
for numerous types of marketing programs, including rebate programs, purchase
reward or premium programs, sweepstakes, product sampling programs and warranty
registration programs. The Company provides a variety of services involved in
executing these marketing programs, including (i) order processing (including
the handling of mail, telephone calls, facsimiles and e-mail received from
consumers), (ii) fulfillment (including the delivery of product premiums and
samples as well as rebate checks to consumers), (iii) data gathering, analysis
and reporting and (iv) related customer service (including receiving and
responding to consumer inquiries).
CIP services are an important part of the targeted marketing strategies
pursued by consumer-oriented companies that seek to improve their marketing
efforts by identifying and focusing on their most valuable existing and
potential customers. These consumer marketing companies are increasingly
utilizing targeted marketing strategies as opposed to "mass marketing"
approaches such as general market advertising and free-standing insert coupons.
In recent years, the Company has identified a trend among its clients toward the
targeted marketing approach, including an increase in the use of consumer
promotion programs such as premium programs and product sampling programs as a
key element of its clients' marketing strategies. Because the Company believes
that its clients have found these programs to be both effective and efficient,
the Company believes that these trends will continue.
The Company has also observed a trend among its clients toward more complex
marketing programs. Consumer-oriented companies have sought to differentiate
themselves from their competitors by offering more sophisticated marketing
programs, often emphasizing consumer loyalty and repeat purchases, that appeal
to their targeted customers. These complex marketing programs frequently involve
increased consumer interactions that either allow or are designed to provide
consumer-oriented companies with an opportunity to gather information about
their customers. Management believes that spending on CIP services in support of
these more complex marketing programs has outpaced, and will continue to
outpace, the growth of services for simpler marketing programs such as
traditional rebate, premium and sweepstakes programs. Accordingly, over the past
three years the Company has enhanced its capabilities to become a provider not
only of narrowly focused promotion fulfillment services for those simpler
marketing programs but also of integrated, custom-designed CIP services for
large complex marketing programs. Its breadth of services and ability to
integrate such services to support complex marketing programs have distinguished
the Company from the majority of its competitors, most of which offer a narrower
range of services and serve a smaller number of clients. Management believes
that the Company's broad service offering, together with its sophisticated
information systems and quality control processes, has enabled it to become a
leading provider of business-to-consumer CIP services.
In each of the last three years, the Company managed over 4,000 marketing
programs, with between 1,500 and 2,000 programs being processed at any point in
time. As of December 31, 1997, the Company was
1
<PAGE> 8
processing approximately 1,550 client marketing programs. In each of the last
three years, the Company distributed over 60 million items to its clients'
customers. Items distributed by the Company have ranged from rebate checks to
sales literature to large and small items of merchandise as premiums and product
samples.
For the year ended December 31, 1997, the Company had revenues of $175.3
million and Pro Forma EBITDA (as defined below) of $16.8 million. See
"-- Summary Historical and Pro Forma Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's revenue base is supported by a high level of repeat
business, with over 80% of the Company's revenues for 1997 being derived from
clients from which the Company also derived revenue in 1996.
Young America was incorporated in Minnesota in 1997 as a subsidiary of
Holdings, a Minnesota corporation founded in 1972. The Company's principal
office is located at 717 Faxon Road, Young America, Minnesota 55397 and its
telephone number is (612)467-1100.
Other than as required by the Registration Rights Agreement, there are no
federal or state regulatory requirements that must be complied with or any
approvals that must be obtained in connection with the Exchange Offer.
COMPETITIVE STRENGTHS
The Company attributes its current market position and its existing
opportunities for continued growth and profitability to the following
competitive strengths:
Breadth of Integrated Services
Young America is a leading provider of a broad range of integrated CIP
services to large consumer product and consumer service companies. Young
America's basic services include (i) order processing (including the handling of
mail, telephone calls, facsimiles and e-mail received from consumers), (ii)
fulfillment (including the delivery of product premiums and samples as well as
rebate checks to consumers), (iii) data gathering, analysis and reporting and
(iv) related customer service (including receiving consumer inquiries and
providing follow-up services). In comparison, most of the Company's competitors
offer a narrower range of services to a smaller client base. The Company's
ability to integrate a broad range of services allows it to work with its
clients to custom design efficient processing solutions for all types of
marketing programs, especially complex marketing programs that involve a large
number of consumer interactions.
Ability to Process High-Volume and Complex Marketing Programs
The Company has demonstrated the expertise necessary to manage complex and
high-volume marketing programs by executing programs such as "Pepsi Stuff(R)",
"Camel Cash(R)", "Bud Gear(R)" and General Mills, Inc.'s "Box Tops for
Education(R)". Complex marketing programs can involve integrating dozens of
custom-designed process steps and coordinating interactive communications with a
client's customers. High-volume programs can involve processing several million
orders and sending out several million items to consumers in a very short period
of time while simultaneously processing the Company's 1,500 to 2,000 other
current programs in a timely, courteous and efficient manner. Management
believes that the Company has earned a reputation for being able to manage
high-volume and complex marketing programs with a high quality of service, and
that the Company's reputation contributes to its recurring revenue base and its
ability to attract new clients.
Strong, Established Client Relationships
The Company has successfully attracted and built strong relationships with
a large number of major consumer-oriented companies in the United States. Young
America is currently well-positioned in the packaged goods industry and has
expanded its client base in faster-growing industries such as high-technology
2
<PAGE> 9
consumer products. Of the Company's 25 largest clients in 1997, 12 have been
clients for more than eight years.
The vast majority of marketing programs undertaken by the Company for its
clients involve direct interaction with consumers which are the clients'
customers. In these interactions, the Company acts on behalf of its clients and,
for that reason, it is critical to the Company's clients that the various
services involved in administering their marketing programs be performed
consistently, accurately, courteously and in a timely manner. The Company
believes that these measures of quality are often key determinants when a
consumer-oriented company awards the administration of its marketing programs.
The Company seeks to achieve a high level of quality service through careful
analysis and design of the steps involved in delivering the services required
and by the stringent process controls it builds into the processing plan for
each marketing program it undertakes. Management believes that the Company has
strengthened its relationships with its clients by involving them in this
process design.
Sophisticated Information Systems
In 1996, the Company completed its conversion to a new proprietary software
system known as Promotion Administration Leader ("PAL"). Utilizing PAL, the
Company has been able to process a greater number and variety of complex
marketing programs than was possible with the system that PAL replaced. The PAL
system increases operational efficiencies and enhances the Company's ability to
process more complex marketing programs by providing the Company with the
ability to track orders through each step of the order-handling process and to
accurately invoice its clients for services provided by the Company. In
addition, with PAL the Company (i) can give a consumer the precise status of any
order from the day such order was received until the day the promotion item is
shipped, (ii) has the ability to provide real-time information on the status of
a program, allowing the Company's clients to track and judge the effectiveness
of on-going promotion programs and (iii) has the ability to acquire, store and
quickly retrieve information about consumers and their individual buying habits.
The Company has used PAL to develop a proprietary database of approximately 60
million unduplicated consumer households.
The PAL system cost approximately $9.0 million to develop and install
(including hardware acquisition and software development) and required more than
four years to be fully implemented. PAL was designed as an open system and its
capacity can be easily increased to meet the Company's future needs by adding
additional hardware support. Management believes that no comparable program is
used by any of its competitors and that no similar integrated system can be
easily developed or purchased within the marketplace. Management believes that a
competitor would require a substantial commitment of time and capital to
replicate the capabilities of the PAL system.
Experienced Management Team
The Company's senior management team has been assembled and developed since
the arrival in July 1993 of its current President and Chief Executive Officer,
Charles D. Weil. Prior to 1993, Mr. Weil was President and Chief Operating
Officer of ConAgra Frozen Foods. Mr. Weil has 25 years of experience in the
consumer packaged goods industry with ConAgra and other companies such as
General Mills Inc. and Nestle USA Inc. One of Mr. Weil's priorities since
joining the Company has been to attract and retain clients who require CIP
services to support high-volume and/or complex marketing programs on a recurring
basis. In order to aid him in the execution of this strategy, Mr. Weil has
recruited a team of experienced executives from outside the industry in which
the Company competes, each of whom brings to the Company not only functional
skills but also fresh insights that assist Mr. Weil in executing his strategic
vision for the Company. Industries from which the Company's current executives
have been drawn include retailing, distribution, direct marketing and
teleservices.
3
<PAGE> 10
BUSINESS STRATEGY
Focus on Clients with Large Revenue Potential
Since 1993, the Company has focused its strategic plan on attracting and
retaining clients who require CIP services to support high-volume and/or complex
marketing programs on a recurring basis and with which the Company can develop a
strategic relationship. Management believes that high-volume and/or complex
marketing programs by their scope and nature allow for higher revenues and
improved profit margins. Beginning in 1995, the Company began seeking
operational efficiencies by reducing the number of simple, low-volume marketing
programs for which it would compete. At the same time, the Company upgraded its
technology and operational systems in order to better focus on the needs of
clients with large revenue potential for the Company. As a result, the Company
has increased the average revenue per client from approximately $307,000 in 1994
to approximately $746,000 in 1997. The Company intends to continue to
concentrate on clients that require more complex and/or higher volume marketing
programs.
Management believes that the Company's ability to provide CIP services for
high-volume and/or complex marketing programs has been a significant factor in
its ability to attract large new clients, both from within industries that have
traditionally used the Company's services and from industries that have not
traditionally used the Company's services such as computer hardware, computer
software, consumer services, telecommunications and energy. Recent client
additions include 3Com Corporation, Iomega Corporation, Sprint Corporation,
BellSouth Corporation, Mobil Corporation and CUC International Inc. (now known
as Cendant Corporation). Management believes that there are opportunities to
market the Company's services in additional industries such as tourism,
financial services and pharmaceuticals.
Custom Design Services
When the Company evaluates a potential new client program, it performs a
comprehensive review of all steps that it believes are necessary for the
successful implementation of the program. The Company reviews these steps with
the potential client, and presents each step in the context of the advantages of
adding each such step. The client then determines whether to pursue each
proposed step. Only after such determination by the client does the Company
complete the process design, cost each step of the process and price its
services for a particular marketing program. Finally, the client determines
whether the value of each step is worth the incremental cost.
The Company's ability to custom design and implement processes to fit the
specific requirements of a client's program constitutes a competitive advantage.
Management believes that this ability enables the Company to maintain
mid-to-premium margin levels while achieving high customer loyalty. Other
benefits derived from the Company's ability to custom design services include
(i) more efficient planning and invoicing of services rendered by the Company
and (ii) greater ability to reliably estimate the profitability of each
marketing program serviced.
Anticipate Clients' Evolving Needs
The Company strives to anticipate the needs of its clients and develop new
or enhanced services to meet those needs as they arise rather than merely
reacting to requests from its clients. In recent years, the Company, in
anticipation of client needs, upgraded its information processing capabilities
by developing PAL and broadened its ability to process orders from mail only to
other forms of consumer interaction such as facsimile, telephone (including live
operator and interactive voice response ("IVR")), Internet and electronic data
transmission. Management believes that the Company's experience in managing a
wide variety of marketing programs for a broad range of major, consumer-oriented
companies gives it a competitive advantage in anticipating its clients' needs
for new and enhanced CIP services. Examples of areas in which the Company is
upgrading its services in anticipation of client needs include (i) enhanced
Internet and IVR consumer interaction capabilities, (ii) full-service credit
card payment processing for marketing programs involving payments by consumers
and (iii) improved information processing and consumer data reporting
4
<PAGE> 11
capabilities. The Company plans to continue to enhance its operational
capabilities, including its sophisticated computer systems, so that it can meet
the demand for increasingly complex CIP services.
Continue Operational Improvements
The Company continually evaluates and refines its process flows to meet
evolving client needs, to enhance client satisfaction and to reduce costs.
During 1996, the Company implemented over 200 process improvements, including
instituting a master schedule for operations, expanding mail sorting
capabilities and automating various data-entry functions in order to further
reduce processing costs. Management estimates that process improvements
implemented in 1996, many of which are expected to provide on-going benefits,
resulted in incremental revenue increases and cost savings for the Company
aggregating approximately $2.4 million in 1997. Management believes such
continual process improvements also help the Company to further distinguish
itself from its competitors by enabling it to offer a range of services and a
level of professionalism not widely available within the industry.
Pursue Selective Acquisitions in Related Businesses
The Company intends to pursue selective acquisitions that offer a strong
strategic fit with its existing core competencies and/or allow it to develop or
strengthen partnerships with select clients. The Company's acquisition interests
could include, among others, companies that specialize in literature
fulfillment, Internet order processing or collateral material fulfillment.
THE RECAPITALIZATION
Summary of the Recapitalization
Prior to November 25, 1997 (the "Recapitalization Date"), all of the
capital stock of Holdings (formerly known as Young America Corporation) was
owned by Jay F. Ecklund, its then Chairman and Chief Executive Officer, and
certain trusts for the benefit of members of his family (Mr. Ecklund and such
trusts referred to herein as the "Selling Stockholders"). On the
Recapitalization Date, Holdings effected a recapitalization (the
"Recapitalization") pursuant to a recapitalization agreement (the
"Recapitalization Agreement") resulting in approximately 93.0% of the capital
stock of Holdings being held by an investor group (the "Investor Group")
including BT Capital Partners, Inc. ("BTCP") and Ontario Teachers' Pension Plan
Board ("OTPPB"), as well as Charles D. Weil, the current President and Chief
Executive Officer of Holdings and 20 other members of management. Mr. Weil and
the other participating members of management are referred to in this Prospectus
as the "Management Stockholders."
In the Recapitalization, members of the Investor Group purchased
newly-issued shares of common stock of Holdings ("Common Stock") for an
aggregate purchase price of $38.9 million. BTCP purchased shares of Common Stock
for $22.4 million, OTPPB purchased shares of Common Stock for $12.0 million and
the Management Stockholders collectively purchased shares of Common Stock for
$4.5 million. See "Principal Stockholders." Also in the Recapitalization,
Holdings borrowed $80.0 million under a senior bridge credit facility (the
"Bridge Facility") provided by an affiliate of BTCP. Holdings used the proceeds
of the issuance of shares of Common Stock to the Investor Group and the
borrowings under the Bridge Facility to (i) repurchase outstanding shares of
Common Stock from the Selling Stockholders for an aggregate purchase price of
$92.2 million, (ii) make bonus payments to management of $13.4 million under
plans put in place in contemplation of a change of control of the Company, and
$4.9 million paid pursuant to phantom stock arrangements due in such amounts as
a result of the change of control of the Company in the Recapitalization (see
"Management -- Phantom Stock Agreements" and "-- 1997 Management Recognition,
Transition and Equity Bonus Plan") and (iii) pay certain fees and expenses
related to the Recapitalization. Of the amounts referred to in (i) and (ii)
above, $6.0 million was placed in escrow subject to certain indemnification
provisions of the Recapitalization Agreement, $1.2 million of which has been
recorded by the Company as estimated compensation charges remaining to be paid
related to (ii) above. A portion of those proceeds were also retained by the
Company to pay certain fees and expenses related to the offering of the Notes
and other
5
<PAGE> 12
cash costs triggered by the Recapitalization. Pursuant to the terms of the
Recapitalization Agreement, Holdings expects to make an additional payment of
approximately $700,000 to the Selling Shareholders and certain employees of the
Company during the second quarter of 1998. Such payment will be based upon the
final determination of total stockholders equity (as defined) of Holdings as of
October 31, 1997 and Holdings' profits or losses (as defined) for the period
ended on the Recapitalization Date. In addition, after December 31, 2001, the
Selling Stockholders and certain employees of the Company may also be entitled
to additional payments (either as additional consideration for shares
repurchased by Holdings in the Recapitalization or as additional bonus or
phantom stock payments) aggregating up to $15.0 million depending upon the level
of Cumulative Excess Free Cash Flow (as defined in the Recapitalization
Agreement) of the Company for the four-year period ending December 31, 2001. See
"Certain Transactions."
Following the Recapitalization, substantially all the assets and business
of Holdings were transferred to a newly-formed subsidiary, and Holdings' name
was changed from Young America Corporation to Young America Holdings, Inc. The
subsidiary's name was changed to Young America Corporation. Young America
expects to conduct substantially all its business and operations through Young
America Corporation and any future subsidiaries it may form.
Sources and Uses of Funds
The sources and uses of funds for the Recapitalization are summarized
below:
<TABLE>
<CAPTION>
SOURCES OF FUNDS
---------------- (dollars in millions)
<S> <C>
Cash sources:
Bridge Facility........................................... $ 80.0
Issuance of Common Stock.................................. 38.9
Other sources:
Common Stock retained by Mr. Ecklund(1)................... 2.9
------
Total Sources..................................... $121.8
======
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
Cash uses:
Purchase of Common Stock and payments to management(2).... $110.5
Transaction fees and expenses(3).......................... 8.4
Other uses:
Common Stock retained by Mr. Ecklund...................... 2.9
------
Total Uses........................................ $121.8
======
</TABLE>
- ---------------
(1) The indicated amount for the retained Common Stock is based solely on the
price per share paid for the Common Stock purchased by the Investor Group in
the Recapitalization.
(2) Includes $13.4 million of bonuses paid to management under plans put in
place in contemplation of a change of control of the Company, and $4.9
million paid pursuant to phantom stock arrangements due in such amounts as a
result of the change of control of the Company in the Recapitalization. Of
the $110.5 million amount, $6.0 million was placed in escrow subject to
certain indemnification provisions of the Recapitalization Agreement. If the
entire $6.0 million is released free of any indemnification claims, the
Selling Stockholders will receive $4.8 million of such amount, certain
members of management will receive $0.9 million of such amount and the
phantom stockholders will receive $0.3 million.
(3) Includes approximately $3.4 million retained by Holdings to pay certain fees
and expenses related to the offering of the Notes and other cash costs
triggered by the Recapitalization.
6
<PAGE> 13
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT... The Old Notes were sold by Young America on
February 23, 1998 to BT Alex. Brown
Incorporated (the "Initial Purchaser"), which
resold the Old Notes to qualified
institutional investors in reliance on Rule
144A under the Securities Act. In connection
therewith, Young America, Holdings and the
Initial Purchaser executed and delivered for
the benefit of the holders of the Old Notes a
registration rights agreement (the
"Registration Rights Agreement") providing,
among other things, for the Exchange Offer.
THE EXCHANGE OFFER.............. New Notes are being offered in exchange for a
like principal amount of Old Notes. As of the
date hereof, $80,000,000 aggregate principal
amount of Old Notes are outstanding. Young
America will issue the New Notes to the
Holders of Old Notes who validly tender such
Old Notes promptly following the Expiration
Date. See "Risk Factors -- Consequences of
Failure to Exchange."
EXPIRATION DATE................. 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer
is extended as provided herein, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST........................ Each New Note will bear interest from
February 23, 1998 and will be payable
semi-annually in arrears on February 15 and
August 15 of each year, commencing August 15,
1998 at the rate of 11 5/8% per annum. No
interest will be paid on Old Notes that are
accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
Young America and Holdings. Young America and
Holdings reserve the right to amend,
terminate or extend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition. See "The
Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING OLD
NOTES........................... Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof or an Agents Message (as
defined herein) in lieu thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile or such Agents Message, together
with the Old Notes and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. By executing the Letter of
Transmittal or by causing an Agents Message
to be delivered, each Holder will represent
to Young America and Holdings, among other
things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder
and any beneficial owners of Old Notes are
being obtained in the ordinary course of
business of the person receiving such New
Notes, (ii) neither the Holder nor such
beneficial owner has an arrangement with any
person to participate in the distribution of
such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other
person is engaging in or intends to engage in
a distribution of such New
7
<PAGE> 14
Notes and (iv) neither the Holder nor such
beneficial owner is an "affiliate," as
defined under Rule 405 promulgated under the
Securities Act, of the Young America or
Holdings. Each broker-dealer that receives
New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired
by such broker-dealer as a result of
marketmaking activities or other trading
activities (other than Old Notes acquired
directly from Young America), may participate
in the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus
in connection with any resale of such New
Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See
"The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution." The
term "Agents Message" means a message,
transmitted by The Depository Trust Company
("DTC") to and received by the Exchange Agent
and forming a part of a confirmation of the
book-entry tender of Old Notes into the
Exchange Agent's account at DTC, which states
that DTC has received an express
acknowledgement from the tendering
participant, which acknowledgment states that
such participant has received and agrees to
be bound by, and makes the representations
and warranties contained in, the Letter of
Transmittal and that Young America may
enforce the Letter of Transmittal against
such participant.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes 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 his Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such beneficial
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES...................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, 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 Old
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............... Tenders may be withdrawn as provided herein
at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
8
<PAGE> 15
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES........... Young America will accept for exchange any
and all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly following
the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
EXCHANGE AGENT.................. Marine Midland Bank is serving as Exchange
Agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."
USE OF PROCEEDS................. There will be no cash proceeds to Young
America from the exchange of Notes pursuant
to the Exchange Offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE........................ Holders of Old Notes who do not exchange
their Old Notes for New Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old
Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes
pursuant to exemptions from, or in
transactions not subject to, the registration
requirements of the Securities Act and
applicable state securities laws. In general,
Old Notes may not be offered or sold unless
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the Securities
Act and applicable state securities laws.
SUMMARY DESCRIPTION OF THE NOTES
The Exchange Offer applies to $80,000,000 aggregate principal amount of Old
Notes. The terms of the New Notes are identical in all material respects to the
Old Notes except that the New Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting their transfer and will
not contain certain provisions providing for the payment of additional interest
on the Old Notes under certain circumstances relating to the Registration Rights
Agreement, which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer. The New Notes will evidence the same debt as
the Old Notes and, except as set forth in the immediately preceding sentence,
will be entitled to the benefits of the Indenture, under which both the Old
Notes were, and the New Notes will be, issued. See "Description of Notes."
NOTES OFFERED................... $80,000,000 aggregate principal amount of
11 5/8% Senior Subordinated Notes due 2006.
MATURITY DATE................... February 15, 2006.
INTEREST PAYMENT DATES.......... February 15 and August 15 of each year,
commencing August 15, 1998.
OPTIONAL REDEMPTION............. The Notes will not be redeemable at the
option of Young America prior to February 15,
2002, except as described below. Thereafter,
the Notes will be redeemable, in whole or in
part, at the option of Young America at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time,
and from time to time, on or prior to
February 15, 2001, Young America, at its
option, may use the net cash proceeds of one
or more Equity Offerings (as defined below)
to redeem the Notes at a redemption price
equal to 111.625% of the principal amount
thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption;
9
<PAGE> 16
provided that at least 65% of the aggregate
principal amount of the Notes originally
issued remains outstanding immediately
following such redemption. See "Description
of the Notes -- Optional Redemption."
CHANGE OF CONTROL............... Upon a Change of Control, each holder of
Notes will have the right to require Young
America to repurchase such holder's Notes at
a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the repurchase date. See "Description
of the Notes -- Change of Control."
GUARANTEES...................... The Notes will be unconditionally guaranteed
on a senior subordinated basis by Holdings
and the Subsidiary Guarantors.
RANKING......................... The Notes will be general unsecured
obligations of Young America and will be
subordinated in right of payment to all
existing and future Senior Debt (as defined
below) of Young America, including
indebtedness under the New Credit Facility.
The Notes will rank pari passu in right of
payment with any future senior subordinated
indebtedness of the Company and will rank
senior in right of payment to all other
subordinated obligations of the Company. The
Guarantees will be a general unsecured
obligation of Holdings and the Subsidiary
Guarantors and will be subordinated to all
existing and future Guarantor Senior Debt.
The Guarantees will rank pari passu with any
future senior subordinated indebtedness of
Holdings and the Subsidiary Guarantors and
will rank senior in right of payment to all
other subordinated obligations of Holdings
and the Subsidiary Guarantors. As of December
31, 1997, on a pro forma basis after giving
effect to the offering of the Old Notes and
the New Credit Facility, the Company would
have had approximately $0.4 million of Senior
Debt outstanding (consisting of obligations
under undrawn letters of credit) under a
commitment for up to $10.0 million under the
New Credit Facility (subject to availability
under the terms of the New Credit Facility,
which would have been approximately $9.0
million as of December 31, 1997). See
"Capitalization."
CERTAIN COVENANTS............... The indenture under which the Old Notes were,
and the New Notes will be, issued (the
"Indenture") contains certain covenants with
respect to Young America and its Restricted
Subsidiaries (as defined below) that will
restrict, among other things, the incurrence
of additional indebtedness, the payment of
dividends and other restricted payments, the
creation of certain liens, the use of
proceeds from sales of assets and subsidiary
stock and transactions with affiliates. The
Indenture will also restrict the ability of
Young America and its Restricted Subsidiaries
to consolidate or merge with or into, or to
transfer all or substantially all of its
assets to, another person. See "Description
of the Notes -- Certain Covenants."
For additional information regarding the Notes, see "Description of the
Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Exchange Offer and an investment in the Notes.
10
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present summary financial data for each of the years
in the five-year period ended December 31, 1997. The summary historical
financial data for the years ended December 31, 1995, 1996 and 1997 are derived
from and should be read in conjunction with the audited financial statements of
Holdings and the related notes thereto included elsewhere in this Prospectus.
The summary financial data for the years ended December 31, 1993 and 1994 are
derived from audited financial statements of Holdings that are not included in
this Prospectus.
The unaudited pro forma consolidated income statement data for the year
ended December 31, 1997 assumes that the Recapitalization and the offering of
the Notes occurred on January 1, 1997. The unaudited pro forma consolidated
balance sheet data as of December 31, 1997 gives effect to the offering of the
Notes as if it had occurred on December 31, 1997. The unaudited pro forma
consolidated financial data do not purport to represent what Holdings' or the
Company's financial condition or results of operations would actually have been
had the Recapitalization and the offering of the Notes in fact occurred on the
assumed date, nor do they project Holdings' and/or the Company's financial
condition or results of operation for any future period or date.
The financial data set forth below should be read in conjunction with the
historical financial statements and the related notes thereto, "Unaudited Pro
Forma Consolidated Financial Data," "Selected Historical and Pro Forma
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $78,414 $103,758 $116,268 $135,716 $175,297 $175,297
Cost of Revenues
Rebates, postage and freight........................... 52,895 70,747 80,635 84,191 105,212 105,212
Processing and servicing............................... 16,682 20,346 24,920 31,393 40,447 40,447
------- -------- -------- -------- -------- --------
Gross profit............................................. 8,837 12,665 10,713 20,132 29,638 29,638
Selling expenses......................................... 3,244 2,927 3,493 4,610 5,504 5,403
General and administrative expenses...................... 5,079 6,127 5,949 7,140 9,754 8,987
Compensation charges attributable to Recapitalization.... -- -- -- -- 17,924 --
------- -------- -------- -------- -------- --------
Operating income (loss).................................. 514 3,611 1,271 8,382 (3,544) 15,248
Interest expense......................................... 243 163 252 91 981 9,305
Amortization of deferred financing costs................. -- -- -- -- 48 375
Interest income.......................................... 6 28 10 201 1,038 1,038
Transaction costs attributable to Recapitalization....... -- -- -- -- 1,967 --
Other income (expense)................................... 2 30 (15) (60) -- --
------- -------- -------- -------- -------- --------
Income (loss) before income taxes........................ 279 3,506 1,014 8,432 (5,502) 6,606
Provision for income taxes............................... -- -- -- -- 423 2,444
------- -------- -------- -------- -------- --------
Net income (loss)........................................ $ 279 $ 3,506 $ 1,014 $ 8,432 $ (5,925) $ 4,162
======= ======== ======== ======== ======== ========
UNAUDITED PRO FORMA INCOME TAX DATA:
Income (loss) before income taxes........................ $ 279 $ 3,506 $ 1,014 $ 8,432 $ (5,502) $ 6,606
Provision (benefit) for income taxes(a).................. 103 1,297 375 3,120 (1,308) 2,444
------- -------- -------- -------- -------- --------
Pro forma net income (loss).............................. $ 176 $ 2,209 $ 639 $ 5,312 $ (4,194) $ 4,162
======= ======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(b)................................................ $ 1,476 $ 4,561 $ 2,238 $ 9,578 $ (1,956) $ 16,836(d)
EBITDA margin(c)......................................... 1.9% 4.4% 1.9% 7.1% (1.1%) 9.6%
Capital expenditures..................................... $ 1,084 $ 1,142 $ 1,061 $ 1,739 $ 3,330 $ 3,330
Depreciation and amortization(e)......................... 962 950 967 1,196 1,588 1,588
Cash interest expense(f)................................. 243 163 252 91 981 9,305
Ratio of EBITDA to cash interest expense(g).............. 1.8x
Ratio of EBITDA minus capital expenditures to cash
interest expense(g).................................... 1.5x
Ratio of earnings to fixed charges(h).................... 1.6x 9.4x 2.5x 13.1x -- 1.6x
AS OF DECEMBER 31,
1997
-------------------
PRO
HISTORICAL FORMA
-------- --------
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................................... $17,940 $14,940
Working capital.................................................................................... 11,136 9,354
Total assets....................................................................................... 41,742 39,251
Total debt......................................................................................... 80,000 80,000
Stockholders' deficit.............................................................................. (57,677) (59,751)
</TABLE>
12
<PAGE> 19
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) Reflects the pro forma income tax provision that would have been provided
had the Company been a C corporation, rather than an S corporation, for
income tax purposes.
(b) EBITDA represents earnings before interest expense, other income(expense),
income taxes, depreciation and amortization. EBITDA data is included because
management understands that such information is considered by certain
investors as an additional basis on which to evaluate the Company's ability
to pay interest, repay debt and make capital expenditures. EBITDA does not
reflect deductions for interest, other expense, income taxes, depreciation
and amortization, each of which can significantly affect the Company's
results of operations and liquidity and should be considered in evaluating
the Company's financial performance. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance determined in accordance with generally
accepted accounting principles. See "Description of the Notes" for the
definition of "Consolidated EBITDA" under the Indenture.
(c) EBITDA margin represents EBITDA as a percentage of revenues.
(d) Pro Forma EBITDA represents historical EBITDA, as described in Note (b)
above, adjusted for (i) salary and other benefits provided to the former
majority shareholder no longer being paid, (ii) consulting fees to be paid
to the former majority shareholder (as described in "Certain Transactions"),
(iii) management fees to be charged to Holdings by BTCP and OTPPB (as
described in "Certain Transactions"), (iv) amounts reflected in historical
financial statements for a phantom stock plan which terminated concurrent
with the Recapitalization (the "Phantom Stock Expenses"), (v) severance
payments incurred in connection with the Recapitalization and (vi)
compensation charges attributable to the Recapitalization as follows (in
thousands):
<TABLE>
<S> <C>
EBITDA...................................................... $(1,956)
Salary and other benefits provided to former majority
shareholder no longer being paid.......................... 606
Consulting fee to be paid to former majority shareholder.... (100)
Management fee to be charged to the Company by BTCP and
OTPPB for services which will include those which were
previously provided by the former majority shareholder.... (250)
Phantom Stock Expenses...................................... 511
Severance payments incurred in connection with the
Recapitalization.......................................... 101
Compensation charges attributable to the Recapitalization... 17,924
-------
Pro forma EBITDA............................................ $16,836
=======
</TABLE>
(e) Excludes amortization of deferred financing costs.
(f) Cash interest expense excludes amortization of deferred financing costs.
(g) For the year ended December 31, 1997, these ratios are not meaningful
because EBITDA was negative for such period. For prior periods, these ratios
are not presented because of the Company's relatively low amounts of
indebtedness.
(h) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
for this purpose include interest expense, amortization of deferred
financing costs and one third of operating lease payments (the portion
deemed to be representative of the interest factor). For the year ended
December 31, 1997, earnings were inadequate to cover fixed charges by
$5,502,000. This shortfall was attributable to the expenses incurred in
connection with the Recapitalization, including compensation charges of
$17,924,000 for bonuses and phantom stock payments and transaction fees and
expenses of $1,967,000.
13
<PAGE> 20
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
matters, as well as the other information contained in this Prospectus before
making a decision to tender their Old Notes in the Exchange Offer or making a
decision to invest in the Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the distribution of such
New Notes and neither such holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from Young America). See "Plan of Distribution." However, the ability of any
Holder to resell the New Notes is subject to applicable state securities laws as
described in " -- Blue Sky Restrictions on Resale of New Notes".
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal (or Agent's Message), including all other
documents required by such Letter of Transmittal, to the Exchange Agent at one
of the addresses set forth below under "The Exchange Offer -- Exchange Agent" on
or prior to the Expiration Date. In addition, either (i) certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal (or Agent's Message) or (ii) a timely confirmation of a book-entry
transfer for such Old Notes, if such procedure is available, into the Exchange
Agent's account at DTC pursuant to the procedure for book-entry transfer
described herein, must be received by the Exchange Agent prior to the Expiration
Date or (iii) the Holder must comply with the guaranteed delivery procedures
described herein. See "The Exchange Offer."
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. Young America does not currently intend to
register or qualify the resale of the New Notes in any such jurisdictions.
However, an exemption is generally available for sales to registered
broker-dealers and certain institutional buyers. Other exemptions under
applicable state securities laws may also be available.
14
<PAGE> 21
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The Old Notes are designated for trading in the PORTAL market. The New
Notes will constitute a new class of securities with no established trading
market. The Company does not intend to apply for a listing of the New Notes on a
securities exchange or on any automated dealer quotation system. The Company has
been advised by BT Alex.Brown Incorporated ("BTAB") that BTAB currently intends
to make a market in the New Notes. BTAB is not obligated to do so, however, and
any market-making activities with respect to the New Notes may be discontinued
at any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and may
be limited during the Exchange Offer and the pendency of any Shelf Registration
Statement (as defined herein). Because BTAB is an affiliate of the Company,
following consummation of the Exchange Offer, BTAB will be required to deliver a
current "market-making prospectus" and otherwise comply with the registration
requirements of the Securities Act in connection with any secondary market sale
of the New Notes. Accordingly, the ability of BTAB to make a market in the New
Notes may, in part, depend on the ability of the Company to maintain a current
market-making prospectus.
There is currently no established market for the New Notes and there can be
no assurance as to the liquidity of markets that may develop for the New Notes.
If a trading market does not develop or is not maintained, holders of the New
Notes may experience difficulty in reselling the New Notes or may be unable to
sell them at all. If a market develops for the New Notes, future trading prices
of the New Notes will depend on many factors, including among other things, the
Company's financial condition and results of operations. The liquidity of, and
trading market for, the New Notes also may be adversely affected by general
declines in the market for similar securities. Such a decline may adversely
affect such liquidity and trading markets independent of the financial
performance of, and prospects for, the Company. Depending on those and other
factors, the New Notes may trade at a discount from their principal amount.
LEVERAGE AND LIQUIDITY
As a result of the Recapitalization, the Company is highly leveraged. At
December 31, 1997, the Company's indebtedness was approximately $80.0 million
and it had a stockholders' deficit of $57.7 million. In addition, subject to the
restrictions in the New Credit Facility and the Indenture, Young America and its
subsidiaries may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes. The Notes are
unsecured obligations of Young America, guaranteed on an unsecured senior
subordinated basis by Holdings and the Subsidiary Guarantors. See
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Liquidity and Capital Resources," "Description of
the New Credit Facility" and "Description of the Notes."
The Company's high degree of leverage may have important consequences for
the Company, including that (i) the ability of the Company to obtain additional
financing, if necessary, for working capital, capital expenditures, acquisitions
or other purposes may be impaired or such financing may not be available on
terms favorable to the Company; (ii) a substantial portion of the Company's cash
flow will be used to pay the Company's interest expense and, in the case of
indebtedness incurred in the future, possibly principal repayments, which will
reduce the funds that would otherwise be available to the Company for its
operations and future business opportunities; (iii) a substantial decrease in
net operating cash flows of the Company could make it difficult for the Company
to meet its debt service requirements and force it to modify its operations;
(iv) the Company may be more highly leveraged than its competitors, which may
place it at a competitive disadvantage; and (v) the Company's high degree of
leverage may make it more vulnerable to a downturn in its business or the
economy generally. Any inability of the Company to service its indebtedness or
to obtain additional financing, as needed, would have a material adverse effect
on the Company's business.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which performance will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the control of the Company. The Company's ability to pay principal and
interest on the Notes and to satisfy its other debt obligations will also depend
upon the future availability of revolving credit borrowings under the New Credit
Facility or any
15
<PAGE> 22
successor facility. Such availability is or may depend on, among other things,
the Company meeting certain specified borrowing base prerequisites. See
"Description of New Credit Facility." The Company expects that, based on current
and expected levels of operations, its operating cash flow, together with
borrowings under the New Credit Facility, should be sufficient to meet its
operating expenses, to make necessary capital expenditures and to service its
debt requirements as they become due. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness (which could include the Notes), or seeking
additional equity capital. There is no assurance that any of these remedies can
be effected on satisfactory terms, if at all.
RESTRICTIVE DEBT COVENANTS
The New Credit Facility and the Indenture contain, and the terms of any
future indebtedness of the Company may contain, significant covenants that,
among other things, restrict or may restrict the ability of the Company to (i)
declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or
purchase debt, including the Notes; (iii) incur liens; (iv) make loans and
investments; (v) incur additional indebtedness; (vi) amend or otherwise alter
debt and other material agreements; (vii) engage in mergers, acquisitions and
asset sales; (viii) enter into transactions with affiliates; and (ix) alter the
business it conducts. In addition, under the New Credit Facility, the Company
will be required to comply with financial covenants with respect to (a) a
minimum interest coverage ratio and (b) a minimum current ratio and, under the
terms of future indebtedness, the Company may be required to comply with other
financial covenants. If the Company were unable to borrow under the New Credit
Facility due to a default or failure to meet certain specified borrowing base
prerequisites for borrowing, it could be left without sufficient liquidity to
conduct its business as currently planned or to make payments of interest on the
Notes.
VARIABILITY OF CLIENT MIX; VARIABILITY OF SERVICES PROVIDED
The Company's business is subject to the needs and the marketing decisions
of its clients. The marketing plans and marketing budgets of the Company's
clients change from year to year. A client may run a major consumer marketing
program utilizing the Company's services during one year and then redirect its
marketing efforts and require significantly reduced levels of the Company's
services during the next. As a result, the revenues the Company derives from any
one client may vary significantly from year to year or from quarter to quarter.
PepsiCo, Inc., for example, increased its use of the Company's services such
that the Company's revenue derived from business with PepsiCo, Inc. increased
from 2% of the Company's revenues in 1995 to approximately 24.4% of the
Company's revenues for the year ended December 31, 1997. The Company expects
that, with the current winding-down of the "Pepsi Stuff(R)" program, PepsiCo,
Inc. will account for significantly less of the Company's revenues during 1998.
The Company could experience a reduction in the level of revenues it realizes
from business with one or more of its other significant clients, whether because
of period-to-period fluctuations in such clients' marketing activities or
because of one or more decisions by clients not to continue to engage the
Company's services. In addition, the Company could experience a reduction in the
earnings it derives from the services it provides its clients if the marketing
decisions of one or more major clients were to cause a shift away from the
Company's higher margin service revenues to lower margin rebate or postage and
freight revenues. If any such reduction or change in services provided is not
offset by increases in revenues from other significant clients and/or increases
in higher margin service revenues from other clients or the attraction of new
clients, then the Company's results of operations could be materially adversely
affected. Quarterly levels of revenues and profitability may also be affected by
timing and other factors affecting specific marketing programs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company is unable to predict the future marketing plans of its clients
or more generally the marketing plans of the industries in which its clients
compete. As a result, there can be no assurance that the Company's most
significant clients will conduct marketing programs utilizing the Company's
services in any given year or even continue to do business with the Company over
the long term. As is typical in the industry, the Company is often engaged to
provide services without the execution of a formal contract, and the vast
16
<PAGE> 23
majority of the Company's engagements are either short-term in duration or are
cancelable on specified notice periods by the client.
IMPACT OF PROPOSED TOBACCO LEGISLATION ON PROMOTION MARKETING
Clients operating in the tobacco industry collectively accounted for 8.5%
of the Company's revenues for 1996 and 7.3% of the Company's revenues for the
year ended December 31, 1997. National legislation has been proposed in Congress
that, if enacted, would significantly restrict the ability of companies within
the tobacco industry to market products through branded premium programs after
1998. Management cannot determine whether or when such new legislation will go
into effect. Although management believes that it may be able to replace lost
business by providing different CIP services to the tobacco industry, there can
be no assurance that it will be able to do so.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part upon the abilities and
continued service of its executive officers and other key employees,
particularly Charles D. Weil, President and Chief Executive Officer of the
Company. There can be no assurance that the Company will be able to retain the
services of such officers and employees. The failure of the Company to retain
the services of Mr. Weil or of other key personnel could have a material adverse
effect on the Company. The Company has employment agreements with certain
executive officers, including Mr. Weil. See "Management -- Employment
Agreements." In addition, many of the Company's executive officers (including
Mr. Weil) and other key personnel hold an equity interest in Holdings and are
expected to participate in Holdings' Employee Stock Option Plan (as defined
below; see "Management -- Employee Stock Option Plan"). The Company believes
that such equity interests increase the incentives for those executive officers
and key employees to remain with the Company. However, neither such employment
agreements nor such equity interests ensure the continued service of Mr. Weil or
such executive officers and other key personnel.
DIFFICULTIES OF MANAGING GROWTH
The Company has experienced growth over the past several years and the
Company's management expects that this trend will continue. The ability to
achieve continued growth depends on a number of factors, including the Company's
ability to (i) retain and expand the provision of CIP services to existing
clients, (ii) initiate, develop and maintain new client relationships and expand
its marketing operations, (iii) utilize its existing infrastructure and
databases to perform the services required by its clients in an efficient and
timely manner, (iv) recruit, motivate and retain qualified management and hourly
personnel and (v) maintain the high quality of the services that it provides to
its clients. The Company's continued growth can be expected to place a
significant strain on the Company's management, operations, employees and
resources. There can be no assurance that the Company will be able to maintain
or accelerate its current growth, effectively manage its expanding operations or
achieve planned growth on a timely or profitable basis. If the Company is unable
to manage growth effectively, its business, results of operations or financial
condition could be materially adversely affected.
RISKS ASSOCIATED WITH FOCUS ON HIGH-VOLUME AND/OR COMPLEX MARKETING PROGRAMS
In recent years, the Company has focused on the execution of high-volume
and/or complex marketing programs for its clients. The Company has (i) focused
its marketing efforts on existing and prospective clients that have the
potential for generating large revenue for the Company, (ii) invested
substantial time and resources developing a sophisticated management information
system to manage multiple, varying, high-volume marketing programs and (iii)
adopted a pricing strategy in part predicated on earning margins appropriately
reflecting its ability to execute high-volume and complex marketing programs. If
adverse changes in economic conditions or changes in the marketing strategies of
the Company's clients result in a significant reduction in the number of complex
and/or high-volume marketing programs, the Company's business could be
materially adversely affected.
17
<PAGE> 24
APPLICATION OF STATE ESCHEAT LAWS
In connection with approximately 40% of the aggregate dollar amount of
checks issued under rebate programs for which the Company has provided CIP
services, the Company has entered into arrangements with its clients providing
that the Company would fund from the Company's own working capital the payment
of rebates offered by the Company's clients. The Company, in turn, invoices its
clients for the full amount of those rebate checks that the Company issues to
consumers. When the Company agrees to fund rebate payments with its own working
capital, its contractual arrangements with its clients generally provide that
the Company is entitled to retain amounts paid to it by clients relating to
rebate checks that are never cashed (referred to in the industry as slippage).
For the years ended December 31, 1997, and 1996, the portions of revenues
recognized by the Company as slippage were $3.3 million and $2.4 million,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The escheat laws of various states provide that under certain circumstance
holders of unclaimed property (possibly including, under certain interpretations
of such laws, slippage amounts) must surrender that property to the state in
question. The Company believes that, because Holdings and Young America are
Minnesota corporations with their principal operations and principal places of
business located in Minnesota, the escheat law of the State of Minnesota would
govern the right of the Company to retain slippage amounts. The Company also
believes that under current Minnesota escheat law, it is entitled to retain
slippage amounts in those instances where the Company funds its client's rebate
program from its own working capital rather than surrendering such amounts to
the State of Minnesota. There can be no assurance, however, that the Minnesota
escheat law will not change or that the Company's interpretation of the
Minnesota escheat law would prevail in any action by the State of Minnesota to
require the Company to surrender to the State any slippage amounts. Further,
there can be no assurance that the State of Minnesota will not commence action
to require one or more of the Company's clients to surrender slippage amounts to
the State. There can also be no assurance that another state will not prevail in
an action under its escheat laws to require the surrender to that state of
slippage amounts whether unclaimed by residents of such state or otherwise.
VULNERABILITY TO ECONOMIC DOWNTURN
Marketing budgets in large companies tend to decline during general
downturns in the economy. As a result, the market for CIP services may also
decline during future periods of economic weakness. There can be no assurance
that future economic downturns will not materially adversely affect the
Company's business.
RELIANCE ON TECHNOLOGY; RISK OF BUSINESS INTERRUPTION
The Company has made significant investments in sophisticated and
specialized software and other computer and telecommunications technology and
has focused on the application of this technology to provide customized
solutions to meet its clients' needs. The Company expects that it will be
necessary to continue to select, invest in and develop new and enhanced
technology on a timely basis in the future in order to maintain its
competitiveness. The Company's future success will also depend in part on its
ability to continue to develop technology solutions which keep pace with
evolving industry standards and changing client demands. There can be no
assurance that the Company will be successful in anticipating technological
changes or in selecting and developing new and enhanced information technology
on a timely basis. Although the Company believes that certain of its systems are
more advanced than those of its competitors, its technological advantage arises
from the application of technology that is readily available to or could legally
be duplicated by its competitors. There can be no assurance that any of the
technological advantages the Company may currently enjoy can be maintained.
In addition, the Company's business is highly dependent on its computer and
telephone equipment and software systems and, although the Company maintains
backup systems, the temporary or permanent loss of any such equipment or
systems, through casualty or operating malfunction, could have a material
adverse effect on the Company's business. While the Company maintains property
and business interruption insurance, such insurance may not adequately
compensate the Company for all losses that it may incur. See
"Business -- Technology."
18
<PAGE> 25
DEPENDENCE ON TELEPHONE, POSTAL AND DELIVERY SERVICE
The Company's business is materially dependent on the service provided by
various local and long distance telephone companies. A significant increase in
the cost of telephone services that is not recoverable through an increase in
the pricing of the Company's services, or any significant interruption in
telephone services, could have a material adverse impact on the Company's
business.
The Company's business is also materially dependent on the services of the
United States Postal Service (the "USPS") and, to a lesser degree, the services
of private delivery services. Postal and delivery service rate increases affect
the cost of the Company's mailings and shipments to consumers. The Company
benefits from discounts from the basic postal rate structure, such as discounts
for bulk mailings and pre-sorting by zip code and carrier routes. Any increase
in postal and other delivery service rates, including through the elimination of
existing discounts, that the Company cannot recover through an increase in the
pricing of the Company's services could have a material adverse impact on the
Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON LABOR FORCE
The Company's business is very labor intensive. The Company's success is
significantly dependent on its ability to recruit, hire, train and retain
qualified employees and independent contractors. A significant increase in the
Company's employee turnover rate could increase the Company's recruiting and
training costs and decrease operating effectiveness and productivity. Also, the
addition of significant new clients or the implementation of new high-volume
programs may require the Company to recruit, hire and train qualified personnel
at an accelerated rate. There can be no assurance that the Company will be able
to continue to hire, train and retain sufficient qualified personnel to
adequately staff CIP services in support of its clients marketing programs.
Because a significant portion of the Company's operating costs relate to labor
costs, an increase in wages, costs of employee benefits or employment taxes not
recoverable through an increase in the pricing of the Company's services could
have a material adverse effect on the Company's business, results of operations
or financial condition. In addition, certain of the Company's facilities are
located in geographic areas with relatively low unemployment rates, thus
potentially making it more difficult and costly to hire qualified personnel. See
"-- Difficulties of Managing Growth" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
HIGHLY COMPETITIVE MARKET
The market in which the Company competes is highly competitive and
fragmented. The Company expects competition to persist and to intensify in the
future. The Company's competitors include small firms offering specific
promotion fulfillment applications, divisions of larger entities and large
independent firms. A number of competitors have or may develop greater
capabilities and resources than those of the Company. Similarly, there can be no
assurance that additional competitors with greater resources than the Company
will not enter the Company's market. The Company's performance and growth could
be negatively affected if its existing clients decide to provide in-house CIP
services that currently are outsourced or if potential clients retain or
increase their in-house customer service operations. In addition, competitive
pressures from current or future competitors could cause the Company's services
to lose market acceptance or result in significant price erosion, with a
material adverse effect upon the Company's business, results of operations or
financial condition. See "Business -- Competition."
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
One element of the Company's growth strategy is to pursue strategic
acquisitions that either expand or complement the Company's business. There can
be no assurance that the Company will be able to identify acceptable acquisition
candidates or complete any strategic acquisitions on terms favorable to the
Company or in a timely manner. Acquisitions involve a number of special risks,
including the diversion of management's attention to the assimilation of the
operations and personnel of the acquired companies, adverse short-term effects
on the Company's operating results and/or the integration of financial reporting
and other management
19
<PAGE> 26
systems. In addition, the Company may require additional debt or equity
financings for future acquisitions, which may not be available on terms
favorable to the Company, if at all. There is no assurance that the Company can
successfully integrate an acquired business into the Company's business or that
any acquired business can be operated profitably by the Company.
PURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, Young America is required to offer to purchase
all outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. The source of funds for any
such purchase will be the Company's available cash or cash generated from
operations or other sources, including borrowings, sales of assets, sales of
equity or funds provided by a new controlling person. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered, or that, if
applicable, restrictions in the New Credit Facility or in any future
indebtedness incurred by the Company will allow Young America to make such
required repurchases. See "Description of the Notes -- Change of Control" and
"Description of New Credit Facility."
OWNERSHIP OF THE COMPANY; STOCKHOLDERS' AGREEMENT
Young America is a wholly-owned subsidiary of Holdings. As a result of the
Recapitalization, (i) BTCP holds 45.0% of Holdings' outstanding voting
securities (the "Voting Stock"), (ii) OTPPB holds 29.0% of the Voting Stock,
(iii) the Management Stockholders hold 15.7% of the Voting Stock and (iv) Jay F.
Ecklund holds 10.3% of the Voting Stock. Under the Stockholders' Agreement (as
defined in "Principal Stockholders" below), BTCP is entitled to designate two
directors to Holdings' board of directors (the "Board of Directors"), each of
OTPPB and Jay F. Ecklund is entitled to designate one director and Holdings'
chief executive officer serves as a director. In addition, BTCP and OTPPB are
entitled to designate jointly up to three independent directors to the Board of
Directors. Accordingly, BTCP and OTPPB collectively hold a majority of the
Voting Stock and have the power to designate a majority of Holdings' directors
and, upon the occurrence of certain events, BTCP will itself have the power to
designate a majority of Holdings' directors. Circumstances may occur in which
the interests of OTPPB and/or BTCP, as shareholders of Holdings, could be in
conflict with the interests of the holders of the Notes. Also, under the
Stockholders' Agreement a wide range of actions to be taken by the Company will
require separate approval of the holders of a majority of the shares currently
held by OTPPB and the holders of a majority of the shares currently held by
BTCP, including the sale of the Company and the consummation of an initial
public offering. Thus, if those shareholder groups, or their representatives on
the Board of Directors, are unable to reach consensus on matters requiring their
separate approval, the business, results of operations and financial condition
of the Company could be materially adversely affected. See "Principal
Stockholders" and "Certain Transactions."
SUBORDINATION OF NOTES AND THE GUARANTEES
The Notes and the Guarantees will be unsecured and subordinated to the
prior payment in full of all Senior Debt of Young America and all Guarantor
Senior Debt. As of December 31, 1997, on a pro forma basis after giving effect
to the offering of the Notes and the New Credit Facility, the aggregate
outstanding principal amount of all Senior Debt would have been approximately
$0.4 million (consisting of obligations under undrawn letters of credit) under a
commitment for up to $10 million (subject to availability under the terms of the
New Credit Facility). In the event of a bankruptcy, liquidation or
reorganization of Young America, the assets of Young America, Holdings or the
Subsidiary Guarantors will be available to pay obligations on the Notes only
after all Senior Debt or Guarantor Senior Debt, as the case may be, has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Notes. In addition, Young America may not pay principal
or premium, if any, or interest on the Notes if any Senior Debt or Guarantor
Senior Debt is not paid when due or any other default on any Senior Debt or
Guarantor Senior Debt occurs and the maturity of such Senior Debt or Guarantor
Senior Debt is accelerated in accordance with its terms, unless, in either case,
such amount has been paid in full or the default has been cured or waived and
such acceleration has been rescinded. In addition, if any default occurs with
respect to
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certain Senior Debt or Guarantor Senior Debt and certain other conditions are
satisfied, Young America may not make any payments on the Notes for a designated
period of time. Finally, if any judicial proceeding is pending with respect to
any such default in payment on any Senior Debt or Guarantor Senior Debt or other
default with respect to certain Senior Debt or Guarantor Senior Debt or if the
maturity of the Notes is accelerated because of a default under the Indenture
and such default constitutes a default with respect to any Senior Debt or
Guarantor Senior Debt, Young America may not make any payment on the Notes.
FRAUDULENT CONVEYANCE
The net proceeds from the offering of the Old Notes were loaned and
distributed by Young America to Holdings and applied by Holdings to the
repayment of amounts outstanding under the Bridge Facility, which were incurred
in connection with the Recapitalization. Under relevant federal and state
fraudulent conveyance statutes (the "fraudulent conveyance statutes") and laws
relating to distributions to shareholders, the obligations of the Company
incurred under the Indenture and the Notes may be subject to review in a
bankruptcy, reorganization or rehabilitation case or similar proceeding or a
lawsuit by or on behalf of unpaid creditors of the Company. The requirements for
establishing a fraudulent conveyance or revocable transfer vary depending on the
law of the jurisdiction that is being applied. If under relevant fraudulent
conveyance statutes a court were to find that at the time Holdings and Young
America incurred the indebtedness under the Bridge Facility and Holdings
repurchased its capital stock pursuant to the Recapitalization or at the time
Young America incurred the indebtedness under the Notes and made the loan and
distribution to Holdings (i) Holdings or the Company incurred such indebtedness
with the intent of hindering, delaying or defrauding current or future creditors
of the Company, or (ii) (a) Holdings or the Company received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness, repurchasing such capital stock or making such loan and
distribution and (b) Holdings or the Company (A) was insolvent or was rendered
insolvent by reason of incurring such indebtedness, repurchasing such capital
stock or making such loan and distribution, (B) was engaged or about to engage
in a business or transaction for which its assets constituted unreasonably small
capital, (C) intended to incur, or believed that it would incur, indebtedness
beyond its ability to pay as such indebtedness matured (as all of the foregoing
terms are defined in or interpreted under the applicable fraudulent conveyance
statutes) or (D) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either case, the judgment
is unsatisfied after the final judgment), such court could avoid or subordinate
the Notes to presently existing and future indebtedness of the Company and take
other action detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or local law that is being applied in any such
proceeding. Generally, however the Company would be considered insolvent if, at
the time it incurred the indebtedness constituting the Bridge Facility or the
Notes, either (i) the fair market value (or fair salable value) of its assets
were less than the amount required to pay the probable liability on its total
existing debts and liabilities (including contingent liabilities) as they become
absolute and matured or (ii) it were incurring indebtedness beyond its ability
to pay as such indebtedness matures.
A court would likely conclude that the Company did not receive reasonably
equivalent value or fair consideration for incurring its obligations under the
Notes to the extent that the proceeds of the Notes were used to fund a loan and
a distribution to Holdings to allow it to repay the indebtedness under the
Bridge Facility and the Bridge Facility was used to repurchase capital stock of
Holdings from any of the Selling Stockholders. The Company, however, believes
that at the time Holdings entered into the Bridge Facility and at the time Young
America issued the Notes and loaned and distributed the net proceeds to Holdings
each (i) was (a) neither insolvent nor rendered insolvent thereby for purposes
of the foregoing standards, (b) in possession of sufficient capital to meet its
obligations as such obligations mature or become due and to operate its business
effectively and (c) incurring obligations within its ability to pay such
obligations as they mature or become due and (ii) had sufficient assets to
satisfy any probable money judgment against it in any pending action. No
assurance can be given, however, that a court passing on such issues would reach
the same conclusions.
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USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
Exchange Offer is intended to satisfy certain obligations of Young America and
Holdings under the Registration Rights Agreement with respect to the Old Notes.
In consideration for issuing the New Notes contemplated in this Prospectus, the
Company will receive Old Notes in like principal amount, the form and terms of
which are substantially similar to the form and terms of the New Notes except as
otherwise described herein. The Old Notes surrendered in exchange for New Notes
will be returned to the Company and canceled and cannot be reissued.
Accordingly, the issuance of the New Notes will not result in any increase or
decrease in the indebtedness of the Company.
The net proceeds to the Company from the issuance of the Old Notes (after
deducting the fees and expenses incurred in connection with such offering) were
approximately $77.0 million. An amount equal to $10.0 million of such net
proceeds was loaned by Young America to Holdings and an amount equal to
approximately $67.0 million of such net proceeds was distributed by Young
America to Holdings. The aggregate amount of such loan and distribution,
together with $3.0 million of the net proceeds from the issuance of Common Stock
to the Investor Group in the Recapitalization were used to repay the $80.0
million principal amount outstanding under the Bridge Facility. The proceeds
from the borrowing under the Bridge Facility, together with a portion of the
proceeds from the issuance of capital stock of Holdings, were used to repurchase
shares of capital stock of Holdings from the Selling Stockholders in the
Recapitalization. See "Prospectus Summary -- The Recapitalization."
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<PAGE> 29
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by Young America on February 23, 1998 to the
Initial Purchaser, which resold the Old Notes to qualified institutional
investors in reliance on Rule 144A under the Securities Act. In connection
therewith, Young America, Holdings and the Initial Purchaser entered into the
Registration Rights Agreement, which provides that (i) Young America and
Holdings will file a registration statement with respect to the Exchange Offer
(the "Exchange Offer Registration Statement") with the Commission within 60 days
(the "Target Filing Date") after the date of the original issuance of the Old
Notes (the "Issue Date"), (ii) Young America and Holdings will use their
respective best efforts to cause the registration statement with respect to the
Exchange Offer to be declared effective by the Commission within 135 days after
the Issue Date (the "Target Effectiveness Date"), (iii) Young America and
Holdings will use their respective best efforts to consummate the Exchange Offer
within 160 days after the Issue Date (the "Target Consummation Date") and (iv)
if obligated to file the Shelf Registration Statement, Young America and
Holdings will file the Shelf Registration Statement with the Commission promptly
after such filing obligation arises and to use their respective best efforts to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to the Target Effectiveness Date. Promptly after the
effectiveness of the Registration Statement, Young America will offer, pursuant
to this Prospectus, to the Holders of the Old Notes the opportunity to exchange
their Old Notes for a like principal amount of New Notes, to be issued without a
restrictive legend and which may, generally, be reoffered and resold by the
holder without restrictions or limitations under the Securities Act. The term
"Holder" with respect to the Exchange Offer means any person in whose name Old
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Young America and Holdings have not requested, and do not intend to
request, an interpretation by the staff of the Commission with respect to
whether the New Notes issued pursuant to the Exchange Offer in exchange for the
Old Notes 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 interpretations by the staff of the
Commission set forth in noaction letters issued to third parties, Young America
and Holdings believe that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder of such New Notes (other than any such holder that is
an "affiliate" of Young America or Holdings within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business, such Holder
has no arrangement or understanding with any person to participate in the
distribution of such New Notes and neither such Holder nor any other such person
is engaging in or intends to engage in a distribution of such New Notes. Because
the Commission has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. Any
Holder who is an affiliate of Young America or Holdings or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on such interpretations by the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from Young America). See
"Plan of Distribution."
If (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not
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consummated on or prior to the Target Consummation Date, (iii) in certain
circumstances certain holders of unregistered New Notes so request, (iv), the
Holders of not less than a majority in aggregate principal amount of the Old
Notes determine that the interests of the Holders would be materially adversely
affected by consummation of the Exchange Offer or (v) in the case of any Holder
that participates in the Exchange Offer, such Holder does not receive New Notes
on the date of the exchange that may be sold without restriction under state and
federal securities laws (the occurrence of any such event set forth in the
foregoing clauses (i) through (v), a "Shelf Registration Event"), then, in the
case of such events, the Company will deliver to the Holders and the Trustee
notice thereof (the "Shelf Notice") and thereafter Young America and Holdings
shall file the Shelf Registration Statement (as defined herein) pursuant to the
Registration Rights Agreement.
SHELF REGISTRATION.
If a Shelf Registration Event has occurred (and whether or not an Exchange
Offer Registration Statement has been filed with the Commission or has become
effective, or the Exchange Offer has been consummated), then Young America and
Holdings will file the Shelf Registration Statement and comply with the
following terms.
Shelf Registration Statement. Young America and Holdings shall promptly
prepare and file with the Commission a Registration Statement for an offering to
be made on a continuous basis pursuant to Rule 415 covering all of the Old Notes
required to be registered under the Registration Rights Agreement (the "Shelf
Registration Statement"). Young America and Holdings shall use their best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act on or prior to the Target Effectiveness Date, and to keep the
Shelf Registration Statement continuously effective under the Securities Act
until the date which is 24 months from the Issue Date, or such shorter period
ending when all Old Notes covered by the Shelf Registration Statement have been
sold in the manner set forth and as contemplated in the Shelf Registration
Statement (such 24 month or shorter period, the "Effectiveness Period"). In the
event that a Shelf Registration Statement is filed, the Company will provide to
each Holder copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A Holder that sells Old Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification rights and obligations).
Withdrawal of Stop Orders. If the Shelf Registration Statement ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), each
of Young America and Holdings shall use their best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof.
Supplements and Amendments. Young America and Holdings shall promptly
supplement and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Old Notes covered by such Registration Statement or by any underwriter of
such Old Notes.
ADDITIONAL INTEREST
(a) Young America and Holdings have agreed to pay, as liquidated damages,
additional interest on the Notes ("Additional Interest") under the circumstances
and to the extent set forth below (without duplication):
(i) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement has been filed on or prior to the Target
Filing Date or (B) notwithstanding that the Company has consummated or will
consummate the Exchange Offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not filed
on or prior to the date required
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<PAGE> 31
by the Registration Rights Agreement, then commencing on the day after
either such required filing date, Additional Interest shall accrue on the
Notes over and above the stated interest at a rate of 0.50% per annum for
the first 90 days immediately following the Target Filing Date, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement is declared effective by the Commission on or
prior to the Target Effectiveness Date or (B) notwithstanding that the
Company has consummated or will consummate the Exchange Offer, the Company
is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 60th day following the date such Shelf Registration Statement
is filed, then, commencing on the day after either such filing date,
Additional Interest shall be accrued on the Notes included or that should
have been included in such registration statement over and above the stated
interest at a rate of 0.50% per annum for the first 90 days immediately
following the Target Effectiveness Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; and
(iii) if either (A) Young America and Holdings have not exchanged New
Notes for all Old Notes validly tendered and not withdrawn in accordance
with the terms of the Exchange Offer on or prior to the 45th day after the
Target Effectiveness Date or (B) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time during the Effectiveness Period for a
period of 15 consecutive days without being succeeded immediately by an
additional Exchange Offer Registration Statement filed and declared
effective, then Additional Interest shall accrue on the Notes (over and
above any interest otherwise payable on the Notes) at a rate of 0.50% per
annum commencing on (x) the 46th day after the Target Effectiveness Date,
in the case of (A) above, or (y) the day the Shelf Registration Statement
ceases to be effective without being declared effective within 15 business
days thereafter in the case of (B) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period (it being understood and agreed that,
notwithstanding any provision to the contrary, so long as any Note that is
the subject of a Shelf Notice is then covered by an effective Shelf
Registration Statement, no Additional Interest shall accrue on such Note);
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate 1.0% per annum; and provided,
further, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of clause (i) of this paragraph),
(2) upon the effectiveness of the Exchange Offer Registration Statement or the
Shelf Registration Statement (in the case of clause (ii) of this paragraph) or
(3) upon the exchange of New Notes for all Old Notes validly tendered and not
withdrawn (in the case of clause (iii)(A) of this paragraph), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased to
remain effective (in the case of clause (iii)(B) of this paragraph), Additional
Interest on the affected Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on the same original interest payment dates
as the Notes.
Holders of Old Notes will be required to make certain representations to
Young America and Holdings (as described in the Registration Rights Agreement)
in order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions set
forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all of the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
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The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, Holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Young America will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. Young America will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes being tendered for exchange.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
the payment of additional interest on the Old Notes under certain circumstances
relating to the Registration Rights Agreement, which provisions will terminate
upon the consummation of the Exchange Offer. The New Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $80,000,000, aggregate principal amount
of the Old Notes are outstanding. Young America and Holdings have fixed the
close of business on , 1998 as the record date for the Exchange
Offer for purposes of determining the persons to whom this Prospectus, together
with the Letter of Transmittal, will initially be sent. As of such date, there
were registered Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Minnesota Business Corporation Act (the "MBCA") or the Indenture in
connection with the Exchange Offer. Young America and Holdings intend to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder.
Young America shall be deemed to have accepted validly tendered Old Notes
when, as and if it has given oral notice (confirmed in writing) or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will 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 Old Notes
pursuant to the Exchange Offer. Young America and Holdings will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 unless Young America and Holdings, in their sole discretion,
extend the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended.
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<PAGE> 33
In order to extend the Exchange Offer, Young America and Holdings will
notify the Exchange Agent of any extension by oral notice (confirmed in writing)
or written notice and will make a public announcement thereof prior to 9:00
a.m., New York City time, on the next business day after each previously
scheduled expiration date.
Young America and Holdings reserve the right, in their sole discretion, (i)
to delay accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "The Exchange Offer -- Conditions" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or written notice of such delay, extension or termination
to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by Young America and Holdings
to constitute a material change, Young America and Holdings will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered Holders, and Young America and Holdings will
extend the Exchange Offer for a period of five to 10 business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five-to 10-business-day period.
Without limiting the manner in which Young America and Holdings may choose
to make public announcement of any delay, extension, termination or amendment of
the Exchange Offer, Young America and Holdings shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will accrue interest from February 23, 1998 and such interest
will be payable semi-annually in arrears on February 15 and August 15 of each
year, commencing August 15, 1998 at the rate of 11 5/8% per annum. No interest
will be paid on Old Notes that are accepted for exchange.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by Young America wi11
constitute a binding agreement between such Holder and Young America in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. This Prospectus, together with the Letter of
Transmittal, will first be sent on or about , 1998 to all Holders of
Old Notes known to Young America and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m, New York City time, on the Expiration Date
(unless such tender is being effected pursuant to the procedure for book-entry
transfer described below). In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Old Notes, Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE
OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
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<PAGE> 34
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the 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 such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Young America and
Holdings, evidence satisfactory to Young America and Holdings of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
Young America and Holdings in their sole discretion, which determination will be
final and binding. Young America and Holdings reserve the absolute right to
reject any and all Old Notes not properly tendered or any Old Notes Young
America's acceptance of which would, in the opinion of counsel for Young America
and Holdings, be unlawful. Young America and Holdings also reserve the right to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. The interpretation by Young America and Holdings of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as Young America and Holdings shall determine. Although Young
America and Holdings intend to notify Holders of defects or irregularities with
respect to tenders of Old Notes, neither Young America, Holdings, the Exchange
Agent nor any other person shall incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that Young America and Holdings determine are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each Holder will represent to Young America and Holdings,
among other things, that (i) the New Notes acquired by the Holder and any
beneficial owners of Old Notes pursuant to the Exchange Offer are being obtained
in the ordinary' course of business of the person receiving such New Notes, (ii)
neither the Holder nor such beneficial owner has an arrangement with any person
to participate in the distribution of such New Notes, (iii) neither the Holder
nor such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of Young America or Holdings. Each broker-dealer that
receives New Notes for its own account in exchange for Old
28
<PAGE> 35
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Old Notes
acquired directly from Young America), may participate in the Exchange Offer but
may be deemed an "underwriter" under the Securities Act and, therefore, must
acknowledge in the Letter of Transmittal that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof or
an Agents Message in lieu thereof) with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes
29
<PAGE> 36
are to be registered, if different from that of the Depositor. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing Holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by Young America and Holdings in their sole discretion, which
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Young America will
not be required to accept for exchange, or exchange New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
Young America and Holdings to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to Young America and Holdings; or
(c) any governmental approval has not been obtained, which approval
Young America and Holdings deem necessary for the consummation of the
Exchange Offer.
If Young America and Holdings determine in their sole discretion that any
of the conditions are not satisfied, Young America and/or Holdings, as
appropriate, may (i) refuse to accept any Old Notes and return all tendered Old
Notes to the tendering Holders (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility), (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to the
rights of Holders to withdraw such Old Notes (see "-- Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Old Notes which have not been withdrawn. If such
waiver constitutes a material change to the Exchange Offer, Young America and
Holdings will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered Holders, and Young America and
Holdings will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire during
such five- to 10-business-day period.
30
<PAGE> 37
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Registered or Certified Mail:
Marine Midland Bank
Corporate Trust Operations
140 Broadway, Level A Window
New York, New York 10005-1180
Facsimile Transmission Number:
(212) 658-2292
Attention: Corporate Trust Operations
(For Eligible Institutions Only)
Confirm by Telephone
(212) 658-5931
By Hand/Overnight Delivery:
Marine Midland Bank
Corporate Trust Operations
140 Broadway, Level A Window
New York, New York
For Information Call: (800) 662-9844 or (212) 658-5931
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Young America and
Holdings. The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of Young America, Holdings and their affiliates.
Young America and Holdings have 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. Young America
and 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.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Young America and Holdings. Such expenses include fees and expenses
of the Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
Young America and Holdings will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Old Notes 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 Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes 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 New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes will
be recognized. The expenses of the Exchange Offer and the unamortized expenses
related to the issuance of the Old Notes will be amortized over the term of the
New Notes.
31
<PAGE> 38
THE RECAPITALIZATION
Prior to the Recapitalization Date, all of the capital stock of Holdings
was owned by the Selling Stockholders. On the Recapitalization Date, Holdings
effected the Recapitalization resulting in approximately 93.0% of the capital
stock of Holdings being held by the Investor Group. In the Recapitalization,
members of the Investor Group purchased newly-issued shares of Common Stock for
an aggregate purchase price of $38.9 million. BTCP purchased shares of Common
Stock for $22.4 million, OTPPB purchased shares of Common Stock for $12.0
million and the Management Stockholders collectively purchased shares of Common
Stock for $4.5 million. See "Principal Stockholders." Also in the
Recapitalization, Holdings borrowed $80.0 million under the Bridge Facility.
Holdings used the proceeds of the issuance of shares of Common Stock to the
Investor Group and the borrowings under the Bridge Facility to (i) repurchase
outstanding shares of Common Stock from the Selling Stockholders for an
aggregate purchase price of $92.2 million, (ii) make bonus payments to
management of $13.4 million under plans put in place in contemplation of a
change of control of the Company, and $4.9 million paid pursuant to phantom
stock arrangements due in such amounts as a result of the change of control of
the Company in the Recapitalization (see "Management -- Phantom Stock
Agreements" and "-- 1997 Management Recognition, Transition and Equity Bonus
Plan") and (iii) pay certain fees and expenses related to the Recapitalization.
Of the amounts referred to in (i) and (ii) above, $6.0 million was placed in
escrow subject to certain indemnification provisions of the Recapitalization
Agreement, $1.2 million of which has been recorded by the Company as estimated
compensation charges remaining to be paid related to (ii) above. A portion of
those proceeds were also retained by the Company to pay certain fees and
expenses related to the offering of the Notes and other cash costs triggered by
the Recapitalization. Pursuant to the terms of the Recapitalization Agreement,
Holdings expects to make an additional payment of approximately $700,000 to the
Selling Shareholders and certain employees of the Company during the second
quarter of 1998. Such payment will be based upon the final determination of
total stockholders equity (as defined) of Holdings as of October 31, 1997 and
Holdings' profits or losses (as defined) for the period ended on the
Recapitalization Date. In addition, after December 31, 2001, the Selling
Stockholders and certain employees of the Company may also be entitled to
additional payments (either as additional consideration for shares repurchased
by Holdings in the Recapitalization or as additional bonus or phantom stock
payments) aggregating up to $15 million depending upon the level of Cumulative
Excess Free Cash Flow (as defined in the Recapitalization Agreement) of the
Company for the four-year period ending December 31, 2001. See "Certain
Transactions."
In the Recapitalization, (i) BTCP purchased 586,561 newly issued shares of
voting Class A Common Stock and 442,884 newly issued shares of non-voting Class
B Common Stock, (ii) OTPPB purchased 378,273 newly issued shares of voting Class
A Common Stock and 172,727 newly issued shares of non-voting Class C Common
Stock and (iii) the Management Stockholders, who had no prior equity ownership
interest in Holdings, purchased 204,696 newly issued shares of voting Class A
Common Stock. Pursuant to the Recapitalization, Holdings repurchased from the
Selling Stockholders a number of shares of Class A Common Stock such that the
Selling Stockholders continue to hold 134,400 shares of voting Class A Common
Stock, representing 7.0% of Holdings' outstanding Common Stock and 10.3% of the
Voting Stock. BTCP owns 53.6% of the outstanding Common Stock and 45.0% of the
Voting Stock, OTPPB owns 28.7% of the outstanding Common Stock and 29.0% of the
Voting Stock, and the Management Stockholders own 10.7% of the outstanding
Common Stock and 15.7% of the Voting Stock. The Class B Common Stock and the
Class C Common Stock are convertible into Class A Common Stock and, upon the
occurrence of certain events. In addition, the Class B Common Stock will be
entitled, at the option of the holders thereof to vote with the Class A Common
Stock, voting together as a single class, on all matters to be voted on by
Holdings' shareholders. See "Principal Stockholders."
32
<PAGE> 39
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
Holdings at December, 1997, and the consolidated capitalization of Holdings at
that date as adjusted to give effect to the issuance of the Notes and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the financial statements of Holdings and the related notes
thereto, "Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
and Pro Forma Consolidated Financial Data" and "Use of Proceeds," all included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
AS ADJUSTED
FOR THE
OFFERING
OF THE
ACTUAL NOTES
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Borrowings under the Bridge Facility...................... $ 80,000 $ --
Borrowings under the New Credit Facility(1)............... -- --
Senior Subordinated Notes................................. -- 80,000
-------- --------
Total long-term debt................................... 80,000 80,000
-------- --------
Total stockholders' deficit............................ (57,677) (59,751)
-------- --------
Total capitalization.............................. $ 22,323 $ 20,249
======== ========
</TABLE>
- ---------------
(1) The New Credit Facility includes a commitment for up to $10.0 million of
borrowings subject to a borrowing base formula equal to 85% of Eligible
Accounts Receivable (as defined in the New Credit Facility). The New Credit
Facility also provides for up to $1.0 million of letters of credit within
that commitment. On a pro forma basis, as of December 31, 1997, there would
have been one letter of credit with a face amount of approximately $0.4
million outstanding under the New Credit Facility out of total availability
under the borrowing base formula of approximately $9.0 million as of
December 31, 1997.
33
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following pro forma consolidated financial statements of Holdings,
which include Young America (the "Pro Forma Consolidated Financial Statements"),
include the unaudited pro forma consolidated statement of income for the year
ended December 31, 1997 (the "Pro Forma Consolidated Statement of Income"), and
the unaudited pro forma consolidated balance sheet as of December 31, 1997 (the
"Pro Forma Consolidated Balance Sheet").
The Pro Forma Consolidated Balance Sheet is based on the audited
consolidated balance sheet of Holdings as of December 31, 1997, and is adjusted
to give effect to the offering of the Notes as if it had occurred on December
31, 1997.
The Pro Forma Consolidated Statement of Income is based on the audited
statement of income of Holdings for the year ended December 31, 1997, and is
adjusted to give effect to (x) the Recapitalization and (y) the offering of the
Notes and the application of the proceeds therefrom as though they had occurred
as of January 1, 1997. The Pro Forma Consolidated Statement of Income reflects
pro forma adjustments to give effect to (i) the Recapitalization, (ii) certain
changes in the Company's general and administrative expense structure which were
made concurrent with the Recapitalization with regard to salaries and benefits
provided to the former majority owner who is no longer receiving such payments,
and changes in compensation to be paid to certain employees to reflect the
termination, concurrent with the Recapitalization, of the Company's phantom
stock plan, offset by consulting fees to be paid to the former majority owner
and management fees to be charged by BTCP and OTPPB and (iii) the offering of
the Notes and the application of the proceeds therefrom.
The Pro Forma Consolidated Financial Statements and the accompanying notes
should be read in conjunction with Holdings' historical financial statements and
related notes thereto included elsewhere in this Prospectus.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Holdings' or the Company's financial condition or the results of operations
would actually have been had the Recapitalization and the offering of the Notes
in fact occurred on the assumed date, nor do they project Holdings' and/or the
Company's financial condition or results of operations for any future period or
date.
34
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 17,940 $ (3,000)(a) $ 14,940
Trade receivables, net................................... 11,482... -- 11,482
Supplies inventory....................................... 615...... -- 615
Prepaid expenses......................................... 518 -- 518
Deferred income taxes.................................... -- 801(b) 801
-------- -------- --------
Total current assets............................. 30,555 (2,199) 28,356
Property and Equipment, net................................ 7,895.... -- 7,895
Deferred Financing Costs................................... 3,292 (3,292)(c) 3,000
3,000(c)
-------- -------- --------
Total Assets..................................... $ 41,742 $ (2,491) $ 39,251
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Noncleared rebate items.................................. $ 4,526 $ -- $ 4,526
Accounts payable......................................... 2,331 -- 2,331
Collections due to and advances from clients............. 3,548 -- 3,548
Deferred income taxes.................................... 417 (417)(b) --
Accrued expenses
Compensation.......................................... 5,860 -- 5,860
Other................................................. 2,737 -- 2,737
-------- -------- --------
Total current liabilities........................ 19,419 (417) 19,002
Bridge Facility............................................ 80,000 (80,000)(a) --
Senior Subordinated Notes.................................. 80,000(a) 80,000
Stockholders' Deficit:
Class A common stock..................................... 1,304 -- 1,304
Class B common stock..................................... 443 -- 443
Class C common stock..................................... 173 -- 173
Additional paid-in capital............................... 37,065 -- 37,065
Retained deficit......................................... (96,662) (2,074)(d) (98,736)
-------- -------- --------
(57,677) (2,074) (59,751)
-------- -------- --------
Total Liabilities and Stockholders' Deficit...... $ 41,742 $ (2,491) $ 39,251
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
35
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects (i) the proceeds of the Offering of the Notes of $80,000,000 less
estimated fees and expenses related thereto of $3,000,000 and (ii) the
application of the net amount thereof to the repayment of the Bridge
Facility.
(b) Reflects tax benefit of $1,218,000 from the write-off of the deferred
financing costs described in note (c).
(c) Reflects (i) deferred financing costs of $3,000,000 associated with the
offering of the Notes and (ii) the write-off of the unamortized portion of
deferred financing costs of $3,292,000 associated with the Bridge Facility.
(d) Reflects the write-off of deferred financing costs of $3,292,000 associated
with the Bridge Facility, net of the tax effect described in note (b).
36
<PAGE> 43
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS (A) PRO FORMA
---------- --------------- ---------
<S> <C> <C> <C>
Revenues.............................................. $175,297 $ -- $175,297
-------- -------- --------
Cost of revenues:
Rebates, postage and freight........................ 105,212 -- 105,212
Processing and servicing............................ 40,447 -- 40,447
-------- -------- --------
Gross Profit.......................................... 29,638 -- 29,638
-------- -------- --------
Operating expenses:
Selling............................................. 5,504 (101)(b) 5,403
General and administrative.......................... 9,754 (767)(c) 8,987
Compensation charges attributable to
Recapitalization................................. 17,924 (17,924)(d) --
-------- -------- --------
33,182 (18,792) 14,390
-------- -------- --------
Operating (loss) income............................... (3,544) 18,792 15,248
-------- -------- --------
Other income (expense):
Interest expense.................................... (981) 976(e) (9,305)
(9,300)(e)
Amortization of deferred financing costs............ (48) 48(f) (375)
(375)(f)
Interest income..................................... 1,038 -- 1,038
Transaction costs attributable to
Recapitalization................................. (1,967) 1,967(g) --
-------- -------- --------
(1,958) (6,684) (8,642)
-------- -------- --------
(Loss) income before provision for income taxes....... (5,502) 12,108 6,606
Provision for income taxes............................ 423 2,021(h) 2,444
-------- -------- --------
Net (loss) income..................................... $ (5,925) $ 10,087 $ 4,162
======== ======== ========
Other data:
EBITDA(i)........................................... $ (1,956) $ 16,836
EBITDA margin(j).................................... (1.1%) 9.6%
Depreciation and amortization(k).................... $ 1,588 $ 1,588
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income.
37
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(a) The pro forma adjustments do not reflect a deduction for the deferred
financing costs of $3,292,000 written-off in connection with the offering of
the Notes. Such amount, described in Note (d) to the Unaudited Pro Forma
Consolidated Balance Sheet, represents an item which Holdings anticipates
will be recorded in the consolidated statement of income for the period in
which the offering of the Notes occurred.
(b) Reflects the elimination of severance payments incurred in connection with
the Recapitalization.
(c) The net adjustment to general and administrative expenses consists of the
following (in thousands):
<TABLE>
<S> <C>
Salary and other benefits provided to former majority
shareholder no longer being paid.......................... $(606)
Consulting fee to be paid to former majority shareholder.... 100
Management fee to be charged to the Company by BTCP and
OTPPB for services which will include those which were
previously provided by the former majority shareholder.... 250
Amounts reflected in historical financial statements for
phantom stock plan which terminated concurrent with the
Recapitalization.......................................... (511)
-----
Net reduction in general, and administrative expenses....... $(767)
=====
</TABLE>
(d) Reflects the elimination of compensation charges recorded in the historical
financial statements triggered as a result of the Recapitalization,
comprised of (i) $13,368,000 of management bonuses paid at the
Recapitalization Date, (ii) $4,221,000 of increases to phantom stock
provisions, (iii) $66,000 of estimated compensation charges remaining to be
paid related to (i) above, and (iv) $269,000 of estimated payroll taxes
related to all of the above.
(e) Reflects $9,300,000 of the interest on the Notes at an interest rate of
11.625% per annum and the elimination of interest recorded in the historical
financial statements attributable to the Bridge Facility of $976,000. A 0.5%
increase or decrease in the assumed weighted average interest rate on the
Notes would change pro forma interest expense by $400,000 for the year ended
December 31, 1997.
(f) Reflects the amortization of deferred financing costs associated with the
Notes and the elimination of amortization recorded in the historical
financial statements attributable to deferred financing costs associated
with the Bridge Facility.
(g) Reflects certain non-recurring fees and expenses incurred by Holdings in
connection with the Recapitalization.
(h) Reflects the adjustment to the pro forma income tax provision to arrive at
the amount that would have been provided had the Company been a C
corporation, rather than an S corporation, for income tax purposes, applied
to pro forma income before provision for income taxes at an assumed tax rate
of 37%.
(i) EBITDA represents earnings before interest expense, other income (expense),
income taxes, depreciation and amortization. EBITDA data is included because
management understands that such information is considered by certain
investors as an additional basis on which to evaluate the Company's ability
to pay interest, repay debt and make capital expenditures. EBITDA does not
reflect deductions for interest, other expense, income taxes, depreciation
and amortization, each of which can significantly affect the Company's
results of operations and liquidity and should be considered in evaluating
the Company's financial performance. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance as determined in accordance with generally
accepted accounting principles. See "Description of the Notes" for the
definition of "Consolidated EBITDA" under the Indenture.
(j) Represents EBITDA as a percentage of revenues.
(k) Excludes amortization of deferred financing costs.
38
<PAGE> 45
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present selected financial data for each of the years
in the five-year period ended December 31, 1997. The historical financial data
for the years ended December 31, 1995, 1996 and 1997 are derived from and should
be read in conjunction with the audited financial statements of Holdings and the
related notes thereto included elsewhere in this Prospectus. The selected
financial data for the years ended December 31, 1993 and 1994 are derived from
audited financial statements of Holdings that are not included in this
Prospectus.
The unaudited pro forma consolidated income statement data for the year
ended December 31, 1997 assumes that the Recapitalization and the offering of
the Notes occurred on January 1, 1997. The unaudited pro forma consolidated
balance sheet data as of December 31, 1997, gives effect to the offering of the
Notes as if it had occurred on December 31, 1997. The unaudited pro forma
consolidated financial data do not purport to represent what Holdings' or the
Company's financial condition or results of operations would actually have been
had the Recapitalization and the offering of the Notes in fact occurred on the
assumed date nor do they project Holdings' and/or the Company's financial
condition or results of operation for any future period or date.
The financial data set forth below should be read in conjunction with the
historical financial statements and the related notes thereto, "Unaudited Pro
Forma Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $78,414 $103,758 $116,268 $135,716 $175,297 $175,297
Cost of Revenues
Rebates, postage and freight............................ 52,895 70,747 80,635 84,191 105,212 105,212
Processing and servicing................................ 16,682 20,346 24,920 31,393 40,447 40,447
------- -------- -------- -------- -------- --------
Gross profit.............................................. 8,837 12,665 10,713 20,132 29,638 29,638
Selling expenses.......................................... 3,244 2,927 3,493 4,610 5,504 5,403
General and administrative expenses....................... 5,079 6,127 5,949 7,140 9,754 8,987
Compensation charges attributable to Recapitalization..... -- -- -- -- 17,924 --
------- -------- -------- -------- -------- --------
Operating income (loss)................................... 514 3,611 1,271 8,382 (3,544) 15,248
Interest expense.......................................... 243 163 252 91 981 9,305
Amortization of deferred financing costs.................. -- -- -- -- 48 375
Interest income........................................... 6 28 10 201 1,038 1,038
Transaction costs attributable to Recapitalization........ -- -- -- -- 1,967 --
Other income (expense).................................... 2 30 (15) (60) -- --
------- -------- -------- -------- -------- --------
Income (loss) before income taxes......................... 279 3,506 1,014 8,432 (5,502) 6,606
Provision for income taxes................................ -- -- -- -- 423 2,444
------- -------- -------- -------- -------- --------
Net income (loss)......................................... $ 279 $ 3,506 $ 1,014 $ 8,432 $ (5,925) $ 4,162
======= ======== ======== ======== ======== ========
UNAUDITED PRO FORMA INCOME TAX DATA:
Income (loss) before income taxes....................... $ 279 $ 3,506 $ 1,014 $ 8,432 $ (5,502) $ 6,606
Provision (benefit) for income taxes(a)................. 103 1,297 375 3,120 (1,308) 2,444
------- -------- -------- -------- -------- --------
Pro forma net income (loss)............................. $ 176 $ 2,209 $ 639 $ 5,312 $ (4,194) $ 4,162
======= ======== ======== ======== ======== ========
</TABLE>
39
<PAGE> 46
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(b)................................................. $ 1,476 $ 4,561 $ 2,238 $ 9,578 $ (1,956) $ 16,836(d)
EBITDA margin(c).......................................... 1.9% 4.4% 1.9% 7.1% (1.1%) 9.6%
Capital expenditures...................................... $ 1,084 $ 1,142 $ 1,061 $ 1,739 $ 3,330 $ 3,330
Depreciation and amortization(e).......................... 962 950 967 1,196 1,588 1,588
Cash interest expense(f).................................. 243 163 252 91 981 9,305
Ratio of EBITDA to cash interest expense(g)............... 1.8x
Ratio of EBITDA minus capital expenditures to cash
interest expense(g)..................................... 1.5x
Ratio of earnings to fixed charges(h)..................... 1.6x 9.4x 2.5x 13.1x -- 1.6x
AS OF DECEMBER 31,
1997
-------------------
PRO
HISTORICAL FORMA
-------- --------
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................... $17,940 $14,940
Working capital..................................................................................... 11,136 9,354
Total assets........................................................................................ 41,742 39,251
Total debt.......................................................................................... 80,000 80,000
Stockholders' deficit............................................................................... (57,677) (59,751)
</TABLE>
40
<PAGE> 47
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) Reflects the pro forma income tax provision that would have been provided
had the Company been a C corporation, rather than an S corporation, for
income tax purposes.
(b) EBITDA represents earnings before interest expense, other income(expense),
income taxes, depreciation and amortization. EBITDA data is included because
management understands that such information is considered by certain
investors as an additional basis on which to evaluate the Company's ability
to pay interest, repay debt and make capital expenditures. EBITDA does not
reflect deductions for interest, other expense, income taxes, depreciation
and amortization, each of which can significantly affect the Company's
results of operations and liquidity and should be considered in evaluating
the Company's financial performance. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance determined in accordance with generally
accepted accounting principles. See "Description of the Notes" for the
definition of "Consolidated EBITDA" under the Indenture.
(c) EBITDA margin represents EBITDA as a percentage of revenues.
(d) Pro Forma EBITDA represents historical EBITDA, as described in Note (b)
above, adjusted for (i) salary and other benefits provided to the former
majority shareholder no longer being paid, (ii) consulting fees to be paid
to the former majority shareholder (as described in "Certain Transactions"),
(iii) management fees to be charged to Holdings by BTCP and OTPPB (as
described in "Certain Transactions"), (iv) amounts reflected in historical
financial statements for a phantom stock plan which terminated concurrent
with the Recapitalization (the "Phantom Stock Expenses"), (v) severance
payments incurred in connection with the Recapitalization and (vi)
compensation charges attributable to the Recapitalization as follows (in
thousands):
<TABLE>
<S> <C>
EBITDA...................................................... $(1,956)
Salary and other benefits provided to former majority
shareholder no longer being paid.......................... 606
Consulting fee to be paid to former majority shareholder.... (100)
Management fee to be charged to the Company by BTCP and
OTPPB for services which will include those which were
previously provided by the former majority shareholder.... (250)
Phantom Stock Expenses...................................... 511
Severance payments incurred in connection with the
Recapitalization.......................................... 101
Compensation charges attributable to the Recapitalization... 17,924
-------
Pro forma EBITDA............................................ $16,836
=======
</TABLE>
(e) Excludes amortization of deferred financing costs.
(f) Cash interest expense excludes amortization of deferred financing costs.
(g) For the year ended December 31, 1997, these ratios are not meaningful
because EBITDA was negative for such period. For prior periods these ratios
are not presented because of the Company's relatively low amount of
indebtedness.
(h) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
for this purpose include interest expense, amortization of deferred
financing costs and one third of operating lease payments (the portion
deemed to be representative of the interest factor). For the year ended
December 31, 1997, earnings were inadequate to cover fixed charges by
$5,502,000. This shortfall was attributable to the expenses incurred in
connection with the Recapitalization, including compensation charges of
$17,924,000 for bonuses and phantom stock payments and transaction fees and
expenses of $1,967,000.
41
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the "Selected
Historical and Pro Forma Consolidated Financial Data" and the historical and pro
forma consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus. The following discussion and analysis of the
financial condition and results of operations covers periods before completion
of the Recapitalization and the offering of the Old Notes. As a result of the
Recapitalization and the offering of the Old Notes, the Company has entered into
new financing arrangements and has a different capital structure. Accordingly,
the results of operations for periods subsequent to the Recapitalization and the
offering of the Old Notes will not be comparable to prior periods. See
"Prospectus Summary -- The Recapitalization" and "Unaudited Pro Forma
Consolidated Financial Data."
OVERVIEW
The Company derives its revenues principally from three sources: service
fees, rebate billings and postage and freight billings. Service fees are billed
to clients primarily for (i) order processing (including the handling of mail,
telephone calls, facsimiles and e-mail received from consumers), (ii)
fulfillment (including the delivery of product premiums and samples as well as
rebate checks to consumers), (iii) data gathering, analysis and reporting and
(iv) related customer service (including receiving and responding to consumer
inquiries). As described below, the Company bills clients for the face amount of
rebate checks issued by the Company under certain rebate programs and for
postage and/or freight related to fulfillment of rebate checks and shipments of
merchandise under premium and product sampling programs.
In connection with approximately 40% of the aggregate dollar amount of
checks issued under rebate programs for which the Company has provided CIP
services, the Company has entered into contractual arrangements with its clients
providing that the Company would fund from the Company's own working capital the
payment of rebates offered by the clients. In such cases, the face amount of the
rebate checks issued to consumers is then billed to the Company's clients and
recognized as revenue by the Company. As is typical in the industry, a portion
of checks issued to consumers are not cashed, and, under the contractual
arrangements with clients, the Company retains the amount of the uncleared
checks, which the industry refers to as slippage. In those situations where the
Company has not been asked to use its working capital to fund rebate programs,
the Company's revenues will be significantly lower because it will collect only
service fees and charges for postage, and the Company will not retain slippage.
In such circumstances, the Company generally quotes higher service fees for
client-funded rebate programs in order to offset the lack of slippage to be
retained by the Company. Thus, a change in the mix of rebate programs from
Company-funded to client-funded should not have a material impact on the
Company's reported gross profit unless there also occurs a substantial change in
the overall volume of rebate programs handled by the Company for its clients.
The Company recognizes as revenue the amount billed to clients for shipping
merchandise premiums and samples and for mailing rebate checks. Such billings
are generally based upon standard rates which approximate those that would be
charged to such clients by the USPS or other delivery services. The Company
realizes a margin on postage and freight revenues because it pays lower rates to
the delivery services reflecting (i) discounts available to the Company for
performing various sorting and other tasks and (ii) the high-volume of mail and
other shipments sent by the Company for all its clients in the aggregate.
Although the Company is not subject to seasonality, the Company's quarterly
revenues and profitability can be impacted by the timing of its clients'
programs, the availability of client-provided merchandise to fulfill consumer
requests or clients' decisions not to repeat specific marketing programs.
Program timing can affect quarterly revenues and profitability because most of
the marketing programs that the Company supports are short in duration. The
Company's activity level on a particular marketing program is often concentrated
around the consumers' final response date under the program, so that the
Company's revenues from a high-volume program may be concentrated in one or two
quarters. In addition, with premium programs, the volume of consumer requests
can be difficult to predict. To the extent clients have underestimated the
consumer response to their programs and have not provided the Company with
sufficient quantities of merchandise, the Company may not be able to fulfill all
consumer requests in a timely manner. Consequently, the Company
42
<PAGE> 49
may be delayed in performing a portion of its services and recognizing the
related revenue. In such situations, however, the Company often handles
increased consumer inquiry calls to the Company's call centers and may mail
delay card and order acknowledgment correspondence to consumers. For providing
these extra services, the Company will derive additional revenue and gross
profit from service fees.
The marketing programs undertaken by the Company's clients can vary
significantly in timing, size and type, resulting in variations in requirements
for labor, facilities and equipment. The Company seeks flexibility in the way
that it obtains these resources and attempts to increase the variable proportion
of its cost structure. The Company's operations are very labor intensive, with
labor costs representing approximately 66% of processing and servicing costs and
82% of selling, general and administrative expenses for the year ended December
31, 1997. The Company's use of a flexible labor force, including part time and
variable employees and independent contractors, makes its processing and
servicing expense structure more variable. See "Business -- Employees."
The Company also strives to achieve flexibility in its commitments for
facilities and equipment. A premium program that involves receiving, storing and
shipping a large number of merchandise items or items of large size requires
more warehouse space, packaging equipment and sophisticated inventory management
systems than a rebate program that involves mailing rebate checks. The Company
has limited owned real property and attempts to utilize operating leases for
facilities wherever possible. The Company also generally seeks to lease
technology-related equipment under operating leases with flexible options in
order to be able to eliminate or substitute equipment to reduce lease costs
commensurate with needs or to allow the Company to upgrade or change equipment.
To improve pricing for its services, the Company began an effort in 1995 to
identify and evaluate the tasks involved in delivering each of its services, and
the related costs incurred for each task, so as to develop a refined process
model that would capture all tasks and costs. This effort led to improved cost
information for various processing steps and, in addition, identified tasks and
services for which the Company had not previously been billing its clients. The
revenue and gross profit impact from improved costing and additional service
billings began to be realized in 1996. The Company has also instituted a number
of programs, including its People Recognizing Opportunities for Increased Total
Services ("PROFITS") program, an incentive program for the Company's employees
targeted at identifying new or improved methods of processing consumer
interactions that lower costs, bill for all services rendered and improve
consumer and client service.
RESULTS OF OPERATIONS
The Year Ended December 31, 1997 Compared with the Year Ended December 31,
1996
Revenues. Revenues for the year ended December 31, 1997 increased by $39.6
million or 29.2% to $175.3 million from $135.7 million for the year ended
December 31, 1996. The increase in revenues was comprised of (i) an increase in
service fees of $15.8 million, (ii) an increase in postage and freight revenues
("PFR") of $8.0 million and (iii) an increase in rebate revenues of $15.8
million. Service fees increased due primarily to (x) an increase in complex
premium programs serviced by the Company that required multiple handling steps
and related customer service (primarily handling consumer inquiries) activity
and (y) new pricing initiatives implemented by the Company in 1996 to better
capture costs and previously unbilled services. A portion of the increase in PFR
and service fees was related to a high-volume premium program run for a single
client that resulted in a $14.4 million increase in revenue derived from that
client. Though that client conducted similar programs during 1996 and 1997,
because the 1996 program ended later in the year and consumer response to the
1996 program was higher than forecasted, resulting in merchandise stock-outs,
revenues for the 1996 program were skewed towards the fourth quarter of 1996 and
into the first quarter of 1997. The rebate revenue increase for the 1997 period
was largely attributable to the addition of several new rebate clients that
conducted high dollar value rebate programs in 1997.
Although revenues for the year ended December 31, 1997 increased compared
with revenues for the prior year, revenues for the fourth quarter of 1997 were
lower than revenues for the same quarter in 1996. Also, the Company expects that
revenues for the first quarter of 1998 will be down significantly from revenues
for the
43
<PAGE> 50
first quarter of 1997. The year-on-year declines in quarterly revenues resulted
because declines in quarterly revenues from the client with the two major
programs referred to in the previous paragraph are expected to more than offset
increases in quarterly revenues from other clients. The quarterly declines for
that client resulted because (i) the 1996 program was significantly larger than
the 1997 program and (ii) the 1996 program revenues were concentrated in the
fourth quarter of 1996 and the first quarter of 1997 whereas the 1997 program
revenues were concentrated in the third and fourth quarters of 1997.
Gross Profit. The Company's gross profit increased to $29.6 million or
16.9% of revenues for the year ended December 31, 1997. Gross profit for the
year ended December 31, 1996 was $20.1 million or 14.8% of revenues. The gross
profit increase of $9.5 million is primarily the result of higher revenue, the
continuation of billing practices better reflecting costs and previously
unbilled services and an increased level of service fees from complex programs.
Such service revenues generally achieve higher gross profit percentages. The
Company also benefitted from higher margins on PFR realized as a result of the
increased volumes and an increase in the discount that the Company receives from
the USPS which became effective in August 1996. The Company also realized
benefits from its PROFITS incentive program.
Although gross profit was up significantly for the year ended December 31,
1997 when compared with gross profit for the prior year, gross profit for the
fourth quarter of 1997 declined significantly from the level for the same period
in the prior year. Fourth quarter gross profit declined by a greater percentage
than revenues because increases in processing and servicing costs, principally
related to expanded computer hardware capacity, more than offset the declines in
variable costs that came with lower volumes. The Company also expects gross
profit to decline significantly in the first quarter of 1998 when compared with
the gross profit in the comparable period in 1997.
Operating Income. For the year ended December 31, 1997, the Company
reported an operating loss of $3.5 million because of compensation charges of
$17.9 million for bonuses and phantom stock expenses paid in connection with the
Recapitalization. Excluding the effect of such nonrecurring charges, the Company
would have reported operating income of $14.4 million or 8.2% of revenues,
compared with $8.4 million, or 6.2% of revenues, in the prior year. Operating
income, excluding the effect of the nonrecurring charges, increased because the
increase in gross profit was only partly offset by increases in selling, general
and administrative expenses. Selling expenses increased by $0.8 million in part
due to commissions on higher revenues and in part due to higher payroll costs.
General and administrative expenses, excluding such nonrecurring charges,
increased $2.7 million because of increases in contractual and discretionary
bonuses, phantom stock arrangements and profit-sharing, which reflect the
Company's improved operating performance.
Although operating income, excluding the effect of the nonrecurring
charges, would have been up significantly for the year ended December 31, 1997,
in the fourth quarter of 1997, operating income declined significantly from the
fourth quarter of 1996. Fourth quarter operating income, excluding such
nonrecurring charges, declined by a greater percentage than revenues because the
decline in gross profit was only slightly offset by a decline in selling,
general and administrative expenses. Selling, general and administrative
expenses showed a smaller decline because they are relatively fixed in nature.
The Company also expects operating income to decline significantly in the first
quarter of 1998 compared with the operating income in the comparable period in
1997.
Interest Expense and Interest Income. For the years ended December 31,
1997 and 1996, cash interest expense was $1.0 million and $0.1 million,
respectively, while interest income was $1.0 million and $0.2 million,
respectively. The growth in interest income from 1996 to 1997 reflects an
increase in the level of investable funds retained by the Company after making
tax distributions to its shareholders. See "-- Liquidity and Capital Resources."
The higher level of interest expense in 1997 reflects the incurrence of the
indebtedness under the Bridge Facility in connection with the Recapitalization.
Following the Recapitalization, the Company is substantially leveraged. On a pro
forma basis, cash interest expense and amortization of deferred financing costs
for the year ended December 31, 1997 would have been $9.3 million and $0.4
million, respectively, giving effect to the Recapitalization and the offering of
the Notes as of January 1, 1997. See "Unaudited Pro Forma Consolidated Financial
Data." In addition to cash interest expenses incurred on the Bridge Facility and
the Notes, in the first quarter of 1998 interest expense will include a
nonrecurring charge
44
<PAGE> 51
of approximately $3.3 million for the write-off of deferred financing costs
incurred in connection with the Bridge Facility. In part because of such
nonrecurring charge, the Company expects to report a net loss for the first
quarter of 1998.
The Year Ended December 31, 1996 Compared with the Year ended December 31,
1995
Revenues. Revenues for the year ended December 31, 1996 increased by $19.4
million or 16.7% to $135.7 million from $116.3 million for the year ended
December 31, 1995. The increase in revenues resulted from (i) an increase in
service fees of $14.3 million and (ii) an increase in PFR of $9.8 million offset
by (iii) a decrease in rebate revenues of $4.6 million. Service fees increased
primarily due to (x) an increase in complex premium programs serviced, including
an increase in related customer service activity, and (y) new pricing
initiatives implemented during 1996. Much of the increase in service fees and
PFR related to a high-volume program undertaken by a single client that
commenced in 1996, and revenues from that client increased the Company's
revenues by $26.2 million during 1996. The decline in rebate revenue was driven
by a decline in the number of rebate checks issued. The decrease in the number
of rebate checks issued reflects a shift by traditional rebating clients away
from simple rebate programs toward other types of promotion programs.
Gross Profit. The Company's gross profit increased to $20.1 million, or
14.8% of revenues for the year ended December 31, 1996. Gross profit for the
year ended December 31, 1995 was $10.7 million or 9.2% of revenues. The growth
in gross profit of $9.4 million, or 87.9%, is the result of (i) the higher level
of revenues, (ii) the implementation of billing practices better reflecting
costs and previously unbilled services, (iii) an increased volume of higher
margin premium programs, (iv) improved margins on postage and freight and (v)
the elimination of dual computer processing systems costs upon completion of the
implementation of the PAL system. Margins on postage and freight improved as a
result of the increased volumes and an increase in the discount that the Company
received from the USPS which became effective in August 1996.
Operating Income. Operating income for the year ended December 31, 1996
increased by $7.1 million from $1.3 million in the comparable period in the
prior year, to $8.4 million. As a percentage of revenues, operating income was
6.2% for the year ended December 31, 1996 compared with 1.1% for the same period
in 1995. The increase in operating income resulted because the increase in gross
profit was only partly offset by increases in selling, general and
administrative expenses. Selling expenses increased by $1.1 million, reflecting
restructuring and growth in the Company's sales support functions as well as
commissions on higher revenues. General and administrative expenses increased
$1.2 million, as increases in provisions for bonuses, phantom stock arrangements
and the distribution of profit sharing aggregating $2.4 million more than offset
the benefit from a reduction in PAL development costs of $1.2 million.
Interest Expense and Interest Income. For the years ended December 31,
1996 and 1995, interest expense was $0.1 million and $0.3 million, respectively,
while interest income was $0.2 million and less than $0.1 million, respectively.
The growth in interest income from 1995 to 1996 reflects a generally higher
level of funds available for investment that resulted from the Company's growth
in profitability and funds provided from client advance payments and consumer
remittances. In 1995, the Company incurred $0.3 million of interest expense as a
result of borrowings under the Company's working capital line which were repaid
in full during the second quarter of 1996.
INCOME TAXES
Prior to the Recapitalization, Holdings was an S corporation for income tax
purposes. As an S corporation, Holdings was only liable for U.S. federal income
taxes under certain circumstances and liable for state income taxes in certain
jurisdictions; all other domestic income taxes were the responsibility of
Holdings' stockholders. Concurrently with the Recapitalization, Holdings became
a taxable C corporation. The pro forma net income information in the historical
audited financial statements included elsewhere in this Prospectus reflects the
application of corporate income taxes to the Company's taxable income at an
assumed combined federal and state tax rate of 37% as if the termination of
Holdings' status as an S corporation had occurred as of the beginning of each
period presented. Any tax benefits resulting from bonus payments and phantom
stock payments made to certain members of management of the Company in
connection with the
45
<PAGE> 52
Recapitalization were realized during the period ending on the day immediately
prior to the Recapitalization Date when the Company was an S corporation.
Accordingly, any such tax benefits were realized by the Selling Stockholders and
will not reduce any future tax liability of the Company as a C corporation.
The conversion from an S corporation to a C corporation resulted in the
Company recording, in the fourth quarter of 1997, a net deferred tax liability
and a corresponding one-time charge to earnings of approximately $0.9 million.
This amount represents management's estimate of differences in the bases of
assets and liabilities for tax and financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
On November 25, 1997 the Company completed the Recapitalization. See
"Prospectus Summary -- The Recapitalization." As result of the Recapitalization,
the Company's total indebtedness has increased substantially. See "Risk
Factors -- Leverage and Liquidity." At December 31, 1997, the Company had a
stockholders' deficit of $57.7 million, indebtedness of $80.0 million and net
working capital of $11.1 million.
The Company has historically financed its operations and capital
expenditures principally through the retention of cash flow from operations
after payment of distributions to shareholders primarily to permit them to meet
tax obligations. For the years ended December 31, 1996 and 1995, the Company's
operations generated cash flows of $25.3 million and $2.8 million, respectively.
For the year ended December 31, 1997, the Company used $7.5 million to fund
operations. The cash usage was attributable to the expenses incurred in
connection with the Recapitalization, including compensation charges of $17.9
million for bonuses and phantom stock payments and transaction fees and expenses
of $2.0 million. Excluding the effect of such nonrecurring charges, the Company
generated operating cash flow of $11.2 million. The Company's future cash flow
from operations will continue to be reduced by (i) income taxes that the Company
will be required to pay as a C corporation and (ii) interest that will be
incurred on outstanding indebtedness, including the Notes. Distributions to
shareholders in the years ended December 31, 1997, 1996 and 1995 were $13.9
million (including $7.3 million distributed immediately prior to the
Recapitalization), $0.7 million and $2.4 million, respectively.
The Company historically maintained a working capital facility
collateralized by accounts receivable and other assets. This line of credit has
not been utilized since mid-1996 and net repayments/(borrowings) under this
facility for the years ended December 31, 1996 and 1995 were $2.5 million and
($0.6) million, respectively, and the highest balance outstanding was $5.2
million on August 4, 1995. The working capital facility was terminated in
connection with the Recapitalization. The Company has also financed the
acquisition of facilities and technology-related equipment through operating
leases with third parties.
Capital expenditures for the years ended December 31, 1997, 1996 and 1995
were $3.3 million, $1.7 million and $1.1 million, respectively. Capital
expenditures principally relate to purchases of leasehold improvements and
warehousing and packaging equipment related to fulfillment services provided by
the Company. The Company's capital expenditure budget for 1998 totals $2.6
million. This budget may be increased by the Company during 1998 based upon the
Company's results of operations during the year. The Company recently signed an
operating lease for a new call center facility in Oklahoma. To support the
Oklahoma call center, the Company has committed or expects to commit to purchase
various equipment and leasehold improvements aggregating $0.5 million. The
Company has also committed to acquire a telephone switch for the Oklahoma call
center with a cost of $0.6 million. Furthermore, the Company has committed to
acquire additional IVR equipment and computer hardware equipment with an
aggregate cost of $5.9 million. The Company intends to finance such telephone
switch and equipment through operating leases.
Given that the majority of the Company's system initiatives were commenced
in recent years, the Company does not believe that it will be subject to any
significant costs to modify or replace existing software or hardware to address
Year 2000 issues.
Following December 31, 2001, the Company is obligated to make additional
payments to the Selling Stockholders, subject to the Company achieving certain
performance targets set forth in the Recapitalization Agreement. See "The
Recapitalization" and "Certain Transactions -- Additional Payments Related to
the Recapitalization." Under separate agreements with Jay F. Ecklund and with
each of the Management
46
<PAGE> 53
Stockholders, under certain circumstances described in such agreements, Holdings
has an obligation to repurchase shares of Common Stock owned by Mr. Ecklund or
such Management Stockholder. See "Principal Stockholders -- Put Rights of Jay F.
Ecklund" and "-- Repurchase Agreements with Respect to Employee Stock."
The New Credit Facility, which provides for borrowings of up to $10.0
million based on a borrowing base formula equal to 85% of Eligible Receivables
(as defined in the New Credit Facility) has a final maturity date of March 31,
2001. The New Credit Facility does not have any commitment reductions scheduled
before maturity. The Company expects that the interest rate will be based on the
London interbank offered rate. See "Description of New Credit Facility." The
Notes bear interest at the rate per annum set forth on the cover page of this
Prospectus, payable semiannually, and will not require any principal repayments
until maturity.
In compliance with certain state laws, the Company obtains performance
bonds in connection with sweepstakes programs it manages on behalf of clients.
The Company is indemnified by its clients for any obligations on those
performance bonds, and the cost to the Company of obtaining the performance
bonds plus a markup is billed to the clients.
The Company will rely mainly on internally generated funds, and to the
extent necessary, borrowings under the New Credit Facility, to meet its
liquidity needs. The Company also expects to utilize operating leases to finance
its needs for facilities and certain equipment.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which performance will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the control of the Company. The Company's ability to pay principal and
interest on the Notes and to satisfy its other debt obligations will also depend
upon the future availability of revolving credit borrowings under the New Credit
Facility or any successor facility. Such availability is or may depend on, among
other things, the Company meeting certain specified borrowing base
prerequisites. See "Description of New Credit Facility." The Company expects
that, based on current and expected levels of operations, its operating cash
flow, together with borrowings under the New Credit Facility, should be
sufficient to meet its operating expenses, to make necessary capital
expenditures and to service its debt requirements as they become due. If the
Company is unable to service its indebtedness, it will be forced to take actions
such as reducing or delaying acquisitions and/or capital expenditures, selling
assets, restructuring or refinancing its indebtedness (which could include the
Notes), or seeking additional equity capital. There is no assurance that any of
these remedies can be effected on satisfactory terms, if at all.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the periods and years reported. As a result of its
cost based services pricing and the short-term nature of client contracts, the
Company does not anticipate that inflation will have a negative impact on its
operations in the future, other than the impact that inflation may have on the
economy as a whole.
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<PAGE> 54
BUSINESS
GENERAL
Young America is a leading provider of a wide range of CIP services to
large consumer product and consumer service companies. The Company's more than
200 clients include such well-known companies as PepsiCo, Inc., Anheuser-Busch
Companies, Inc., General Mills, Inc., R.J. Reynolds Tobacco Company, Eastman
Kodak Company and Hewlett-Packard Co. The Company's CIP services provide a link
between its clients and their customers for numerous types of marketing
programs, including rebate programs, purchase reward or premium programs,
sweepstakes, product sampling programs and warranty registration programs. The
Company provides a variety of services involved in executing these marketing
programs, including (i) order processing (including the handling of mail,
telephone calls, facsimiles and e-mail received from consumers), (ii)
fulfillment (including the delivery of product premiums and samples as well as
rebate checks to consumers), (iii) data gathering, analysis and reporting and
(iv) related customer service (including receiving and responding to consumer
inquiries).
CIP services are an important part of the targeted marketing strategies
pursued by consumer-oriented companies that seek to improve their marketing
efforts by identifying and focusing on their most valuable existing and
potential customers. These consumer marketing companies are increasingly
utilizing targeted marketing strategies as opposed to "mass marketing"
approaches such as general market advertising and free-standing insert coupons.
In recent years, the Company has identified a trend among its clients toward the
targeted marketing approach, including an increase in the use of consumer
promotion programs such as premium programs and product sampling programs as a
key element of its clients' marketing strategies. Because the Company believes
that its clients have found these programs to be both effective and efficient,
the Company believes that these trends will continue.
The Company has also observed a trend among its clients toward more complex
marketing programs. Consumer-oriented companies have sought to differentiate
themselves from their competitors by offering more sophisticated marketing
programs, often emphasizing consumer loyalty and repeat purchases, that appeal
to their targeted customers. These complex marketing programs frequently involve
increased consumer interactions that either allow or are designed to provide
consumer-oriented companies with an opportunity to gather information about
their customers. Management believes that spending on CIP services in support of
these more complex marketing programs has outpaced and will continue to outpace
the growth of services for simpler marketing programs such as traditional
rebate, premium and sweepstakes programs. Accordingly, over the past three years
the Company has enhanced its capabilities to become a provider not only of
narrowly focused promotion fulfillment services for those simpler marketing
programs but also of integrated, custom-designed CIP services for large complex
marketing programs. Its breadth of services and ability to integrate such
services to support complex marketing programs have distinguished the Company
from the majority of its competitors, most of which offer a narrower range of
services and serve a smaller number of clients. Management believes that the
Company's broad service offering, together with its sophisticated information
systems and quality control processes, has enabled it to become a leading
provider of business-to-consumer CIP services.
In each of the last three years, the Company managed over 4,000 marketing
programs, with between 1,500 and 2,000 programs processed out at any point in
time. As of December 31, 1997, the Company was processing approximately 1,550
client marketing programs. In each of the last three years, the Company
distributed over 60 million items to its clients' customers. Items distributed
by the Company have ranged from rebate checks to sales literature to large and
small items of merchandise as premiums and product samples.
Young America was incorporated in Minnesota in 1997 as a subsidiary of
Holdings, a Minnesota corporation founded in 1972. The Company's principal
office is located at 717 Faxon Road, Young America, Minnesota 55397 and its
telephone number is (612) 467-1100.
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<PAGE> 55
COMPETITIVE STRENGTHS
The Company attributes its current market position and its existing
opportunities for continued growth and profitability to the following
competitive strengths:
Breadth of Integrated Services
Young America is a leading provider of a broad range of integrated CIP
services to large consumer product and consumer service companies. Young
America's basic services include (i) order processing (including the handling of
mail, telephone calls, facsimiles and e-mail received from consumers), (ii)
fulfillment (including the delivery of product premiums and samples as well as
rebate checks to consumers), (iii) data gathering, analysis and reporting and
(iv) related customer service (including receiving consumer inquiries and
providing follow-up services). In comparison, most of the Company's competitors
offer a narrower range of services to a smaller client base. The Company's
ability to integrate a broad range of services allows it to work with its
clients to custom design efficient processing solutions for all types of
marketing programs, especially complex marketing programs that involve a large
number of consumer interactions.
Ability to Process High-Volume and Complex Marketing Programs
The Company has demonstrated the expertise necessary to manage complex and
high-volume marketing programs by executing programs such as "Pepsi Stuff(R)",
"Camel Cash(R)", "Bud Gear(R)" and General Mills, Inc.'s "Box Tops for
Education(R)". Complex marketing programs can involve integrating dozens of
custom-designed process steps and coordinating interactive communications with a
client's customers. High-volume programs can involve processing several million
orders and sending out several million items to consumers in a very short period
of time while simultaneously processing the Company's 1,500 to 2,000 other
current programs in a timely, courteous and efficient manner. Management
believes that the Company has earned a reputation for being able to manage
high-volume and complex marketing programs with a high quality of service and
that the Company's reputation contributes to its recurring revenue base and its
ability to attract new clients.
Strong, Established Client Relationships
The Company has successfully attracted and built strong relationships with
a large number of major consumer-oriented companies in the United States. Young
America is currently well-positioned in the packaged goods industry and has
expanded its client base in faster-growing industries such as high-technology
consumer products. Of the Company's 25 largest clients in 1997, 12 have been
clients for more than eight years.
The vast majority of marketing programs undertaken by the Company for its
clients involve direct interaction with consumers which are the clients'
customers. In these interactions, the Company acts on behalf of its clients and,
for that reason, it is critical to the Company's clients that the various
services involved in administering their marketing programs be performed
consistently, accurately, courteously and in a timely manner. The Company
believes that these measures of quality are often key determinants when a
consumer-oriented company awards the administration of its marketing programs.
The Company seeks to achieve a high level of quality service through careful
analysis and design of the steps involved in delivering the services required
and by the stringent process controls it builds into the processing plan for
each marketing program it undertakes. Management believes that the Company has
strengthened its relationships with its clients by involving them in this
process design.
Sophisticated Information Systems
In 1996, the Company completed its conversion to a new proprietary software
system known as PAL. Utilizing PAL, the Company has been able to process a
greater number and variety of complex marketing programs than was possible with
the system that PAL replaced. The PAL system increases operational efficiencies
and enhances the Company's ability to process more complex marketing programs by
providing
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<PAGE> 56
the Company with the ability to track orders through each step of the
order-handling process and to accurately invoice its clients for services
provided by the Company. In addition, with PAL the Company (i) can give a
consumer the precise status of any order from the day such order was received
until the day the promotion item is shipped, (ii) has the ability to provide
real-time information on the status of a program, allowing the Company's clients
to track and judge the effectiveness of on-going promotion programs and (iii)
has the ability to acquire, store and quickly retrieve information about
consumers and their individual buying habits. The Company has used PAL to
develop a proprietary database of approximately 60 million unduplicated consumer
households.
The PAL system cost approximately $9.0 million to develop and install
(including hardware acquisition and software development) and required more than
four years to be fully implemented. PAL was designed as an open system and its
capacity can be easily increased to meet the Company's future needs by adding
additional hardware support. Management believes that no comparable program is
used by any of its competitors and that no similar integrated system can be
easily developed or purchased in the marketplace. Management believes that a
competitor would require a substantial commitment of time and capital to
replicate the capabilities of the PAL system.
Experienced Management Team
The Company's senior management team has been assembled and developed since
the arrival in July 1993 of its current President and Chief Executive Officer,
Charles D. Weil. Prior to 1993, Mr. Weil was President and Chief Operating
Officer of ConAgra Frozen Foods. Mr. Weil has 25 years of experience in the
consumer packaged goods industry with ConAgra and other companies such as
General Mills Inc. and Nestle USA Inc. One of Mr. Weil's priorities since
joining the Company has been to attract and retain clients who require CIP
services to support high-volume and/or complex marketing programs on a recurring
basis. In order to aid him in the execution of this strategy, Mr. Weil has
recruited a team of experienced executives from outside the industry in which
the Company competes, each of whom brings to the Company not only functional
skills but also fresh insights that assist Mr. Weil in executing his strategic
vision for the Company. Industries from which the Company's current executives
have been drawn include retailing, distribution, direct marketing and
teleservices.
BUSINESS STRATEGY
Focus on Clients with Large Revenue Potential
Since 1993, the Company has focused its strategic plan on attracting and
retaining clients who require CIP services to support high-volume and/or complex
marketing programs on a recurring basis and with which the Company can develop a
strategic relationship. Management believes that high-volume and/or complex
marketing programs by their scope and nature allow for higher revenues and
improved profit margins. Beginning in 1995, the Company began seeking
operational efficiencies by reducing the number of simple, low-volume marketing
programs for which it would compete. At the same time, the Company upgraded its
technology and operational systems in order to better focus on the needs of
clients with large revenue potential for the Company. As a result, the Company
has increased the average revenue per client from approximately $307,000 in 1994
to approximately $746,000 in 1997. The Company intends to continue to
concentrate on clients that require more complex and/or higher volume marketing
programs.
Management believes that the Company's ability to provide CIP services for
high-volume and/or complex marketing programs has been a significant factor in
its ability to attract large new clients, both from within industries that have
traditionally used the Company's services and from industries that have not
traditionally used the Company's services such as computer hardware, computer
software, consumer services, telecommunications and energy. Recent client
additions include 3Com Corporation, Iomega Corporation, Sprint Corporation,
BellSouth Corporation, Mobil Corporation and CUC International Inc. (now known
as Cendant Corporation). Management believes that there are opportunities to
market the Company's services in additional industries such as tourism,
financial services and pharmaceuticals.
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<PAGE> 57
Custom Design Services
When the Company evaluates a potential new client program, it performs a
comprehensive review of all steps that it believes are necessary for the
successful implementation of the program. The Company reviews these steps with
the potential client, and presents each step in the context of the advantages of
adding each such step. The client then determines whether to pursue each
proposed step. Only after such determination by the client does the Company
complete the process design, cost each step of the process and price its
services for a particular marketing program. Finally, the client determines
whether the value of each step is worth the incremental cost.
The Company's ability to custom design and implement processes to fit the
specific requirements of a client's program constitutes a competitive advantage.
Management believes that this ability enables the Company to maintain
mid-to-premium margin levels while achieving high customer loyalty. Other
benefits derived from the Company's ability to custom design services include
(i) more efficient planning and invoicing of services rendered by the Company
and (ii) greater ability to reliably estimate the profitability of each
marketing program serviced.
Anticipate Clients' Evolving Needs
The Company strives to anticipate the needs of its clients and develop new
or enhanced services to meet those needs as they arise rather than merely
reacting to requests from its clients. In recent years, the Company, in
anticipation of client needs, upgraded its information processing capabilities
by developing PAL and broadened its ability to process orders from mail only to
other forms of consumer interactions such as facsimile, telephone (including
live operator and IVR), Internet and electronic data transmission. Management
believes that the Company's experience in managing a wide variety of marketing
programs for a broad range of major, consumer-oriented companies gives it a
competitive advantage in anticipating its clients' needs for new and enhanced
CIP services. Examples of areas in which the Company is upgrading its services
in anticipation of client needs include (i) enhanced Internet and IVR consumer
interaction capabilities, (ii) full-service credit card payment processing for
marketing programs involving payments by consumers and (iii) improved
information processing and consumer data reporting capabilities. The Company
plans to continue to enhance its operational capabilities, including its
sophisticated computer systems, so that it can meet the demand for increasingly
complex CIP services.
Continue Operational Improvements
The Company continually evaluates and refines its process flows to meet
evolving client needs, to enhance client satisfaction and to reduce costs.
During 1996, the Company implemented over 200 process improvements, including
instituting a master schedule for operations, expanding mail sorting
capabilities and automating various data-entry functions in order to further
reduce processing costs. Management estimates that process improvements
implemented in 1996, many of which are expected to provide on-going benefits,
resulted in incremental revenue increases and cost savings for the Company
aggregating approximately $2.4 million in 1997. Management believes such
continual process improvements also help the Company to further distinguish
itself from its competitors by enabling it to offer a range of services and a
level of professionalism not widely available within the industry.
Pursue Selective Acquisitions in Related Businesses
The Company intends to pursue selective acquisitions that offer a strong
strategic fit with its existing core competencies and/or allow it to develop or
strengthen partnerships with select clients. The Company's acquisition interests
could include, among others, companies that specialize in literature
fulfillment, Internet order processing or collateral material fulfillment.
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MARKETING PROGRAMS SUPPORTED
The Company provides its CIP services in connection with various marketing
programs being conducted by its clients. Such marketing programs include the
following:
Premium Programs. Premium incentive promotions generally allow consumers
to exchange proofs of purchase for gift items or premiums offered by the
Company's clients in an effort to promote increased sales of their products.
Premium programs range from small short-term promotions involving only a small
number of consumer purchases and the award of a small gift item such as a
t-shirt or a compact disc to large and complex long-term loyalty or continuity
programs involving numerous consumer purchases, premium point systems and the
award of large gift items such as a mountain bike or a leather jacket. The
Company assists its clients in projecting proper inventory levels before a
promotion begins by helping its clients forecast redemption rates. The Company's
packaging experts recommend packaging materials that are both cost-effective and
best suited for the premium items involved in the program, and the Company
handles the shipping of such items to consumers.
Rebate Programs. Rebate offers provide an incentive to consumers to try
new or existing products and services as well as creating an opportunity for
consumer-oriented companies to gather information about consumers and their
behavior and preferences. Young America's rebate processing service lets its
clients cost-effectively fulfill rebate requests with laser-printed, customized
checks and collect additional consumer and product-choice data. The Company
offers a selection of funding options for effective cash management by its
clients.
Sweepstakes Programs. Sweepstakes, games and contests are used to generate
high levels of consumer interest in a highlighted product. The Company has been
engaged in the administration of sweepstakes for over 17 years. The sweepstakes
process is subject to stringent regulatory scrutiny that often necessitates
involvement of third parties other than the client sponsoring the sweepstakes.
The Company, in addition to receiving and processing entries and shipping out
the small number of prizes awarded, provides most of the full range of services
needed to manage sweepstakes and gaming programs, including bonding,
registration, judging, random drawing, affidavits and tax reporting.
Product Sampling Programs. Sampling programs offer clients a way to
promote both new and established products. Young America manages a variety of
sampling programs, including those that involve mailed requests, direct calls or
Internet requests from consumers. At its clients' request, the Company can also
implement sampling programs by sending products to consumers identified from
client-supplied databases. Some clients also use Young America for bulk shipment
of sample products to distribution centers or retailers.
Literature Distribution. Young America provides inventory management and
fulfillment of sales literature and information requests from interested
consumers and retailers.
Other Programs. The Company also supports a number of other programs
including consumer membership or club programs, warranty registration, inventory
management and distribution of in-store promotional materials to retailers,
retailer rebate programs, manufacturer sales incentive programs, and
administration of gift certificate programs.
SERVICES PROVIDED
Young America provides an integrated mix of CIP services that can be
customized to meet client-specific needs for a wide variety of consumer
interaction programs. These services include the following:
Inbound Order Processing. Young America offers high-quality, flexible
processing of orders received from consumers primarily by mail but also via
facsimile, via telephone through its call centers (both live operator and IVR)
and more recently through its Internet web site and e-mail. The Company has
1,500 post office boxes reserved for handling incoming mail. Orders can vary
from mailed-in submissions under premium programs (including submission of
proofs of purchase in paper or other form) to simple mailed-in submissions for
rebates to telephone requests for literature or product samples. Specific
inbound order processing services performed by the Company include: (i) receipt
and handling of inbound mail submissions, (ii) checking of
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received entries and correspondence with consumers to ensure qualification,
(iii) promotion security and fraud detection through address verification, (iv)
data entry processing by key entry and high-speed scanning technology, (v)
transcription of IVR-captured inbound orders and (vi) processing and accounting
of consumer check and/or credit card transactions for marketing programs
involving consumer payments.
Outbound Order Processing (Fulfillment). In each of the last three years,
the Company handled over 60 million outbound units per year through its flexible
order processing systems and procedures. Outbound units vary from rebate checks
to sales literature to small and large items of merchandise representing
premiums in promotional programs or product samples. In each of the last three
years, the Company issued more than 25 million rebate payments, generating
checks utilizing its own internal laser printing capabilities. Merchandise units
are processed through various stages of the Company's handling system, including
product receiving, warehousing, assembly, repackaging and shipment. Merchandise
and paper items are shipped through a U.S. post office located on the Company's
premises, as well as through shippers such as United Parcel Service and various
freight consolidators for certain larger items.
Database Development and Management. By using the various stages of its
CIP activities to gather, process and analyze information about consumers and
their behavior and preferences, Young America assists its clients in developing
the databases necessary to build targeted, effective marketing campaigns. Young
America helps its clients to monitor promotion activity through standard reports
or, in certain cases, by linking directly into Young America's database via
personal computer and modem. More detailed, custom analysis of selected response
data is also available, including analyses of consumer buying patterns and
preferences and marketing program effectiveness. The Company has also developed
its own proprietary database of approximately 60 million unduplicated consumer
households.
Customer Service. Customer service is an integral part of any consumer
interaction program. The Company's consumer affairs group is dedicated to the
professional handling of mail, telephone, facsimile, Internet and e-mail queries
of all types. Using its on-line database (maintained through the PAL system),
the Company can readily determine the status of any consumer order and respond
promptly to any special situations, answer questions about offers, arrange
replacement shipments, and identify the status of a consumer's order or
submission. The Company has the hardware capacity to receive up to 21 million
live calls annually and an additional 75 million calls utilizing the Company's
IVR capacity. The Company's use of sophisticated communications technology,
integrated with consumer information databases maintained on PAL, enhances the
effectiveness of the Company's customer service personnel in handling consumer
inquiries and the Company's data-gathering activities. See "-- Technology."
SALES AND MARKETING
The Company's sales and marketing organization, under its Vice President of
Sales and Marketing, currently consists of a marketing coordinator as well as
two senior account executives and seven account executives, operating in loosely
defined geographic territories. The sales and marketing staff works directly
with clients and potential clients as well as maintaining relationships with
several promotional agencies.
The Company believes that its reputation for high-quality execution of its
broad range of CIP services, particularly with respect to high-volume and/or,
complex marketing programs, enables Young America to obtain new business
opportunities through requests for proposals, client referrals and cross-selling
to existing clients. In addition, consistent with the Company's business
strategies, the sales and marketing group focuses particularly on promoting
relationships with existing clients that exhibit large revenue potential from a
continued high level of activity, as well as identifying and pursuing new
clients either in industries that traditionally have utilized a high-volume of
CIP services or that the Company believes represent potential new high-volume
users of CIP services on an outsourced basis.
TECHNOLOGY
Young America strives to incorporate technology and automation into every
appropriate aspect of its business.
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Promotion Administration Leader (PAL)
Young America's PAL software system, which the Company believes is more
advanced than any information management system utilized by its competitors, is
fully integrated into all stages of the Company's management of a marketing
program, including inbound order processing, outbound order processing and
customer service. PAL enables the Company to monitor individual order processing
and to respond promptly to customer service inquiries. The system also allows
the Company and its clients to measure the results of an ongoing promotion
program. In addition, the Company's clients, either directly or through the
Company's data analysis services, can use the data captured by PAL to refine
their databases of consumer information and to enhance future promotional
activities. The PAL system provides clients with the ability to acquire, store
and quickly retrieve information about individual consumers and their buying
habits. The Company has also used PAL to develop its own database of
approximately 60 million unduplicated consumer households.
The PAL system cost approximately $9 million to develop and install
(including hardware acquisition and software development) and required more than
four years to be fully implemented. PAL utilizes a relational database designed
by Progress Software Corporation ("Progress") and is written in Progress'
fourth-generation programming language in a UNIX environment. PAL was designed
as an open system to be operated within the Company's client/server environment.
The Company's computer system is supported by four mainframe computers that
house the PAL database and direct and control network data flow among the
Company's approximately 30 servers and approximately 1,800 personal computers
("PCs"). The Company purchases or leases its mainframes, servers and PCs from
major computer manufacturers such as Sequent Computer Systems, Inc., Compaq
Computer Corporation and Hewlett-Packard Co.
PAL was designed to grow and adapt with the Company. New features are
continually being written and added to the various existing PAL applications. In
addition, PAL's capacity can be easily increased by adding additional hardware
support. Data stored by the PAL system is protected by frequent backup to
redundant off-site systems maintained by the Company.
Call Center Technology
The Company seeks to employ the most current telecommunications technology
available. It maintains relationships with the three leading U.S.
telecommunications carriers, utilizing advanced toll-free and toll-paid network
services such as automatic number identification (ANI), dialed number
information service (DNIS), routing control service on-line, next-available
agent call processing, network messaging and call prompting and network-based
call transferring applications. The Company also employs automatic call
distributor (ACD) switches with advanced call routing features and computer
telephone integration (CTI) technology. The Company's IVR system uses
text-to-speech and voice recognition technology. The Company's dedicated
fibre-optic links integrate its telecommunication capabilities into a single
company-wide system.
Scanning Capabilities
In order to more effectively capture consumer data, the Company has
introduced form scanning as part of its data input process. Young America's
Intelligent Character Recognition (ICR) system recognizes characters that have
been hand-printed by a person using a pen or pencil, thus greatly reducing the
manual keying of data. ICR provides a cost-effective, alternative processing
option that reduces data input time. The scanning process also allows Young
America to retain forms electronically, resulting in less paperwork and easier
data retrieval.
INDUSTRY OVERVIEW
The Company is not aware of any industry service or analyst that tracks the
consumer interaction processing industry as such. The Company believes that this
may be because the industry is very fragmented and evolving. The Company
believes that it may be one of only a few companies that characterize themselves
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as consumer interaction processors rather than identifying themselves with other
industries, such as teleservices or direct marketing, or positioning themselves
in a specific segment of the CIP industry, such as promotion fulfillment.
Although direct industry data is not available, the Company's provision of
CIP services can be viewed in the context of overall consumer promotional
spending. Levels of spending on consumer promotion activities reflect what the
Company believes is a trend among consumer-oriented companies toward increasing
the proportion of more targeted marketing activities involving interaction with
consumers and reducing the proportion of mass marketing approaches such as
general market advertising and free-standing insert coupons.
According to Promo magazine, expenditures in the United States in 13
categories of consumer promotion reached a total of approximately $71.5 billion
in 1996. In measuring the size of the industry, Promo magazine included
expenditures for premium incentives, point of purchase displays, advertising
specialties (such as logo-identified objects), couponing, specialty printing,
promotional licensing, sponsored events, promotional fulfillment, interactive
marketing (including toll-free number programs and the Internet), research,
promotional agency services, in-store marketing and product sampling. According
to Promo magazine, promotional fulfillment spending, the category management
believes best represents the Company's business, reached $2.5 billion in 1996,
representing an 18.5% increase over the $2.1 billion reported for 1995. Promo
magazine reported that two of the features driving the growth in promotional
fulfillment spending were increased outsourcing of fulfillment services and
increased demand for consumer data collection.
COMPETITION
The market in which the Company competes is highly competitive and
fragmented, including competitors that are small firms offering specific
applications, divisions of large entities and large independent firms. The
Company competes on the basis of quality of service, ability to execute
high-volume and complex programs, price and timeliness of service execution. See
"Risk Factors -- Highly Competitive Market."
WORKFORCE
The Company has a flexible, non-union workforce consisting of full-time
employees supplemented by part-time employees and independent contractors. The
independent contractors work in their homes checking order submissions and
hand-keying data. In 1997, the Company's active workforce varied from
approximately 1,500 to approximately 2,000, depending on the volume of
processing activity.
The following table sets forth the average breakdown of the Company's
workforce for the twelve-month period ended December 31, 1997:
<TABLE>
<S> <C>
Full-time fixed employees................................... 12.2%
Full-time variable employees................................ 25.6
Part-time permanent employees............................... 4.0
Hourly pool employees....................................... 22.6
Independent contractors..................................... 35.6
-----
Total workforce........................................ 100.0%
</TABLE>
Full-time fixed employees work full-time, year round. Full-time variable
employees work full shifts on an as-needed basis. Part-time permanent employees
work partial shifts year round. Hourly pool employees comprise a group of
flexible workers who can work on an as-needed basis. Independent contractors
work flexible hours on an as-needed basis from their homes. The Company's
flexible workforce enables it to maintain a significant proportion of its labor
cost as a variable cost while still being able to respond effectively to
variations in processing volumes throughout the year.
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FACILITIES
The Company's headquarters and main facility is located in Young America,
Minnesota, where it has the capability of performing substantially all types of
activities involved in rendering its CIP services.
The Company's facilities are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FOOTAGE OWNED/LEASED LEASE EXPIRATION
- -------- -------- -------------- ------------ ------------------
<S> <C> <C> <C> <C>
Young America, MN........ Corporate offices and 161,900 Owned(1) --
warehouse -
capabilities include
inbound and outbound
processing and
customer service
Glencoe, MN.............. Warehouse 97,100 Leased May 31, 2002
LeCenter, MN............. Warehouse 40,000 Leased November 30, 1998
Belle Plaine, MN......... Outbound processing and 62,000 Leased (2)
warehouse
Mankato, MN.............. Inbound processing and 54,200 Leased June 30, 2001
customer service
Winthrop, MN............. Outbound processing 24,000 Leased December 31, 1998
Chanhassen, MN........... Information systems 5,000 Leased January 31, 1999
applications
development
Albert Lea, MN........... Inbound processing 11,250 Leased August 31, 1999
Oklahoma City, OK........ Call center 25,000 Leased January 31, 2004
</TABLE>
- ---------------
(1) Owned by Holdings and leased to Young America.
(2) Lease is terminable upon 90-day written notice from either party to the
lease.
The Company believes that its property and equipment are generally
well-maintained and in good condition and that it has or can quickly acquire
sufficient capacity for its current and projected operational and warehousing
needs.
LEGAL PROCEEDINGS
The Company from time to time is involved in routine litigation incidental
to the conduct of its business. The Company believes that no litigation pending
against it will have a material adverse effect on its financial condition or
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers, directors and certain other key personnel of Young
America are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Charles D. Weil.................. 53 President, Chief Executive Officer
and Director
Robert Marakovits................ 39 Chairman of the Board of Directors
L. Joseph Kulas.................. 50 Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary
Bruce W. Clark................... 44 Vice President of Operations and
Technology
David Q. Ferguson................ 44 Vice President of Sales and Senior
Account Executive
Michael J. Larson................ 40 Vice President of Consumer Affairs
Barbara K. Spiess................ 49 Vice President of Human Resources
Frederick H. Stinchfield......... 46 Vice President of Sales and Senior
Account Executive
David C. Terry................... 48 Vice President of Sales and
Marketing
Sharon A. Wagner................. 39 Vice President of Account Management
Jay F. Ecklund................... 61 Director
Richard D. Gersten............... 32 Director
J. Mark A. MacDonald............. 42 Director
</TABLE>
CHARLES D. WEIL joined the Company in July 1993 as its President and Chief
Operating Officer. Mr. Weil was appointed President and Chief Executive Officer
of each of Young America and Holdings following the consummation of the
Recapitalization. From 1992 until he joined the Company, Mr. Weil was an
independent consultant. From 1991 to 1992 Mr. Weil served as President and Chief
Operating Officer of ConAgra Frozen Foods. Prior to that time he held senior
management positions with Nestle USA, Inc. and General Mills, Inc. Mr. Weil
holds a B.S. degree from Dartmouth College and an M.B.A. from the Amos Tuck
School of Business Administration.
ROBERT MARAKOVITS has been a Managing Director of BTCP since October 1993
and he was a Vice President of BTCP from June 1988 to October 1993. Mr.
Marakovits also serves on the boards of directors of Alliance Entertainment
Corp., Genesis Teleserv Corporation and National Catalog Corporation.
L. JOSEPH KULAS joined the Company in August 1996 and is currently Vice
President of Finance, Chief Financial Officer, Treasurer and Secretary of each
of Young America and Holdings. From 1994 until he joined the Company, Mr. Kulas
was Vice President of Finance of Gage Marketing Group and from 1992 to 1994 he
was Vice President of Finance of USA Direct, a subsidiary of Fingerhut
Companies, Inc. Prior to that time, Mr. Kulas held financial management
positions in several companies and was employed in public accounting. Mr. Kulas
received a B.S. degree in accounting from the University of North Dakota in 1969
and an M.B.A. from Mankato State University in 1984. Mr. Kulas is a certified
public accountant.
BRUCE W. CLARK joined the Company in October 1994 as its Vice President of
Technology. In February 1995 Mr. Clark assumed additional responsibilities and
became the Company's Vice President of Operations and Technology. From November
1993 to September 1994, Mr. Clark was a Project Manager for York & Associates,
responsible for the systems development project being conducted by York &
Associates for the Company. From 1990 to 1993 Mr. Clark was an Information
Systems Manager with Alliant Technology Systems. Mr. Clark holds a B.S. degree
in computer science from the University of Minnesota.
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<PAGE> 64
DAVID Q. FERGUSON joined the Company in July 1982 as an Account Group
Manager and he has been a Vice President of Sales and a Senior Account Executive
for the Company since 1988. Mr. Ferguson has a B.A. degree from Dartmouth
College.
MICHAEL J. LARSON joined the Company in March 1996 as its Vice President of
Consumer Affairs. From 1994 to 1996 Mr. Larson was Vice President, Direct
Response Sales and Service for NordicTrack, Inc.. From 1993 to 1994 he was Vice
President, Customer Service of Hanover Direct, Inc., and from 1990 to 1993, he
was employed in various officer positions with Express Fulfillment Services,
Inc. Mr. Larson holds a B.A. degree in Social Sciences from the University of
Northern Iowa.
BARBARA J. SPIESS joined the Company in March 1993 as its Manager of
Training and Development. She was named Vice President of Human Resources in
1997. Prior to joining the Company, Ms. Spiess was an independent consultant
specializing in human resources, training and organizational development. She
has also worked for May D&F, a division of The May Department Stores Company,
where she was Director of Training and Development. Ms. Spiess has a B.A. in
Journalism/Communications from Drake University.
FREDERICK H. STINCHFIELD joined the Company in 1985 as a sales
representative and he has been a Vice President of Sales and a Senior Account
Executive for the Company since 1988. Mr. Stinchfield has a B.A. degree from the
University of Denver.
DAVID C. TERRY joined the Company in March 1995 as its Vice President of
Sales and Marketing. From 1992 to 1995 Mr. Terry was President and Chief
Executive Officer of Keystone Corporation. Prior to that time he held various
management positions with Business Incentives and Carlson Marketing Group, Inc..
Mr. Terry holds a B.A. degree from Eastern Michigan University.
SHARON A. WAGNER joined the Company in April 1981. Ms. Wagner has held
several managerial positions, including Purchasing and Bidding Manager. She
became Director of Account Management in 1992 and was named Vice President of
Account Management in 1997.
JAY F. ECKLUND was Chairman and Chief Executive Officer of the Company from
1975 until the consummation of the Recapitalization. Mr. Ecklund has been a
director of Holdings since 1975. Upon the consummation of the Recapitalization,
Mr. Ecklund is entitled to continue as a director of Holdings in accordance with
the terms of the Stockholders' Agreement. Mr. Ecklund is also a director of
Young America.
RICHARD D. GERSTEN has been a Vice President of BTCP since June 1997 and he
was an Associate of BTCP from August 1993 to June 1997. Mr. Gersten received an
M.B.A. degree from the Wharton School at the University of Pennsylvania in May
1993. Mr. Gersten also serves on the board of directors of Genesis Teleserv
Corporation.
J. MARK A. MACDONALD has been a Portfolio Manager with the Merchant Banking
Group of OTPPB since 1995. From 1991 to 1995, Mr. MacDonald was a partner with
Enterprise Management Group/Premier Capital where he provided investment
management, corporate development, restructuring and financial and fiscal
advisory services to corporate and other clients. Mr. MacDonald also serves on
the boards of directors of Sun Media Corporation, Financial Post, MetroNet
Communications and Q/Media Services Corporation.
All of the outstanding capital stock of Young America is owned by Holdings.
Accordingly, each director on the board of directors of Young America is
nominated and elected by Holdings. Currently Messrs. Marakovits, Gersten,
MacDonald, Ecklund and Weil serve as directors of Young America. Young America
has an executive committee comprised of Messrs. Marakovits, MacDonald and Weil.
The members of Holdings' Board of Directors are nominated pursuant to the
terms of the Stockholders' Agreement. Under the Stockholders' Agreement BTCP is
entitled to designate two directors to the Board of Directors, each of OTPPB and
Jay F. Ecklund is entitled to designate one director and Holdings' chief
executive officer serves as a director. In addition, BTCP and OTPPB are entitled
to designate jointly up to three independent directors to the Board of
Directors. Currently Messrs. Marakovits, Gersten, MacDonald, Ecklund and Weil
serve as directors of Holdings.
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<PAGE> 65
COMMITTEES OF THE BOARD OF DIRECTORS
The Stockholders' Agreement provides for the creation of a three-person
executive committee of Holdings' Board of Directors (the "Executive Committee").
Under the terms of the Stockholders' Agreement, the Executive Committee is to
include the Chief Executive Officer of Holdings, one director appointed by BTCP
and one director appointed by OTPPB. Currently Messrs. Marakovits, MacDonald and
Weil serve on the Executive Committee. In addition, the Board of Directors has a
compensation committee (the "Compensation Committee") that determines
compensation for executive officers of the Company and that will administer the
Company's Employee Stock Option Plan. Currently Messrs. Marakovits, MacDonald
and Weil serve on the Compensation Committee. At such time as BTCP and OTPPB
take action to nominate and elect one or more independent directors to the Board
of Directors, the Board of Directors will create an audit committee (the "Audit
Committee") and will appoint one or more independent directors to such Audit
Committee. The Audit Committee will review the scope and results of audits and
internal accounting controls and all other tasks performed by the independent
public accountants of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in February 1998, the
Company did not have a special committee of the Board of Directors to deal with
compensation issues. Prior to the Recapitalization, as a member of the Board of
Directors, Mr. Ecklund, the former Chief Executive Officer of Holdings, made
final determinations with respect to the compensation of executives of the
Company.
COMPENSATION OF DIRECTORS
The Company may compensate directors for services provided in such capacity
in addition to reimbursing all out-of-pocket expenses incurred by such directors
in connection with travel and other costs associated with attending meetings of
the Board and any committees thereof.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the year ended December
31, 1997, for the two persons serving as the Company's chief executive officer
during such year, the one other executive officer of the Company and the two
other most highly compensated employees of the Company (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
---------------------- OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS GRANTED PAYOUTS(4) COMPENSATION(5)
- --------------------------- ----------- --------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jay F. Ecklund.............. 1997 $546,346 -- -- -- $ 3,123
Chief Executive Officer(1)(2)
Charles D. Weil............. 1997 264,133 $1,161,000 -- $9,718,082 23,708
President and Chief
Executive Officer(1)
L. Joseph Kulas............. 1997 150,000 45,000 -- 260,000 22,058
Vice President of Finance,
Chief Financial Officer,
Secretary and Treasurer
Frederick H.
Stinchfield(2)............ 1997 573,389 -- -- 2,586,913 15,266
David C. Terry(3)........... 1997 151,000 136,000 -- 435,000 22,246
</TABLE>
- ---------------
(1) Mr. Ecklund was the chief executive officer of the Company from 1975 until
November 25, 1997. On November 25, 1997, Mr. Weil became chief executive
officer of the Company.
(2) Includes director's fees received by Mr. Ecklund prior to the
Recapitalization Date and sales commissions earned by Mr. Stinchfield.
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<PAGE> 66
(3) The bonus paid to Mr. Terry in 1997 was based upon an annual incentive plan
that pays Mr. Terry a percentage of the Company's year-to-year increase in
service fee revenues.
(4) LTIP payments include payments under a phantom stock agreement entered into
between the Company and Mr. Stinchfield, payments to Messrs. Kulas and Terry
made pursuant to the Company's 1997 Management Recognition, Transition and
Equity Bonus Plan, a payment to Mr. Terry pursuant to a special bonus based
upon the financial performance of the Company during the three-year period
ended December 31, 1997 and payments made to Mr. Weil under the Old
Employment Agreement (as defined below) including his sale of the Company
bonus.
(5) Other compensation includes contributions to defined contribution plans and
payments related to taxable insurance benefits.
EMPLOYMENT AGREEMENTS
Charles D. Weil
On November 24, 1997, the Company and Charles D. Weil entered into an
employment agreement (the "Weil Employment Agreement") pursuant to which Mr.
Weil has agreed to serve as the President and Chief Executive Officer of each of
Young America and Holdings. The term of the Weil Employment Agreement is
initially three years and expires on November 24, 2000, unless terminated
earlier in accordance with its terms. The Weil Employment Agreement replaced an
earlier agreement between the Company and Mr. Weil (the "Old Employment
Agreement"). Base compensation under the Weil Employment Agreement is $300,000
per year and such amount will increase at a minimum of 5% each calendar year
beginning January 1, 1999. If the Company terminates Mr. Weil's employment
without cause or Mr. Weil terminates his employment for good reason, he is
entitled to receive (i) his base salary for an eighteen-month period following
the effective date of termination and (ii) a pro-rated portion of his annual
incentive bonus under the Company's Annual Management Incentive Plan (as defined
below) as of the date of termination.
During 1997, Mr. Weil participated in a special incentive bonus plan which
was based upon the achievement of certain performance targets for that year. Mr.
Weil was paid $900,000 with respect to such incentive bonus plan in January 1998
and an additional $261,000 pursuant to such incentive bonus plan in March 1998
following the approval of the annual financial statements of the Company by the
Board of Directors. In addition, on January 7, 1998, the Company paid Mr. Weil a
bonus of $500,000 in satisfaction of certain obligations of the Company to Mr.
Weil under the Old Employment Agreement. For 1998 and all subsequent years under
the Weil Employment Agreement, Mr. Weil will participate in the Company's Annual
Management Incentive Plan, as such plan may from time to time be amended.
In connection with the Recapitalization and pursuant to the terms of the
Old Employment Agreement, Mr. Weil received a "Sale of the Company" bonus from
the Company of $9.2 million. In addition, Mr. Weil may be entitled to receive up
to an additional $3.2 million, representing his pro rata portion of post-
Recapitalization payments that may be made to the Selling Stockholders and
Messrs. Weil, Stinchfield and Ferguson under the terms of the Recapitalization
Agreement. See "Certain Transactions -- Additional Payments Related to the
Recapitalization."
L. Joseph Kulas
The Company is a party to an employment agreement with L. Joseph Kulas (the
"Kulas Employment Agreement") pursuant to which Mr. Kulas serves as the Chief
Financial Officer of each of Young America and Holdings. The Kulas Employment
Agreement expires on August 1, 1998, subject to an automatic twelve-month
renewal, if not canceled by either party. Base compensation under the Kulas
Employment Agreement is $150,000 per year, subject to reasonable annual
increases as determined by the Company. During 1997, Mr. Kulas participated in
the Company's management incentive plan for 1997 which was based upon
achievement of performance targets for that year. Mr. Kulas also received a
signing bonus of $1,000 per month during 1997.
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<PAGE> 67
Change in Control Agreements
In February 1997, the Company entered into change in control agreements
with eight persons currently employed by the Company, including Michael J.
Larson, L. Joseph Kulas, Barbara K. Spiess, Sharon A. Wagner, David Q. Ferguson,
Robert J. Beaudoin, Frederick J. Stinchfield and Bruce W. Clark (the "Change in
Control Agreements"). Each Change in Control Agreement provides that if the
applicable employee is terminated by the Company without cause or such employee
leaves the employ of the Company for good reason following a Change in Control
(as defined in such Change in Control Agreement), the Company will pay to the
employee his or her annual base salary and the total commissions earned for the
preceding twelve-month period and will continue the employee's benefits for the
earlier of twelve months or until the employee obtains full time employment. As
of January 29, 1998, the Company had not made any payments under the Change in
Control Agreements.
EMPLOYEE STOCK OPTION PLAN
As of the date of this Prospectus, the Company has made no grants of stock
options to any of its directors or employees. However, Holdings expects to adopt
an employee stock option plan (the "Employee Stock Option Plan") in the near
future that will provide for grants of shares of non-voting Class C Common Stock
representing approximately 16% of the fully-diluted Common Stock of Holdings.
The administration of the Employee Stock Option Plan, the selection of
participants, and the form and the amounts of the grants will be within the sole
discretion of the Compensation Committee of the Board of Directors.
ANNUAL MANAGEMENT INCENTIVE PLAN
The Company plans to implement annual bonus plans (such annual plans
referred to collectively as the "Annual Management Incentive Plans") for certain
employees (including Messrs. Weil, Kulas and Terry) pursuant to which eligible
members of management will each be entitled to receive predetermined percentages
of their base salaries if the Company's EBITDA exceeds certain targets. The
terms of the Annual Management Incentive Plan utilized during any year and the
eligible employees under each plan are within the sole discretion of the
Compensation Committee of the Board of Directors.
EMPLOYEE 401(K)/PROFIT-SHARING PLAN
The Company has historically offered its employees participation in a
qualified 401(k)/profit-sharing plan. The Company intends to continue to offer a
plan under which eligible employees (as defined in the plan document) will be
entitled to share in a bonus pool (with each eligible employee sharing in the
pool pro-rata based upon such employee's base salary) if the Company's EBITDA
exceeds a predetermined target level.
1997 MANAGEMENT RECOGNITION, TRANSITION AND EQUITY BONUS PLAN
On November 25, 1997, Holdings adopted the 1997 Management Recognition,
Transition and Equity Bonus Plan for officers and certain key management
employees, pursuant to which Holdings paid one-time cash bonuses totaling $2.7
million to certain officers and employees of the Company. A portion of the
proceeds of such bonuses was used to purchase Class A Common Stock in connection
with the Recapitalization.
PHANTOM STOCK AGREEMENTS
In December 1991, the Company granted certain rights to each of Frederick
H. Stinchfield and David Q. Ferguson under phantom stock agreements entered into
with such employees of the Company. Such phantom stock agreements provided for
the Company to make payments based on the increase in book value or, in the case
of a sale of the Company, the value paid in such transaction. In connection with
the Recapitalization, Messrs. Stinchfield and Ferguson received payments in
respect of their rights under the phantom stock agreements of $2.4 million and
$2.2 million, respectively. In addition, Messrs. Stinchfield and Ferguson may be
entitled to receive additional payments of up to $499,000 and $446,000,
respectively, representing their pro rata portion of post-Recapitalization
payments that may be made to the Selling Stockholders and Messrs. Weil,
Stinchfield and Ferguson under the terms of the Recapitalization Agreement. See
"Certain Transactions -- Additional Payments Related to the Recapitalization."
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<PAGE> 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of Young America is owned by Holdings.
The following table sets forth certain information regarding the beneficial
ownership of the capital stock of Holdings by (i) each person known by Holdings
to own beneficially more than 5% of the outstanding shares of any class of its
voting capital stock, (ii) each person who is a director of Holdings or Young
America, (iii) each Named Executive Officer and (iv) all directors and executive
officers of Holdings or Young America as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF OWNERSHIP OF CLASS A
NAME AND ADDRESS CLASS A COMMON STOCK(1) COMMON STOCK
---------------- ----------------------- --------------------
<S> <C> <C>
BT Capital Partners, Inc.(2)........................ 1,029,445(3) 58.9%
Ontario Teachers' Pension Plan Board(2)............. 396,710(4) 30.0
Jay F. Ecklund(2)................................... 134,400 10.3
Robert Marakovits(2)(5)............................. 1,029,445(3) 58.9
Richard D. Gersten(2)(5)............................ 1,029,445(3) 58.9
J. Mark A. MacDonald(2)(6).......................... 396,710(4) 30.0
Charles D. Weil(2).................................. 156,221 12.0
L. Joseph Kulas(2).................................. 2,757 *
Frederick H. Stinchfield(2)......................... 4,595 *
David C. Terry(2)................................... 3,217 *
All directors and executive officers as a
group(5)(6) (6 persons)........................... 1,713,561(3)(4) 62.9
* Denotes less than 1%
</TABLE>
- ---------------
(1) The amounts and percentages of capital stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Securities that can be
so acquired are deemed to be outstanding for purposes of computing such
person's ownership percentage, but not for purposes of computing any other
person's percentage. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic
interest.
(2) The address of BTCP, Mr. Marakovits and Mr. Gersten is 130 Liberty Street,
New York, New York 10006; the address of OTPPB and Mr. MacDonald is 5650
Yonge Street, North York, Ontario Canada M2M 4H5; the address of Messrs.
Weil, Kulas, Stinchfield and Terry is 717 Faxon Road, Young America,
Minnesota 55397 and the address of Jay F. Ecklund is Pier 66 Resort &
Marina, 2301 Southeast 17th Street, Ft. Lauderdale, Florida 33316.
(3) Includes 442,884 shares of Class B Common Stock that are convertible into
Class A Common Stock. The Class B Common Stock generally is not entitled to
vote, however, as described below, upon the occurrence of certain events,
the Class B Common Stock will (except as otherwise required by applicable
law) be entitled to vote with the Class A Common Stock, voting together as a
single class, on all matters to be voted on by Holdings' shareholders.
(4) Includes 18,437 shares of Class C Common Stock that are convertible into
Class A Common Stock. If OTPPB were to convert all 172,727 of the shares of
Class C Common Stock its holds into shares of Class A Common Stock, it would
hold approximately 37.3% of the outstanding voting capital stock of
Holdings.
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<PAGE> 69
However, OTPPB has advised Holdings that OTPPB is prohibited by law from
owning more than 30.0% of the outstanding voting capital stock of any
company.
(5) Mr. Marakovits is a Managing Director of BTCP and Mr. Gersten is a Vice
President of BTCP. Mr. Marakovits and Mr. Gersten disclaim any beneficial
ownership of the shares of Holdings held by BTCP.
(6) Mr. MacDonald is a Portfolio Manager of OTPPB. Mr. MacDonald disclaims any
beneficial ownership of the shares of Holdings held by OTPPB.
DESCRIPTION OF CAPITAL STOCK; SBIC RESTRICTIONS ON BTCP
Young America's capital stock consists of 1,000 shares of common stock, all
of which have been issued and are outstanding and are held of record by
Holdings. Holdings' Common Stock consists of three classes, Class A Common
Stock, Class B Common Stock and Class C Common Stock. Except as set forth below,
the rights of the three classes of Common Stock are the same. Under most
circumstances, only the Class A Common Stock has voting rights, however, (i) the
affirmative vote of a majority of the total number of shares of Class B Common
Stock voting at a meeting at which a quorum is present, voting separately as a
class, is required for the issuance or sale of additional shares of Class B
Common Stock, the reclassification, cancellation or retirement of the Class B
Common Stock or any amendment, waiver or corporate transaction that adversely
affects the Class B Common Stock and (ii) the affirmative vote of a majority of
the total number of shares of Class C Common Stock voting at a meeting at which
a quorum is present, voting separately as a class, is required for the issuance
or sale of additional shares of Class C Common Stock, the reclassification,
cancellation or retirement of the Class C Common Stock or any amendment, waiver
or corporate transaction that adversely affects the Class C Common Stock.
Regulated Holders (as defined in Holdings' Articles of Incorporation) who hold
shares of Class A Common Stock may convert such shares into shares of Class B or
Class C Common Stock at any time. Regulated Holders who hold shares of Class B
Common Stock or Class C Common Stock may convert such shares into shares of
Class A Common Stock at any time such conversion is permitted under law.
As a licensed small business investment company (an "SBIC"), BTCP is
subject to certain restrictions imposed upon SBICs by the regulations
established and enforced by the United States Small Business Administration.
Among these restrictions are certain limitations on the extent to which an SBIC
may exercise control over companies in which it invests. As a result of these
restrictions, unless certain events occur, BTCP may not own or control a
majority of the outstanding voting stock of Holdings or designate 50% or more of
the members of the Board of Directors. Accordingly, while BTCP owns a majority
of the Common Stock of Holdings, BTCP owns less than a majority of Holdings'
Voting Stock. Each share of Class B Common Stock (all of which is held by BTCP)
will be entitled to vote, at the option of BTCP, with the Class A Common Stock,
voting together as a single class, on all matters to be voted on by Holdings'
shareholders (except as otherwise required by applicable law) following the
occurrence of any of the following events: (i) Charles D. Weil shall cease to be
employed by the Company for any reason; (ii) Holdings shall not have completed a
public offering of its Common Stock meeting certain requirements by the fifth
anniversary of the Recapitalization Date; (iii) the Company or the Selling
Stockholders shall default on any of the material terms of the Recapitalization;
(iv) any representation or warranty made by Holdings or the Selling Stockholders
with respect to the Recapitalization shall prove to have been materially false;
(v) an Approved Sale (as defined below) has been proposed to the Board of
Directors and such sale is not approved, for whatever reason, by the Board of
Directors within three days of such proposal; or (vi) other circumstances that
reasonably threaten the investment of BTCP or its assignees.
STOCKHOLDERS' AGREEMENT
In connection with consummation of the Recapitalization, Holdings, BTCP,
OTPPB, Jay F. Ecklund and the Management Stockholders (collectively, the
"Stockholders") entered into a stockholders' agreement (the "Stockholders'
Agreement"). The Stockholders' Agreement contains certain restrictions with
respect to the transferability of Holdings' capital stock and contains a grant
by Holdings to the Stockholders of preemptive rights to subscribe for future
issuances of its capital stock and securities convertible or exercisable for
capital
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<PAGE> 70
stock, subject to certain exceptions. The Stockholders' Agreement also includes
provisions regarding designation of members of the Board of Directors and other
voting arrangements. The Stockholders' Agreement will terminate upon the earlier
of the completion of an Approved Sale or a public offering of Holdings' Common
Stock meeting certain requirements.
The Stockholders' Agreement provides that Holdings' Board of Directors will
consist of at least five but no more than eight directors. Under the
Stockholders' Agreement, BTCP will be entitled to appoint two directors, each of
OTPPB and Jay F. Ecklund will be entitled to appoint one director and Holdings'
Chief Executive Officer of Holdings' will serve as one director. Directors
appointed by any party pursuant to the Stockholders' Agreement may also be
removed by such party with or without cause. In addition, BTCP and OTPPB will be
entitled to designate jointly up to three independent directors. The
Stockholders' Agreement provides for the creation of a three-person executive
committee of the Board of Directors which will include the Chief Executive
Officer of Holdings, one director appointed by BTCP and one director appointed
by OTPPB. The Stockholders' Agreement also provides that all committees of the
Board of Directors will include at least one director appointed by BTCP and at
least one director appointed by OTPPB.
The Stockholders' Agreement provides that certain corporate actions of
Holdings or any subsidiary of Holdings will require the affirmative vote of a
majority of the shares currently held by OTPPB. These actions (with certain
limited exceptions) include (i) mergers, consolidations or recapitalizations,
(ii) public offerings or issuances of capital stock, (iii) repurchases of and
dividends on capital stock, (iv) acquisitions, sales or investments in any
person in excess of $10 million, (v) any dissolution or liquidation, (vi)
amendments to or restatements of the Articles of Incorporation or By-laws of
Holdings, (vii) incurrences of indebtedness or liens in excess of $10 million in
the aggregate or modifications of the terms of any existing indebtedness, (viii)
capital expenditures in excess of $10 million in any one year, (ix) transactions
with affiliates other than at arms-length and (x) any change in the primary
business of the Company. Consistent with BTCP's majority ownership interest in
the Company, the Stockholders' Agreement provides that each of the above
corporate actions will require the affirmative vote of a majority of the shares
currently held by BTCP; provided, however, that with respect to such actions,
there is no minimum amount that must be met to trigger the requirement for such
consent. In addition, Holdings is required to obtain the affirmative vote of a
majority of the shares currently held by BTCP to revise or amend any employment
contract with senior management or to amend, modify or supplement the Employee
Stock Option Plan.
The Stockholders' Agreement provides for certain restrictions on the sale
by the Stockholders of their equity interests in Holdings. Unless a transfer is
to Holdings or an affiliate of the Stockholder, no Stockholder may transfer his
or its capital stock of Holdings without the prior permission of BTCP. In
addition, with respect to any permitted transfer (other than a transfer to an
affiliate) by any particular Stockholder under the Stockholders' Agreement, each
other Stockholder will be permitted to transfer to the proposed transferee his
or its pro rata share of such securities at the price and on the other terms of
the proposed transfer.
The Stockholders' Agreement provides that, subject to certain limitations,
if at any time BTCP approves the sale of all of the capital stock of Holdings or
the sale of all or substantially all of the assets of Holdings (each an
"Approved Sale"), then each other Stockholder shall agree to and comply with the
terms of such sale.
REPURCHASE AGREEMENTS WITH RESPECT TO EMPLOYEE STOCK
Each of the Management Stockholders acquired the shares of Class A Common
Stock held by such Management Stockholder (with respect to each Management
Stockholder, the "Employee Stock") pursuant to a Stock Subscription and
Repurchase Agreement (collectively, the "Employee Stock Agreements") between
such Management Stockholder and Holdings simultaneous with and as part of the
Recapitalization. Each of the Employee Stock Agreements provides that upon the
occurrence of certain events including the death, retirement, permanent
disability, resignation for good reason (such as retirement) or termination
without cause of the Management Stockholder, such Management Stockholder (or his
successors) will have the right (within a specified period of time) to cause
Holdings to repurchase his Employee Stock. In each instance where a Management
Stockholder has the right to cause Holdings to repurchase his Employee Stock,
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<PAGE> 71
Holdings has a corresponding right to cause the relevant Management Stockholder
to sell his Employee Stock to Holdings. In addition, Holdings has the right to
cause a Management Stockholder to sell his Employee Stock to Holdings upon such
Management Stockholder's termination for cause.
The repurchase price to be paid by Holdings for any Employee Stock
repurchased pursuant to the Employee Stock Agreements will in most situations be
the fair market value for such shares (to be determined by the Board of
Directors if Holdings' shares are not then traded publicly, provided that a
Management Stockholder may request an appraisal of the repurchased shares if
such Management Stockholder disagrees with the valuation placed on such shares
by the Board of Directors). Certain Employee Stock Agreements require the
Management Stockholder to enter into a non-competition agreement with Holdings
or receive the lesser of the fair market value or the original purchase price
for the Employee Stock to be repurchased. The Employee Stock Agreement with Mr.
Weil provides that if Mr. Weil is terminated for cause, Holdings may repurchase
his Employee Stock at the lesser of its fair market value or the original
purchase price for such shares.
PUT RIGHTS OF JAY F. ECKLUND
Pursuant to the terms of a put option agreement (the "Put Agreement") dated
November 25, 1997 between the Company and Mr. Ecklund, Mr. Ecklund has the
right, at any time after the fifth anniversary of the date of the Put Agreement,
to cause Holdings to redeem all or any portion of Mr. Ecklund's shares in
Holdings. The price at which such shares may be sold and purchased shall be the
fair market value thereof, determined either by agreement or by an appraisal.
Holdings is not obligated to redeem Mr. Ecklund's shares if Holdings is then in
default of a payment obligation under any of Holding's indebtedness for borrowed
money or if such redemption would result in a default under any such
indebtedness.
REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, Holdings, BTCP, OTPPB and Mr.
Ecklund entered into an equity registration rights agreement (the "Equity
Registration Rights Agreement"). The Equity Registration Rights Agreement grants
the Stockholders party thereto demand and incidental registration rights with
respect to shares of capital stock held by them, which rights will be
exercisable at any time after an initial public offering of Holdings' common
stock. In addition, BTCP may cause Holdings to conduct an initial public
offering at any time. OTPPB may cause Holdings to conduct an initial public
offering at any time following the sixth anniversary of the Recapitalization.
The Equity Registration Rights Agreement contains customary terms and provisions
with respect to the registration rights contained therein.
CERTAIN TRANSACTIONS
OFFERING OF THE OLD NOTES
Subject to the terms and conditions set forth in the Purchase Agreement
dated as of February 18, 1998 among Young America, Holdings and the Initial
Purchaser, the Company sold the Old Notes to the Initial Purchaser who resold
the Old Notes to qualified institutional investors in reliance on Rule 144A
under the Securities Act. In connection with the sale of the Old Notes to the
Initial Purchaser, the Company granted the Initial Purchaser a discount on the
purchase price of the Old Notes in the amount of $2.4 million. The Company has
agreed to indemnify BTAB against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments which BTAB might be
required to make in respect thereof.
BRIDGE FACILITY
In connection with the Recapitalization, Holdings entered into a Senior
Credit Agreement with Bankers Trust Company, as agent ("BTCo"), and Bankers
Trust New York Corporation, as initial lender ("BTNY"), to provide the Bridge
Facility. BTCo and BTNY are affiliates of BTCP. BTNY subsequently assigned a
portion of the indebtedness under the Bridge Facility to other institutional
investors. For arranging and providing the Bridge Facility, BTCo and BTNY
received fees aggregating approximately $2.4 million. Portions of the fees were
paid by BTNY to the other institutional investors to which the indebtedness was
assigned. BTNY received a proportionate share of amounts loaned by Young America
to Holdings that were applied to the repayment of the Bridge Facility based on
the portion of the Bridge Facility which BTNY held as of consummation of the
offering of the Old Notes.
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ADDITIONAL PAYMENTS RELATED TO THE RECAPITALIZATION
Pursuant to the terms of the Recapitalization Agreement, Holdings expects
to make an additional payment of approximately $700,000 to the Selling
Shareholders and certain employees of the Company during the second quarter of
1998. Such payment will be based upon the final determination of total
stockholders equity (as defined) of Holdings as of October 31, 1997 and
Holdings' profits or losses (as defined) for the period ended on the
Recapitalization Date. Also in connection with the Recapitalization, Holdings is
obligated to make additional payments to its former majority shareholders
subject to Holdings achieving certain targets defined in the Recapitalization
Agreement. To the extent Cumulative Excess Free Cash Flow (as defined in the
Recapitalization Agreement) of the Company for the four-year period ending
December 31, 2001 exceeds $93.0 million, Holdings is required to make an
additional purchase price payment equal to 20% of such excess, subject to a
maximum amount payable of $15.0 million. Under separate agreements with Mr.
Weil, Mr. Stinchfield, Mr. Ferguson and the Selling Stockholders, a portion of
this additional purchase price payment will be payable to such individuals. Such
payments will vary depending on the amount of any indemnification claims against
any escrow account established by the Company for the benefit of new investors
and depending on the Cumulative Excess free Cash Flow of the Company for the
four-year period ending December 31, 2001 (or an earlier date in the case of a
sale of the Company). Any payments made to management will result in
compensation charges to the Company in the period the amount becomes
determinable.
MANAGEMENT AGREEMENT AND TRANSACTION EXPENSES
In connection with the Recapitalization, Holdings, BTCP and OTPPB entered
into a management agreement (the "Management Agreement") relating to certain
services to be provided to the Company in the future by BTCP and OTPPB. Under
the Management Agreement, BTCP and OTPPB will provide the Company with, among
other services, financial and strategic planning and management consulting
services throughout the term of the Stockholders' Agreement. In consideration
for the services provided to the Company under the Management Agreement,
Holdings will pay annual fees of $187,500 and $62,500 to BTCP and OTPPB,
respectively. Also in connection with the Recapitalization, the Company paid
BTCP and OTPPB one-time transaction fees of $1,125,000 and $375,000,
respectively, and reimbursed or paid expenses (including legal, consulting and
accounting fees and expenses) of BTCP and OTPPB of approximately $1,000,000 and
$50,000, respectively, incurred by such entities in connection with the
Recapitalization.
NON-COMPETITION AGREEMENT WITH SELLING STOCKHOLDERS
In connection with the Recapitalization, on November 21, 1997, the Company
entered into a non-competition agreement (the "Non-Competition Agreement") with
the Selling Stockholders. The Non-Competition Agreement provides for customary
restrictions on the Selling Stockholders competing against the Company or
disclosing confidential information with respect to the Company's business for a
period of five-years following the Recapitalization Agreement. In addition, the
Non-Competition Agreement provides that the Company will pay Mr. Ecklund a
consulting fee of $100,000 for providing consulting services to the Company for
the period ending on the first anniversary of the Non-Competition Agreement.
OTHER TRANSACTIONS
The Company is a party to a Release and Indemnity Agreement (the "Release
Agreement") with the following former directors of Holdings: Thomas O. Moe,
Albert O. Foster, Jerome J. Jenko and R. Gary St. Marie. Pursuant to the Release
Agreement, Holdings released and agreed to indemnify the enumerated directors
from claims arising from their past actions as directors of Holdings. Holdings'
Articles of Incorporation release its current directors from liability incurred
for breaches of fiduciary duties, subject to certain exceptions.
Holdings is a party to a Put Option Agreement with Jay F. Ecklund, a
director of Holdings. See "Principal Stockholders -- Put Rights of Jay F.
Ecklund."
Holdings has authorized and approved a stock option plan for key employees
of the Company. See "Management -- Employee Stock Option Plan."
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DESCRIPTION OF NEW CREDIT FACILITY
The Company has entered into a revolving credit facility (the "New Credit
Facility") with Norwest Bank Minnesota, N.A. ("Norwest"). The description below
of the New Credit Facility is subject to, and qualified in its entirety by
reference to, the definitive documentation for the New Credit Facility.
Structure. The New Credit Facility, entered into by Young America,
provides, subject to certain terms and conditions, for a $10.0 million revolving
credit facility. A sublimit of $1.0 million is available for letters of credit.
Borrowings are available under the New Credit Facility based on a borrowing base
formula equal to 85% of Eligible Receivables (as defined in the New Credit
Facility). The New Credit Facility a final scheduled maturity date of March 31,
2001 and does not require scheduled interim reductions or repayments. Young
America is permitted to make optional prepayments and commitment reductions
pursuant to the terms of the New Credit Facility.
Security. The New Credit Facility is secured by a first priority security
interest in the accounts receivable and related general intangibles of Young
America.
Interest and Fees. Borrowings under the New Credit Facility will accrue
interest, at the option of Young America, at either Norwest's base rate or at an
interest rate equal to the London interbank rate for Eurodollar deposits for
one, two or three month interest periods plus 2.50%. Norwest will also receive
an unused line fee of 3/8 of 1% per annum on the undrawn amount of the New
Credit Facility.
Covenants. The New Credit Facility requires Young America to maintain a
minimum interest coverage ratio (as defined in the New Credit Facility) and a
minimum current ratio (as so defined). In addition, the New Credit Facility
contains other covenants that, among other things, restrict acquisitions,
investments, dividends, liens and other indebtedness (including capital leases),
management fees, dispositions of assets, change of voting control and
guarantees.
Cross Default. The New Credit Facility contains customary events of
default, including cross default with the Notes.
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DESCRIPTION OF THE NOTES
The Old Notes were and the New Notes will be issued under an indenture (the
"Indenture"), dated as of February 23, 1998 by and between the Young America,
Holdings and Marine Midland Bank, as Trustee (the "Trustee"). The terms of the
New Notes are identical in all respects to the Old Notes, except that the New
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain provisions
providing for the payment of liquidated damages under certain circumstances
relating to the Registration Rights Agreement, which provisions will terminate
upon the consummation of the Exchange Offer.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to
all of the provisions of the Indenture, including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
TIA as in effect on the date of the Indenture. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions." For purposes of this section, references to the
"Company" include only the Company and not its Subsidiaries.
The Old Notes are and the New Notes will be unsecured obligations of the
Company, ranking subordinate in right of payment to all Senior Debt of the
Company.
The Old Notes were and the New Notes will be issued in fully registered
form only, without coupons, in denominations of $1,000 and integral multiples
thereof. Initially, the Trustee will act as Paying Agent and Registrar for the
Notes. The Notes may be presented for registration or transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to holders of the Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Notes at the Trustee's corporate office in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered address of Holders.
Any Notes that remain outstanding after the completion of the Exchange Offer,
together with the New Notes issued in connection with the Exchange Offer, will
be treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million, of
which $80.0 million in aggregate principal amount were issued in the offering of
the Old Notes, and will mature on February 15, 2006. Additional amounts may be
issued from time to time, subject to the limitations set forth under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness." Interest on
the Notes will accrue at the rate of 11 5/8% per annum and will be payable
semiannually in cash on February 15 and August 15 of each year commencing on
August 15, 1998, to the persons who are registered Holders at the close of
business on the February 1 and August 1 immediately preceding the applicable
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from and
including the date of issuance.
The Notes are not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes are redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after February 15, 2002,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
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during the twelve-month period commencing on February 15 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002..................................................... 105.813%
2003..................................................... 103.875%
2004..................................................... 101.938%
2005 and thereafter...................................... 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to February 15, 2001, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings (as defined below) to redeem
up to 35% of the aggregate principal amount of the Notes issued under the
Indenture at a redemption price equal to 111.625% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided that at least 65% of the principal amount of Notes issued
under the Indenture remains outstanding immediately after any such redemption.
In order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 120 days after
the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock of Holdings or the Company for
aggregate net cash proceeds of at least $10.0 million; provided that, in the
event of an Equity Offering by Holdings, Holdings contributes to the capital of
the Company the portion of the net cash proceeds of such Equity Offering
necessary to pay the aggregate redemption price (plus accrued interest to the
redemption date) of the Notes to be redeemed pursuant to the preceding
paragraph.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of an Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise. If any default occurs and is continuing in the payment when due,
whether at
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maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Senior Debt, no payment of any kind
or character shall be made by or on behalf of the Company or any other Person on
its or their behalf with respect to any Obligations on the Notes or to acquire
any of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.
After giving effect to the offering of the Old Notes and the application of
the proceeds therefrom, on a pro forma basis, at December 31, 1997, the
aggregate amount of Senior Debt would have been approximately $0.4 million,
consisting of obligations under undrawn letters of credit.
GUARANTEE
Holdings has irrevocably and unconditionally guaranteed (the "Holdings
Guarantee"), on a senior subordinated basis, jointly and severally, to each
Holder and the Trustee, the full and prompt performance of all obligations of
the Company under the Indenture and the Notes, including the payment of
principal of and interest on the Notes (all such obligations guaranteed by
Holdings being herein called the "Guaranteed Obligations"). The Holdings
Guarantee is subordinated to Guarantor Senior Debt on the same basis as the
Notes are subordinated to Senior Debt. See also "-- Certain
Covenants -- Additional Guarantees."
The Holdings Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon Holdings and its successors, transferees and assigns and (c)
inure to the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
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The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement and all other Senior Debt to permit the repurchase of the Notes
as provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below. The Company's failure to comply with
the covenant described in the immediately preceding sentence shall constitute an
Event of Default described in clause (iii) and not in clause (ii) under "Events
of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Restrictions in the Indenture on the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales may also make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management of the Company. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by the management of the Company. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
Holders of Notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness (including, without limitation, Acquired Indebtedness) and
Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each
case if on the date of the incurrence of such Indebtedness, after giving effect
to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than (x) 2.0 to 1.0, if the date of such incurrence is on or
prior to March 1, 1999, or (y) 2.5 to 1.0, if the date of such incurrence is
after March 1, 1999.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Equity Interests (other than Disqualified Capital
Stock) of the Company) on or in respect of the Company's Equity Interests to
holders of such Equity Interests, (b) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or
retire for value, prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes or (d) make any
Investment (other than Permitted Investments) (each of the foregoing actions set
forth in clauses (a), (b) (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date and on or prior to
the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (x) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on or prior
to the Reference Date of Equity Interests (other than Disqualified Capital
Stock) of the Company; plus (y) without duplication of any amounts included in
clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company; plus (z) without duplication, the sum of
(1) the aggregate amount returned in cash on or with respect to Investments
(other than Permitted Investments) made subsequent to the Issue Date whether
through interest payments, principal payments, dividends or other distributions
or payments, (2) the net cash proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company) and (3) upon
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair
market value of such Subsidiary; provided, however, that the sum of clauses (1),
(2) and (3) above shall not exceed the aggregate amount of all such Investments
made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any Equity Interests
of the Company, either (i) solely in exchange for Equity Interests (other than
Disqualified Capital Stock) of the Company or (ii) through the application of
net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the
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Company) of Equity Interests (other than Disqualified Capital Stock) of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either (i) solely in
exchange for Equity Interests (other than Disqualified Capital Stock) of the
Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of (A)
Equity Interests (other than Disqualified Capital Stock) of the Company or (B)
Refinancing Indebtedness; (4) so long as no Default or Event of Default shall
have occurred and be continuing, payments by the Company to redeem or repurchase
or to enable Holdings to redeem or repurchase Equity Interests of Holdings or
the Company, as the case may be, issued to or on behalf of directors, officers
and employees of the Company or any of its Subsidiaries pursuant to Company
policy with respect to directors, officers and employees of the Company or any
of its Subsidiaries who have died or become disabled or whose employment or
other relationship with the Company or any of its Subsidiaries has been
terminated or pursuant to the terms of employment contracts, other agreements or
employee stock option or stock benefit plans of Holdings, the Company or any of
its Subsidiaries not to exceed $1.0 million in any fiscal year; provided,
however, that if such amount is not used in its entirety within such fiscal
year, the unutilized amount may be utilized solely in the next succeeding fiscal
year; (5) the making of payments by the Company to Holdings to pay operating and
administrative expenses of Holdings, including without limitation, directors'
fees and expenses, legal and audit expenses and corporate franchise and other
taxes, not to exceed $500,000 in any fiscal year; (6) if no Default or Event of
Default shall have occurred and be continuing as a consequence thereof, the
declaration and payment of dividends to holders of any class or series of
Designated Preferred Stock issued after the Issue Date; provided, however, that
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of issuance of
such Designated Preferred Stock, after giving effect to such issuance on a pro
forma basis, the Company and its Restricted Subsidiaries would have had a
Consolidated Fixed Change Ratio greater than 2.0 to 1.0; (7) payments made or to
be made in connection with the Recapitalization or to Holdings to enable
Holdings to make such payments; (8) the distribution by the Company of the
proceeds of the offering of the Old Notes to Holdings to enable Holdings to
repay the Bridge Facility; and (9) payments to Holdings under a tax sharing
agreement between Holdings and the Company. In determining the aggregate amount
of Restricted Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, amounts expended pursuant
to clauses (1), (2)(ii), (3)(ii)(A), (4) and (6) shall be included in such
calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; provided that the amount of (a) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the Notes) that are assumed by the transferee
of any such assets, and (b) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 180 days
after such Asset Sale (to the extent of the cash received) shall be deemed to be
cash for the purposes of this provision; and (iii) upon the consummation of an
Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to
apply, the Net Cash Proceeds relating to such Asset Sale within 270 days of
receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt
and, in the case of any Senior Debt under any revolving credit facility, effect
a permanent reduction in the availability under such revolving credit facility,
(B) to make expenditures for Replacement Assets, or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 271st day after an Asset Sale or
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such earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if at
any time any non-cash consideration received by the Company or any Restricted
Subsidiary of the Company, as the case may be, in connection with any Asset Sale
is converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant. The
Company may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $5.0 million resulting from
one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $5.0 million, shall be applied as
required pursuant to this paragraph). To the extent the aggregate amount of the
Notes tendered pursuant to the Net Proceeds Offer is less than the Net Proceeds
Offer Amount, the Company may use such deficiency for general corporate
purposes. Upon completion of such offer to purchase, the Net Proceeds Offer
Amount shall be reset at zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) the Credit Agreement; (4)
customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (5) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
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not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature discussed in clause (c) above on the property so acquired; (8)
contracts for the sale of assets, including, without limitation, customary
restrictions with respect to a Restricted Subsidiary of the Company pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary;
(9) secured Indebtedness otherwise permitted to be incurred pursuant to the
covenants described under "Limitation on Incurrence of Additional Indebtedness"
and "Limitation on Liens" that limit the right of the debtor to dispose of the
assets securing such Indebtedness; (10) customary provisions in joint venture
agreements and other similar agreements entered into in the ordinary course of
business; (11) agreements governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clauses (1) through (10) above; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such Indebtedness are no
less favorable to the Company in any material respect as determined by the Board
of Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clauses; or (12) agreements governing Indebtedness permitted
to be incurred pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant; provided that the provisions relating to such
encumbrance or restriction contained in such Indebtedness are no less favorable
to the Company in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
contained in the Credit Agreement as in effect on the Issue Date.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Debt and Guarantor Senior Debt; (C) Liens securing the Notes and
the Guarantees; (D) Liens in favor of the Company or a Wholly Owned Restricted
Subsidiary of the Company on assets of the Company or any Restricted Subsidiary
of the Company; (E) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens (A) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (B) do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F)
Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company and the
Guarantors will not incur or suffer to exist Indebtedness that is senior in
right of payment to the Notes or the Guarantees, as the case may be, and
subordinate in right of payment by its terms to any other Indebtedness of the
Company or such Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and of
the Company's Restricted Subsidiaries
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substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction on a pro forma basis and the
assumption contemplated by clause (i)(2)(y) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (1) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any
Affiliate of the Company (each an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are no less favorable to the Company or such
Restricted Subsidiary than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1.0 million shall be approved by a
majority of the Disinterested Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such majority of Disinterested Directors has determined
that such transaction complies with the foregoing provisions. If the Company or
any Restricted Subsidiary of the Company enters into an Affiliate Transaction
(or a series of related Affiliate Transactions related to a common plan) that
involves an aggregate fair market value of more than $7.5 million, or more than
$1.0 million and the Company does not have any Disinterested Directors, the
Company or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted
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Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) the existence
of or performance by the Company or any Restricted Subsidiary under any
agreement as in effect as of the Issue Date or any amendment thereto or any
replacement agreement therefor or any transaction contemplated thereby
(including pursuant to any amendment thereto or any replacement agreement
therefor) so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
the Indenture; (v) payment of customary annual management, consulting and
advisory fees and related expenses to the Principals and their Affiliates; (vi)
the payment of all fees and expenses related to the Recapitalization; (vii)
loans to employees of the Company and its Subsidiaries which are approved by the
Board of Directors of the Company in good faith; (viii) the issuance of equity
incentives or equity-based incentives (such as stock appreciation rights) or the
granting or payment of any other compensation or benefit to employees or
officers of the Company or any Subsidiary, provided that none of such employees
or officers are Affiliates of any person owning more than 50% of the issued and
outstanding capital stock (or rights to acquire capital stock) of Holdings (a
"Majority Stockholder") and (ix) employment or consulting agreements or
arrangements entered into with Persons who are not Affiliates of any Majority
Stockholder.
Additional Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any domestic Restricted
Subsidiary that is not a Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another domestic
Restricted Subsidiary in any such case having total book equity value in excess
of $1.0 million, then such transferee or acquired or other Restricted Subsidiary
shall (i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on terms set forth in the Indenture and (ii)
deliver to the Trustee an opinion of counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or reasonably similar,
ancillary or related to, or a reasonable extension, development or expansion of,
the businesses in which the Company and its Restricted Subsidiaries are engaged
on the Issue Date.
Reports to Holders. The Indenture provides that the Company will deliver
to the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA sec. 314(a).
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after written notice specifying the default (and
demanding that such default be remedied) is delivered to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% of
the outstanding principal amount of the Notes (except in the case of a
default with respect to the "Merger, Consolidation and Sale of Assets"
covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) certain events of bankruptcy affecting the Company, Holdings or
any of its Significant Subsidiaries; or
(vii) any Guarantee ceases to be in full force and effect or is
declared to be null and void and unenforceable or is found to be invalid or
a Guarantor denies its liability under its Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 business days after receipt by the
Company, the Trustee and the Representative under the Credit Agreement and under
each other Designated Senior Debt of such Acceleration Notice. If an Event of
Default specified in clause (vi) above with respect to the Company occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise
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than by such declaration of acceleration, has been paid, (iv) if the Company has
paid the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements, advances and any other amounts due to the Trustee under
the Indenture and (v) in the event of the cure or waiver of an Event of Default
of the type described in clause (vi) of the description above of Events of
Default, the Trustee shall have received an officers' certificate and an opinion
of counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
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confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Debt,
including, without limitation, those arising under the Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor
(except that provisions affecting the requirement to repurchase Notes following
a Change of Control or certain Asset Sales may be amended by the Company, the
Trustee and the Holders of not less than a majority in aggregate principal
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amount of the Notes then outstanding); (iv) make any Notes payable in money
other than that stated in the Notes; (v) make any change in provisions of the
Indenture protecting the right of each Holder to receive payment of principal of
and interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; (vi) modify or change any
provision of the Indenture or the related definitions affecting the
subordination or ranking of the Notes in a manner which adversely affects the
Holders; or (vii) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of the
Indenture.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are to 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 law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
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"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $500,000; (ii) the sale, issuance,
exchange, conveyance or other disposition or transfer of property or assets
(including the issuance or transfer of Capital Stock of Restricted Subsidiaries)
in connection with the acquisition of Replacement Assets (including in
connection with Asset Acquisitions and trade-ins and like-kind exchanges of
property or assets); and (iii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "Merger, Consolidation and Sale of Assets."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Bridge Facility" means the $80.0 million senior credit agreement dated
November 25, 1997, among Holdings, the lenders party thereto and Bankers Trust
Company as agent.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) 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 thereof; (ii)
marketable direct 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, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company or Holdings to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) other than to the Permitted Holders; (ii) the approval by the
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holders of Capital Stock of the Company or Holdings, as the case may be, of any
plan or proposal for the liquidation or dissolution of the Company or Holdings,
as the case may be (whether or not otherwise in compliance with the provisions
of the Indenture); (iii) any Person or Group (other than the Permitted Holders)
shall become the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company or
Holdings; or (iv) the replacement of a majority of the Board of Directors of the
Company or Holdings over a two-year period from the directors who constituted
the Board of Directors of the Company or Holdings, as the case may be, at the
beginning of such period, and such replacement shall not have been approved (x)
in accordance with the Stockholders' Agreement, (y) by the Permitted Holders or
(z) by a vote of at least a majority of the Board of Directors of the Company or
Holdings, as the case may be, then still in office who either were members of
such Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means Young America Corporation, a Minnesota corporation.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period, (B) Consolidated Interest Expense, (C) fees, expenses or
charges relating to any equity or debt issuances, Asset Acquisitions or
Investments permitted by the terms of the Indenture (whether or not successful),
(D) all payments made under the Recapitalization documents and (E) Consolidated
Non-cash Charges less any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness or the issuance of any Designated Preferred Stock
of such Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness or the issuance or redemption of
other Designated Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment or issuance or redemption, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales, Asset Acquisitions or the
Recapitalization or any similar transactions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X of the Exchange Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries
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directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments (or accruals
therefor) on any series of Preferred Stock of such Person or any Subsidiary of
such Person (other than dividends paid in Qualified Capital Stock or paid to
such Person or any Subsidiary of such Person) during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of all cash and
non-cash interest expense (minus amortization or write-off of deferred financing
costs included in cash or non-cash interest expense and minus interest income)
of such Person and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without limitation, (a)
any amortization of debt discount, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and (ii) the interest component of Capitalized
Lease Obligations of such Person and its Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
and losses from Asset Sales or abandonments or reserves relating thereto, (b)
items classified as extraordinary, nonrecurring or unusual gains, losses or
charges, and the related tax effects, each determined in accordance with GAAP,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
referent Person or is merged or consolidated with the referent Person or any
Restricted Subsidiary of the referent Person, (d) the net income (but not loss)
of any Restricted Subsidiary of the referent Person to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary of the referent
Person, except to the extent of cash dividends or distributions paid to the
referent Person or to a Wholly Owned Restricted Subsidiary of the referent
Person by such Person, (f) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date or, for the
purposes of determining the Consolidated Fixed Charge Coverage Ratio, the first
day of the Four Quarter Period in question, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
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"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement to be entered into among the
Company, the lenders party thereto in their capacities as lenders thereunder and
Norwest Bank Minnesota, N.A., as agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant
above) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Preferred Stock" means Preferred Stock of the Company or any of
its Subsidiaries that is so designated as Designated Preferred Stock, pursuant
to an officers' certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in clause
(iii) of the first paragraph of the "Limitation on Restricted Payments"
covenant.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions (except arising exclusively as a consequence of such member's
relationship to the Company).
"Disqualified Capital Stock" means that portion of any Capital Stock 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 (other than an
event which would constitute a Change of Control), matures (excluding any
maturity as the result of any optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control) on or prior to the final maturity
date of the Notes.
"Equity Interest" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements
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and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"Guarantees" means the guarantees of the Company's obligations under the
Indenture and the Notes by (i) Holdings (the "Holdings Guarantee") and (ii) a
Restricted Subsidiary (the "Subsidiary Guarantee").
"Guarantor" means (i) Holdings and (ii) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Guarantor (each a "Subsidiary Guarantor"); provided that any Person constituting
a Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of, (x) all monetary obligations of
every nature of the Company under the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities and (y) all Interest
Swap Obligations whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any
Indebtedness of such Guarantor to a Restricted Subsidiary of such Guarantor,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, other than Capitalized Lease Obligations
and Purchase Money Indebtedness, (iv) Indebtedness represented by Disqualified
Capital Stock, (v) any liability for federal, state, local or other taxes owed
or owing by such Guarantor, (vi) Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Guarantor.
"Holdings" means Young America Holdings, Inc., a Minnesota corporation.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all Obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (i) through (v) above and clause
(viii) below, (vii) all Obligations of any other Person of the type referred to
in clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum
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fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock. Indebtedness shall
not include Obligations in respect of performance or other surety bonds incurred
to the extent required by applicable law in connection with the sweepstakes
management services provided by the Company or any of its Subsidiaries that are
indemnified by the Company's or such Subsidiary's customer. For purposes hereof,
Obligations under operating leases shall not constitute Indebtedness.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) 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 by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
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"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale (including in order
to obtain any consent required therefor) and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holder" mean BT Capital Partners, Inc. and its Affiliates or, in
the case of the Company, Holdings.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Old Notes;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (a) $15.0 million or (b) 85% of accounts receivable of the
Company and its Restricted Subsidiaries, reduced in each case by any
required permanent repayments pursuant to the "Limitation on Asset Sales"
covenant (which are accompanied by a corresponding permanent commitment
reduction) thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not, at the time of
incurrence thereof, exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no Lien
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and (b) if as of any date any Person other
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than a Wholly Owned Restricted Subsidiary of the Company owns or holds any
such Indebtedness or any Person holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(ix) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $5.0 million at
any one time outstanding;
(x) Refinancing Indebtedness;
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10.0 million
at any one time outstanding; and
(xii) any Indebtedness deemed to have been incurred pursuant to any of
the agreements entered into in connection with the Recapitalization.
"Permitted Investments" means each of the following:
(i) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Wholly Owned Restricted Subsidiary of the Company or that will
merge or consolidate into the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding;
(v) Interest Swap Obligations entered into in the ordinary course of
the Company's or its Restricted Subsidiaries' businesses and otherwise in
compliance with the Indenture;
(vi) Investments in Unrestricted Subsidiaries or other entities not to
exceed $5.0 million at any one time outstanding;
(vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(viii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made
in compliance with the "Limitation on Asset Sales" covenant;
(ix) Investments of a Person or any of its Subsidiaries existing at
the time such Person becomes a Restricted Subsidiary of the Company or at
the time such Person merges or consolidates with the Company or any of its
Restricted Subsidiaries, in either case in compliance with the Indenture;
provided that such Investments were not made by such Person in connection
with, or in anticipation or
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contemplation of, such Person becoming a Restricted Subsidiary of the
Company by such merger or consolidation; and
(x) loans to Holdings to enable Holdings to repay the Bridge Facility
and evidenced by an intercompany note as in effect as of the Issue Date or
as amended in a manner not materially adverse to the Holders.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) attachment or judgment Liens not giving rise to an Event of
Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation or another Capitalized Lease Obligation with the same financing
source;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
Purchase Money Indebtedness shall not exceed the purchase price or the cost
of installation, construction or improvement of such property or assets and
shall not be secured by any property or assets of the Company or any
Restricted Subsidiary of the Company other than the property and assets so
acquired and other property and assets securing other Purchase Money
Indebtedness to the same financing source and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) any (a) interest or title of a lessor or sublessor under any
lease, (b) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to (including without limitation ground
leases or other prior leases of the demised premises, mortgages, mechanics
liens, tax liens, and easements), or (c) subordination of the interest of
the lessee or sublessee under such lease to any restrictions or encumbrance
referred to in the preceding clause (b);
(ix) Liens arising from filing UCC financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by the Indenture under which the Company or any of its Restricted
Subsidiaries is a lessee;
(x) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
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(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(xii) Liens securing obligations (other than obligations representing
Indebtedness for borrowed money) under operating, reciprocal easement or
similar agreements entered into in the ordinary course of business of the
Company and its Restricted Subsidiaries;
(xiii) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by the Company or any Restricted Subsidiary
in the ordinary course of business in accordance with past practices;
(xiv) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xv) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xvi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xvii) Liens securing Acquired Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company;
(xviii) licenses of patents, trademarks and other intellectual
property rights granted by the Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material respect
with the ordinary conduct of the business of the Company or any such
Restricted Subsidiary;
(xix) other Liens securing obligations incurred in the ordinary course
of business which obligations or judgments do not exceed $10.0 million in
the aggregate at any one time outstanding pursuant to clause (xi) of the
definition of Permitted Indebtedness; and
(xx) Liens on the assets of the Company or any Subsidiary Guarantor
securing Senior Debt or Guarantor Senior Debt.
"Person" means an individual, partnership, limited liability company,
corporation, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principals" means BT Capital Partners, Inc. and Ontario Teacher's Pension
Plan Board.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
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"Recapitalization" means the recapitalization of Holdings.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or (xi) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and the
Subsidiary Guarantors, if any, and (y) if such Indebtedness being Refinanced is
subordinate or junior to the Notes, then such Refinancing Indebtedness shall be
subordinate to the Notes at least to the same extent and in the same manner as
the Indebtedness being Refinanced.
"Replacement Assets" means properties or assets (including Capital Stock
and working capital assets) of a kind used or usable in the businesses of the
Company and its Restricted Subsidiaries permitted by the covenant entitled
"Conduct of Business."
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities and (y) all Interest Swap Obligations whether outstanding on the
Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt"
shall not include (i) any Indebtedness of the Company to a Subsidiary of the
Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of
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the Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iii) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any liability for
federal, state, local or other taxes owed or owing by the Company, (vi)
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of the Company.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of 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.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding securities having
ordinary voting power for the election of directors (other than directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person or any Wholly
Owned Restricted Subsidiary of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain United States federal income tax
consequences to U.S. Holders and Non-U.S. Holders of owning and disposing of the
Notes. The terms "U.S. Holder" and "Non-U.S. Holder" refer, respectively, to
persons that are or are not classified as United States persons.
As used herein, the term "United States person" means a holder of a Note
who is a citizen or resident of the United States, or that is a corporation or
other entity taxable as a corporation created or organized in or under the laws
of the United States or any political subdivision thereof, an estate the income
of which is subject to United States federal income taxation regardless of its
source or a trust if (i) a U.S. court is able to exercise primary supervision
over the trust's administration and (ii) one or more U.S. fiduciaries have the
authority to control all of the trust's substantial decisions.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to holders of the Notes and does not deal
with tax consequences arising under the laws of any foreign, state or local
jurisdiction. It is, moreover, based upon the provisions of existing law on the
date hereof, including, in particular, the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder and other
administrative and judicial interpretations thereof, all of which are subject to
change at any time, with or without retroactive effect. This discussion also
generally assumes that each holder holds the Notes as capital assets and that
any amounts received by a Non-U.S. Holder with respect to the Notes are not
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States. Each prospective holder is advised to consult its
own tax adviser with respect to current and possible future tax consequences of
acquiring, holding and disposing of the Notes.
U.S. HOLDERS
Interest on the Notes. Interest on a Note will be taxable to a U.S. Holder
as ordinary interest income in accordance with the U.S. Holder's method of tax
accounting at the time that such interest is accrued or (actually or
constructively) received.
Premium and Market Discount. A U.S. Holder of a Note purchased at a
premium (i.e., a cost greater than its principal amount) may elect to amortize
such premium (as an offset to interest income), using a constant-yield method,
over the remaining term of the Note. Special rules apply which may require the
amount of premium and the amortization thereof to be determined with reference
to the optional redemption price and date. A U.S. Holder that elects to amortize
such premium must reduce its tax basis in a Note by the amount of the premium
amortized during the holding period. With respect to a U.S. Holder that does not
elect to amortize bond premium, the amount of bond premium will continue to be
reflected in the U.S. Holder's tax basis. Therefore, a U.S. Holder that does not
elect to amortize such premium will generally be required to treat the premium
as capital loss when the Note matures.
If a U.S. Holder of a Note purchases the Note at an amount that is less
than its principal amount, the Note generally will be considered to bear "market
discount" in the hands of such U.S. Holder. In such case, gain realized by the
U.S. Holder on the sale, exchange, or retirement and unrealized appreciation on
certain nontaxable dispositions of the Note generally will be treated as
ordinary interest income to the extent of the market discount that accrued on
the Note while held by such U.S. Holder and to the extent it has not previously
been included in income (pursuant to an election by the U.S. Holder to include
such market discount in income as it accrues). In addition, the U.S. Holder may
be required to defer the deduction of a portion of the interest paid on any
indebtedness incurred or continued to purchase or carry the Note. In general
terms, market discount on a Note will be treated as accruing ratably over the
term of such Note, or, at the election of the U.S. Holder, under a constant
yield method. However, a U.S. Holder may elect to include market discount in
income on a current basis as it accrues (on either a ratable or constant yield
basis), in lieu of treating a portion of any gain realized on the sale of a Note
as ordinary income. If a U.S. Holder so elects, the interest deduction deferral
rule described above will not apply.
Disposition of the Notes. In general, the U.S. Holder of a Note will
recognize capital gain or loss upon the sale, redemption, retirement or other
disposition of the Note measured by the difference between the
94
<PAGE> 101
amount realized (except with respect to market discount and to the extent
attributable to the payment of accrued interest not previously included in
income) and the U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis
in a Note generally will equal the cost of the Note to the U.S. Holder increased
by the amount of market discount, if any, previously taken into income by the
U.S. Holder or decreased by any amortized bond premium and any payments other
than payments of interest made on such Note. Except to the extent characterized
as market discount, the capital gain or loss on such disposition of the Notes
will be mid-term capital gain or loss, currently taxable at a maximum rate of
28%, if the Notes have been held for more than one year at the time of such
disposition and long-term capital gain or loss, currently taxable at a maximum
rate of 20%, if the Notes have been held for more than 18 months at the time of
such disposition.
The Exchange Offer. It is anticipated that the exchange of Old Notes for
New Notes pursuant to the Exchange Offer will not be a taxable event for United
States federal income tax purposes, because under existing Treasury regulations,
the New Notes will not differ materially in kind or extent from the Old Notes.
NON-U.S. HOLDERS
Payments of Interest. A Non-U.S. Holder will not be subject to United
States federal income tax by withholding or otherwise on payments of interest on
a Note (provided that the beneficial owner of the Note fulfills the statement
requirements set forth in applicable Treasury regulations) unless (A) such
Non-U.S. Holder (i) actually or constructively owns 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(ii) is a controlled foreign corporation related, directly or indirectly, to the
Company through stock ownership, or (iii) is a bank receiving interest described
in Section 881 (c) (3) (A) of the Code or (B) such interest is effectively
connected with the conduct of a trade or business by the Non-U.S. Holder in the
United States.
Gain on Disposition of the Notes. A Non-U.S. Holder will not be subject to
United States federal income tax by withholding or otherwise on any gain
realized upon the disposition of a Note unless (i) in the case of a Non-U.S.
Holder who is an individual, such Non-U.S. Holder is present in the United
States for a period or periods aggregating 183 days or more during the taxable
year of the disposition (in which case such individual may be taxed as a U.S.
Holder in any event) or (ii) the gain is effectively connected with the conduct
of a trade or business by the Non-U.S. Holder in the United States.
Effectively Connected Income. To the extent that interest income or gains
on the disposition of the Notes are effectively connected with the conduct of a
trade or business of the Non-U.S. Holder in the United States, such income will
be subject to United States federal income tax at the same rates generally
applicable to United States persons. Additionally, in the case of a U.S. Holder
which is a corporation, such effectively connected income may be subject to the
United States branch profits tax at the rate of 30% (or lower treaty rate.)
Treaties. A tax treaty between the United States and a country in which a
Non-U.S. Holder is a resident may alter the tax consequences described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Interest and payments of proceeds from the disposition by certain
non-corporate holders of Notes may be subject to backup withholding at a rate of
31%. Such a U.S. Holder generally will be subject to backup withholding at a
rate of 31% unless the recipient of such payment supplies an accurate taxpayer
identification number, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. Holder's federal income tax upon furnishing the required
information to the Internal Revenue Service.
Generally, backup withholding of United States federal income tax at a rate
of 31% and information reporting may apply to payments of principal, interest
and premium (if any) to Non-U.S. Holders that are not "Exempt Recipients" and
that fail to provide certain information as may be required by United States law
and applicable regulations. The payment of the proceeds of the disposition of
Notes to or through the United
95
<PAGE> 102
States office of a broker will be subject to information reporting and backup
withholding at a rate of 31% unless the owner certifies its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situation and
the availability of an exemption therefrom, and the procedures for obtaining any
such exemption
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Old Notes were and the New
Notes will (and the related guarantees) initially be represented by one or more
permanent global certificates in definitive, fully registered form (the "Global
Notes"). The Global Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of a nominee of DTC.
Notes (i) originally purchased by, issued to or transferred to "foreign
purchasers" (as defined herein) or (ii) held by "Qualified Institutional Buyers"
(as defined in Rule 144A promulgated under the Securities Act ("Q1Bs") or
"Accredited Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not QIBs who elect to take physical delivery of their
certificates instead of holding their interests through the Global Notes (and
which are thus ineligible to trade through DTC) (collectively referred to herein
as the "Non-Global Purchasers") will be issued in registered form (the
"Certificated Security"). Upon the transfer to a QIB of any Certificated
Security initially issued to a Non-Global Purchaser, such Certificated Security
will, unless the transferee requests otherwise or the Global Note has previously
been exchanged in whole for Certificated Securities, be exchanged for an
interest in the Global Notes. For purposes of this Prospectus, "foreign
purchasers" means persons other than U.S. persons and shall include dealers or
other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust).
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the Global Notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants. QIBs may hold their interests in the Global Notes directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the
96
<PAGE> 103
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, Young America and Holdings believe
that the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by any holder
thereof (other than any such holder that is an "affiliate" of Young America or
Holdings within the meaning of Rule 405 promulgated under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business, such holder has no arrangement with any person
to participate in the distribution of such New Notes and neither such holder nor
any such other person is engaging in or intends to engage in a distribution of
such New Notes. Accordingly, any holder who is an affiliate of Young America or
Holdings or any holder using the Exchange Offer to participate in a distribution
of the New Notes will not be able to rely on such interpretations by the staff
to the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Notwithstanding the foregoing, each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of New Notes received in
exchange for Old Notes where such Old Notes were
97
<PAGE> 104
acquired as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from Young America.)
Young America will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
Young America and Holdings will, pursuant to the terms of the Registration
Rights Agreement, send a reasonable number of 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. Young
America and Holdings will pay all the expenses incident to the Exchange Offer
(which shall not include the expenses of any holder in connection with resales
of the New Notes). Young America and Holdings have agreed to indemnify the
Initial Purchaser and any broker-dealers participating in the Exchange Offer
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and the Guarantees offered hereby will be
passed upon for Young America and Holdings by O'Sullivan Graev & Karabell, LLP,
New York, New York.
EXPERTS
The consolidated financial statements of Holdings as of and for the year
ended December 31, 1997 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of Holdings as of and for the two years ended
December 31, 1996 and 1995 included in this Prospectus have been audited by
McGladrey & Pullen, LLP, independent auditors, as stated in their report
appearing herein.
In connection with the Recapitalization, McGladrey & Pullen, LLP was
replaced by Arthur Andersen LLP as Holdings' independent certified public
accountant. The decision to change accountants was approved by the Board of
Directors. The reports of McGladrey & Pullen, LLP on Holdings' financial
statements for the two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with the audits of Holdings'
financial statements for each of the two fiscal years ended December 31, 1996,
there were no disagreements with McGladrey & Pullen, LLP on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope and procedures which, if not resolved to the satisfaction of McGladrey &
Pullen, LLP, would have caused McGladrey & Pullen, LLP to make reference to the
matter in their report. For the years ended December 31, 1995 and 1996, and for
the period subsequent thereto, management of Holdings had not consulted with
Arthur Andersen LLP regarding the application of accounting principles, nor the
type of audit opinion that might be rendered on Holdings' financial statements.
98
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
YOUNG AMERICA HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements
Report of Independent Public Accountants.................. F-2
Report of Independent Public Accountants.................. F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-4
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995....................... F-5
Consolidated Statements of Changes in Stockholders'
(Deficit) Equity....................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-7
Notes to Consolidated Financial Statements................ F-8
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young America Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Young
America Holdings, Inc. (a Minnesota corporation, formerly Young America
Corporation) as of December 31, 1997, and the related consolidated statements of
income, stockholders' (deficit) 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Young
America Holdings, Inc. as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 6, 1998
F-2
<PAGE> 107
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young America Holdings, Inc.:
We have audited the accompanying balance sheet of Young America Holdings,
Inc. (formerly Young America Corporation) as of December 31, 1996, and the
related statements of income, stockholders' equity and cash flows for each of
the two years in the period ended December 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Young America Holdings, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period then ended in conformity with generally
accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 14, 1997
F-3
<PAGE> 108
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 17,940 $20,573
Trade receivables, net.................................... 11,482 8,532
Supplies inventory........................................ 615 729
Prepaid expenses.......................................... 518 359
-------- -------
Total current assets.............................. 30,555 30,193
Property and Equipment, at cost:
Land and improvements..................................... 639 498
Building and improvements................................. 5,710 4,956
Machinery and equipment................................... 2,228 1,992
Transportation equipment.................................. 147 89
Office furniture and fixtures............................. 2,571 2,213
Electronic equipment and software......................... 6,261 4,624
-------- -------
17,556 14,372
Less accumulated depreciation............................. (9,661) (8,217)
-------- -------
7,895 6,155
Deferred Financing Costs.................................... 3,292 --
Other Assets................................................ -- 95
-------- -------
TOTAL ASSETS...................................... $ 41,742 $36,443
======== =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Noncleared rebate items................................... $ 4,526 $ 2,259
Accounts payable.......................................... 2,331 2,206
Collections due to and advances from clients.............. 3,548 11,179
Distributions payable..................................... -- 3,487
Deferred income taxes..................................... 417 --
Accrued expenses
Compensation........................................... 5,860 3,889
Other.................................................. 2,737 1,350
-------- -------
Total current liabilities......................... 19,419 24,370
Bridge Facility............................................. 80,000 --
Commitments and Contingencies (Note 9)
Stockholders' (Deficit) Equity:
Class A common stock, par value $1 per share; as of
December 31, 1997 and 1996, 3,000,000 and 20,000 shares
authorized, respectively, and 1,303,930 and 1,920
shares issued and outstanding, respectively............ 1,304 2
Class B common stock, par value $1 per share; as of
December 31, 1997,
1,500,000 shares authorized and 442,884 shares issued
and outstanding........................................ 443 --
Class C common stock, par value $1 per share; as of
December 31, 1997, 1,500,000 shares authorized and
172,727 shares issued and outstanding.................. 173 --
Additional paid-in capital................................ 37,065 315
Retained (deficit) earnings............................... (96,662) 11,756
-------- -------
(57,677) 12,073
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY........................................... $ 41,742 $36,443
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 109
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues................................................... $175,297 $135,716 $116,268
Cost of revenues:
Rebates, postage and freight............................. 105,212 84,191 80,635
Processing and servicing................................. 40,447 31,393 24,920
-------- -------- --------
Gross profit.......................................... 29,638 20,132 10,713
-------- -------- --------
Operating expenses:
Selling.................................................. 5,504 4,610 3,493
General and administrative............................... 9,754 7,140 5,949
Compensation charges attributable to Recapitalization.... 17,924 -- --
-------- -------- --------
33,182 11,750 9,442
-------- -------- --------
Operating (loss) income............................... (3,544) 8,382 1,271
-------- -------- --------
Other income (expense):
Interest expense......................................... (981) (91) (252)
Amortization of deferred financing costs................. (48) -- --
Interest income.......................................... 1,038 201 10
Transaction costs attributable to Recapitalization....... (1,967) -- --
Other.................................................... -- (60) (15)
-------- -------- --------
(1,958) 50 (257)
-------- -------- --------
(Loss) income before provision for income taxes............ (5,502) 8,432 1,014
Provision for income taxes................................. 423 -- --
-------- -------- --------
Net (loss) income..................................... $ (5,925) $ 8,432 $ 1,014
======== ======== ========
Unaudited pro forma net (loss) income:
Income (loss) before provision for income taxes.......... $ (5,502) $ 8,432 $ 1,014
Pro forma income tax (benefit) expense................... (1,308) 3,120 375
-------- -------- --------
Pro forma net (loss) income........................... $ (4,194) $ 5,312 $ 639
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 110
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL RETAINED
-------------------- --------------- --------------- PAID-IN EARNINGS
SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) TOTAL
---------- ------- ------- ----- ------- ----- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994...... 1,920 $ 2 -- $ -- -- $ -- $ 315 $ 7,849 $ 8,166
Net income.................... -- -- -- -- -- -- -- 1,014 1,014
Distributions to
stockholders................ -- -- -- -- -- -- -- (1,333) (1,333)
---------- ------- ------- ---- ------- ---- ------- -------- --------
Balance, December 31, 1995...... 1,920 2 -- -- -- -- 315 7,530 7,847
Net income.................... -- -- -- -- -- -- -- 8,432 8,432
Distributions to
stockholders................ -- -- -- -- -- -- -- (4,206) (4,206)
---------- ------- ------- ---- ------- ---- ------- -------- --------
Balance, December 31, 1996...... 1,920 2 -- -- -- -- 315 11,756 12,073
Net loss...................... -- -- -- -- -- -- -- (5,925) (5,925)
Stock split................... 1,918,080 1,918 -- -- -- -- -- (1,918) --
Distributions to
stockholders................ -- -- -- -- -- -- -- (10,412) (10,412)
Proceeds from issuance of
common stock................ 1,169,530 1,170 442,884 443 172,727 173 37,043 -- 38,829
Redemption of common stock.... (1,785,600) (1,786) -- -- -- -- (293) (90,163) (92,242)
---------- ------- ------- ---- ------- ---- ------- -------- --------
Balance, December 31, 1997...... 1,303,930 $ 1,304 442,884 $443 172,727 $173 $37,065 $(96,662) $(57,677)
========== ======= ======= ==== ======= ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 111
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income......................................... $ (5,925) $ 8,432 $ 1,014
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities-
Depreciation and amortization.......................... 1,636 1,196 967
Deferred income taxes.................................. 417 -- --
Changes in assets and liabilities:
Trade receivables.................................... (2,950) 4,822 (1,287)
Supplies inventory................................... 114 (217) (182)
Prepaid expenses..................................... (159) (41) (83)
Noncleared rebate items.............................. 2,267 (1,688) 512
Accounts payable..................................... 125 1,303 133
Collections due to and advances from clients......... (7,631) 9,278 964
Accrued expenses..................................... 3,358 2,135 779
Other, net............................................. 97 60 --
-------- ------- -------
Net cash (used in) provided by operating
activities...................................... (8,651) 25,280 2,817
-------- ------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (3,330) (1,735) (1,076)
-------- ------- -------
Net cash used in investing activities............. (3,330) (1,735) (1,076)
-------- ------- -------
Cash Flows from Financing Activities:
Net (repayments) proceeds of short-term borrowings........ -- (2,494) 594
Proceeds from Bridge Facility............................. 80,000 -- --
Distributions paid to stockholders........................ (13,899) (720) (2,389)
Proceeds from issuance of common stock.................... 38,829 -- --
Redemption of common stock................................ (92,242) -- --
Payments of financing costs............................... (3,340) -- --
-------- ------- -------
Net cash provided by (used in) financing
activities...................................... 9,348 (3,214) (1,795)
-------- ------- -------
Change in cash and cash equivalents............... (2,633) 20,331 (54)
Cash and Cash Equivalents:
Beginning of period....................................... 20,573 242 296
-------- ------- -------
End of period............................................. $ 17,940 $20,573 $ 242
======== ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash payment for interest................................. $ 5 $ 94 $ 216
======== ======= =======
Supplemental Schedule of Noncash Financing Activities:
Distributions payable at year-end......................... $ -- $ 3,487 $ --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 112
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1. THE COMPANY AND NATURE OF BUSINESS
Young America Holdings, Inc. ("Holdings") and, from the date of its
incorporation on November 25, 1997, Young America Corporation ("YAC"), its
wholly owned subsidiary (collectively, the "Company"), provide a wide range of
consumer interaction processing ("CIP") services to consumer product and
consumer service companies. The Company's CIP services provide a link between
consumer-oriented companies and their customers for numerous types of marketing
programs including rebate programs, purchase reward or premium programs,
sweepstakes, product sampling programs and warranty registration programs. The
Company provides a variety of services involved in executing these marketing
programs, including (i) order processing (including the handling of mail,
telephone calls, facsimiles and e-mail received from consumers), (ii)
fulfillment (including the delivery of product premiums and samples as well as
rebate checks to consumers), (iii) data gathering, analysis and reporting and
(iv) related customer service (including receiving and responding to customer
inquiries).
As further discussed in Note 10, YAC has issued $80,000 of senior
subordinated notes which have been guaranteed in full on an unconditional, joint
and several basis by Holdings. Pursuant to applicable reporting requirements,
the accompanying financial statements reflect the consolidated financial
statements of Holdings and YAC, with summarized financial data for YAC
separately disclosed in Note 10.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Holdings and YAC, its wholly-owned subsidiary. All significant intercompany
items have been eliminated.
Revenue Recognition
The Company derives its revenues principally from three sources: service
fees, rebate billings and postage and freight billings. Service fee revenues are
recognized as CIP services are rendered. As described below, the Company
invoices clients, at the time of shipment, for the face amount of rebate checks
issued by the Company under certain rebate programs and for postage and/or
freight related to fulfillment of rebate checks and shipments of merchandise
under premium and product sampling programs.
In connection with approximately 40% of the aggregate dollar amount of
checks issued under rebate programs for which the Company has provided CIP
services, the Company has entered into contractual arrangements with its clients
providing that the Company would fund from the Company's own working capital the
payment of rebates offered by the clients. The Company, in turn, invoices its
clients for the full amount of those rebate checks that the Company issues to
consumers.
The Company recognizes as revenue (at the time of shipment) the amount
billed to clients for shipping merchandise premiums and samples and for mailing
rebate checks. Such billings are generally based upon standard rates which
approximate those that would be charged to such clients by the United States
Postal Service ("USPS") or other delivery services. The Company realizes a
margin on postage and freight billings because it pays lower rates to the
delivery services reflecting (i) discounts available to the Company for
performing various sorting and other tasks and (ii) the high volume of mail and
other shipments sent by the Company for all its clients in the aggregate.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments
with original maturities of three months or less and are stated at cost which
approximates fair market value. The Company maintains its cash in bank deposit
accounts that, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
F-8
<PAGE> 113
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Supplies Inventory
Inventory is stated at the lower of FIFO (first-in, first-out) cost or
market.
Depreciation
Depreciation of property and equipment is computed on the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements..................................... 5-15
Buildings and improvements............................ 5-31
Machinery............................................. 3-7
Transportation equipment.............................. 3
Office furniture and fixtures......................... 5
Electronic equipment and software..................... 3-5
</TABLE>
Deferred Financing Costs
Placement fees, legal and other direct costs incurred in connection with
the issuance of debt are capitalized and amortized over the term of the
underlying debt instrument.
Noncleared Rebate Items
Noncleared rebate items represent open and uncleared rebate checks issued
on behalf of clients as of the balance sheet date, less estimated slippage (see
Note 3).
Collections Due and Advances From Clients
Collections due and advances from clients consist of (i) collections from
consumers that are to be ultimately credited to clients based upon contractual
agreements, and (ii) advances received from certain clients.
Income Taxes
Prior to the Recapitalization (see Note 4), the Company was an S
corporation for income tax purposes. As an S corporation, the Company was only
liable for U.S. federal income taxes under certain circumstances and liable for
state income taxes in certain jurisdictions; all other domestic income taxes
were the responsibility of the Company's stockholders. Concurrently with the
Recapitalization, Holdings became a taxable C corporation. The unaudited pro
forma net income information in the accompanying consolidated statements of
income reflects the application of corporate income taxes to the Company's
taxable income at an assumed combined federal and state tax rate of 37% as if
the termination of the Company's status as an S corporation had occurred as of
the beginning of each period presented.
In connection with the conversion from an S corporation to a C corporation,
Holdings began accounting for income taxes under the liability method, whereby
deferred income taxes are recognized at currently enacted income tax rates to
reflect the tax effect of temporary differences between the financial reporting
and tax bases of assets and liabilities. As a result thereof, the Company
immediately recognized, by charging to earnings, a deferred income tax liability
of $928 (see Note 7).
F-9
<PAGE> 114
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Fair Value of Financial Instruments
The carrying amount of cash equivalents, trade receivables (net), accounts
payable, and long-term debt approximate fair value.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
NOTE 3. SIGNIFICANT RISKS AND UNCERTAINTIES
The Company is subject to a variety of risks and uncertainties during the
normal course of its business, including, but not limited to, a high degree of
customer concentration, the needs, marketing decisions and marketing budgets of
its clients, high levels of competition in a fragmented market, vulnerability to
economic downturns, ability to keep pace with changes in information technology,
availability of qualified labor resources, reliability of service provided by
various local and long distance telephone companies, and dependence on the
services of the USPS and, to a lesser degree, the services of private delivery
services at cost effective levels. In addition, the Company derives a portion of
its revenues from clients in the tobacco industry. National legislation has been
proposed in Congress that, if enacted, may significantly restrict the ability of
companies within the tobacco industry to market products through branded premium
programs after 1998.
Revenues the Company derives from any one client may vary significantly
from period to period as client promotion activities fluctuate. Revenues from
the three clients each individually representing 5% or more of the Company's
total revenues for the year ended December 31, 1997 totaled approximately
$63,857 or 36.4% of total revenues for the period. Revenues from the two clients
each individually representing 5% or more of the Company's total revenues for
the year ended December 31, 1996 totaled approximately $39,838, or 29.4% of
total revenues for the period. Revenues from the three clients each individually
representing 5% or more of the Company's total revenues for the year ended
December 31, 1995 totaled approximately $30,908 or 26.6% of total revenues for
the period. As of December 31, 1997, the three clients each individually
representing 5% or more of the Company's total accounts receivable represented
approximately $2,129 of accounts receivable, or 18.7% of the total accounts
receivable balance at that date. As of December 31, 1996, the four clients each
individually representing 5% or more of the Company's total accounts receivable
represented approximately $3,067 of accounts receivable, or 35.9% of the total
accounts receivable balance at that date.
When the Company agrees to fund rebate payments with its own working
capital, its contractual arrangements with its clients generally provide that
the Company is entitled to retain amounts paid to it by clients relating to
rebate checks that are never cashed (referred to in the industry as slippage).
Each period, the Company estimates the percentage of rebate checks issued that
are not expected, based upon historical experience, to be cashed. For the years
ended December 31, 1997, 1996 and 1995, the portions of revenue recognized by
the Company as slippage were $3,288, $2,433 and $2,697, respectively. In those
situations where the Company has not been asked to use its working capital to
fund rebate programs, the Company's revenues will be significantly lower because
it will collect only service fees and charges for postage, and the Company will
not retain slippage. In such circumstances, the Company generally does not
discount its service fees in order to offset the lack of slippage to be retained
by the Company. The escheat laws of various states provide that under certain
circumstances holders of unclaimed property (possibly including, under certain
interpretations of such laws, slippage) must surrender that property to the
state in question. The Company believes that, because Holdings and YAC are
Minnesota corporations with their principal operations and principal places of
business located in Minnesota, the escheat laws of the State of Minnesota would
govern the right of the Company to retain slippage. The Company also believes
that under current Minnesota escheat law, it is entitled to retain slippage
amounts in those transactions where the Company funds its client's rebate
program from its own working capital rather than surrendering such amounts to
the State of Minnesota. There
F-10
<PAGE> 115
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
can be no assurance, however, that the Minnesota escheat law will not change or
that the Company's interpretation of the Minnesota escheat law would prevail in
any action by the State of Minnesota to require the surrender of slippage to the
State. There also can be no assurance that another state will not prevail in an
action under its escheat laws to require the surrender to that state slippage
whether unclaimed by residents of such State or otherwise.
As a result of the Recapitalization transaction discussed in Note 4, the
Company is highly leveraged. The Company's high degree of leverage may have
important consequences for the Company, including that (i) the ability of the
Company to obtain additional financing, if necessary, for working capital,
capital expenditures, acquisitions or other purposes may be impaired, or such
financing may not be available on terms favorable to the Company; (ii) a
substantial portion of the Company's cash flow will be used to pay the Company's
interest expense and, in the cases of indebtedness incurred in the future,
possible principal repayments, which will reduce the funds that would otherwise
be available to the Company for its operations and future business
opportunities; (iii) a substantial decrease in net operating cash flows or an
increase in expenses of the Company could make it difficult for the Company to
meet its debt service requirements and force it to modify its operations; (iv)
the Company may be more highly leveraged than its competitors, which may place
it at a competitive disadvantage; and (v) the Company's high degree of leverage
may make it more vulnerable to a downturn in its business or the economy
generally. Any inability of the Company to service its indebtedness or to obtain
additional financing, as needed, would have a material adverse effect on the
Company's business.
Although the Company is not subject to seasonality, the Company's quarterly
revenues and profitability can be impacted by the timing of its clients'
programs, the availability of client-provided merchandise to fulfill consumer
requests or clients' decisions not to repeat specific marketing programs.
Program timing can affect quarterly revenues and profitability because most of
the marketing programs that the Company supports are short in duration. The
Company's activity level on a particular marketing program is often concentrated
around the consumers' final response date under the program, so that the
Company's revenues from a high-volume program may be concentrated in one or two
quarters. In addition, with premium programs, the volume of consumer requests
can be difficult to predict. To the extent clients have underestimated the
consumer response to their programs and have not provided the Company with
sufficient quantities of merchandise, the Company may not be able to fulfill all
consumer requests in a timely manner. Consequently, the Company may be delayed
in performing a portion of its services and recognizing the related revenue. In
such situations, however, the Company often handles increased consumer inquiry
calls to the Company's call centers and may mail delay card and order
acknowledgment correspondence to consumers. For providing these extra services,
the Company derives additional revenue and gross profit from service fees.
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 those estimates.
NOTE 4. THE RECAPITALIZATION
Prior to November 25, 1997 (the "Recapitalization Date"), all of the
capital stock of Holdings (formerly known as Young America Corporation) was
owned by Jay F. Ecklund, its then Chairman and Chief Executive Officer, and
certain trusts for the benefit of members of his family (the "Selling
Stockholders"). On that date, Holdings effected a recapitalization (the
"Recapitalization"), pursuant to a recapitalization agreement (the
"Recapitalization Agreement") under which substantially all of Holdings' assets
and business were transferred to a newly formed subsidiary, Young America
Corporation, and Holdings changed its name to Young America Holdings, Inc.
Holdings expects to conduct substantially all its business and operations
through its new
F-11
<PAGE> 116
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
subsidiary Young America Corporation and any future subsidiaries it may form. As
a result of the Recapitalization, approximately 93% of all classes of the
combined capital stock of Holdings is held by an investor group (the "Investor
Group") including BT Capital Partners, Inc. ("BTCP") and Ontario Teachers'
Pension Plan Board ("OTPPB"), as well as Charles D. Weil, the current President
and Chief Executive Officer of Holdings, and 20 other members of management.
(Mr. Weil and the other participating members of management are referred to as
the "Management Stockholders").
In the Recapitalization, members of the Investor Group purchased newly
issued shares of the common stock of Holdings (the "Common Stock") for an
aggregate purchase price of $38,852. BTCP purchased shares of Common Stock for
$22,405, OTPPB purchased shares of Common Stock for $11,992 and the Management
Stockholders collectively purchased Common Stock for $4,455. Also in the
Recapitalization, Holdings borrowed $80,000 under a senior bridge credit
facility (the "Bridge Facility") provided by affiliates of BTCP. Holdings used
the proceeds of the issuance of shares of Common Stock to the Investor Group and
the borrowings under the Bridge Facility to (i) repurchase outstanding shares of
Common Stock from the Selling Stockholders for an aggregate purchase price of
$92,242, (ii) make bonus payments to management of $13,368 under plans put in
place in contemplation of a change of control of the Company, and $4,877 paid
pursuant to phantom stock arrangements due in such amounts as a result of the
change of control of the Company in the Recapitalization and (iii) pay certain
fees and expenses related to the Recapitalization. Of the amounts referred to in
(i) and (ii) above, $6,000 was placed in escrow subject to certain
indemnification provisions of the Recapitalization Agreement, $1,170 of which
has been recorded by the Company as estimated compensation charges remaining to
be paid related to (ii) above. A portion of those proceeds were also retained by
Holdings to pay certain fees and expenses related to an anticipated debt
offering (see Note 10) and other cash costs triggered by the Recapitalization.
Immediately prior to the Recapitalization, the Selling Stockholders owned
all of the outstanding capital stock of Holdings. In the Recapitalization, (i)
BTCP purchased 586,561 newly issued shares of voting Class A Common Stock and
442,884 newly issued shares of nonvoting Class B Common Stock, (ii) OTPPB
purchased 378,273 newly issued shares of voting Class A Common Stock and 172,727
newly issued shares of nonvoting Class C Common Stock, and (iii) the Management
Stockholders, who had no prior equity ownership interest in Holdings, purchased
204,696 newly issued shares of voting Class A Common Stock. Pursuant to the
Recapitalization, Holdings repurchased from the Selling Stockholders a number of
shares of Class A Common Stock such that the Selling Stockholders continue to
hold 134,400 shares of voting Class A Common Stock, representing 7% of Holdings'
outstanding Common Stock and 10.3% of Holdings outstanding voting securities
(the "Voting Stock"), BTCP owns 53.6% of the outstanding Common Stock and 45% of
the Voting Stock. OTPPB owns 28.7% of the outstanding Common Stock and 29% of
the Voting Stock and the Management Stockholders own 10.7% of the outstanding
Common Stock and 15.7% of the Voting Stock. As described in Note 5, the Class B
Common Stock and the Class C Common Stock are convertible into Class A Common
Stock and, upon the occurrence of certain events, the Class B Common Stock will
be entitled to vote with the Class A Common Stock, voting together as a single
class, on all matters to be voted on by Holdings' shareholders.
Pursuant to the terms of the Recapitalization Agreement, Holdings expects
to make an additional payment of approximately $700 to the Selling Shareholders
and certain employees of the Company during the second quarter of 1998. Such
payment will be based upon the final determination of total stockholders equity
(as defined) of Holdings as of October 31, 1997 and Holdings' profits or losses
(as defined) for the period ended on the Recapitalization Date. Also in
connection with the Recapitalization, Holdings is obligated to make additional
payments to the former majority shareholders subject to Holdings achieving
certain targets defined in the Recapitalization Agreement. To the extent
cumulative excess free cash flow (as defined in the Recapitalization Agreement)
of the Company for the four-year period ending December 31, 2001 exceeds
$93,000, Holdings is required to make an additional purchase price payment equal
to 20% of such excess,
F-12
<PAGE> 117
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
subject to a maximum amount payable of $15,000. Under separate agreements with
Mr. Weil, certain other employees of the Company and the former majority
shareholders, a portion of this additional purchase price payment will be
payable to such individuals. Any payments made to management will result in
compensation charges in the period the amount becomes determinable.
NOTE 5. CAPITAL STOCK AND STOCKHOLDERS' AGREEMENTS
The Common Stock consists of three classes: Class A Common Stock, Class B
Common Stock and Class C Common Stock. Except as set forth below, the rights of
the three classes of Common Stock are the same. Under most circumstances, only
the Class A Common Stock has voting rights; however, (i) the affirmative vote of
a majority of the total number of shares of Class B Common Stock voting at a
meeting at which a quorum is present, each voting separately as a class, is
required for the issuance or sale of additional shares of Class B Common Stock,
the reclassification, cancellation, or retirement of the Class B Common Stock or
any amendment, waiver or corporate transaction that adversely affects the Class
B Common Stock and (ii) the affirmative vote of a majority of the total number
of shares of Class C Common Stock voting at a meeting at which a quorum is
present, each voting separately as a class, is required for the issuance or sale
of additional shares of Class C Common Stock, the reclassification, cancellation
or retirement of the Class C Common Stock or any amendment, waiver or corporate
transaction that adversely affects the Class C Common Stock. In addition each
share of Class B Common Stock will be entitled to vote with the Class A Common
Stock, voting together as a single class, on all matters to be voted on by
Holdings' shareholders (except as otherwise required by applicable law)
following the occurrence of any of the following events: (i) Charles D. Weil
shall cease to be employed by the Company for any reason; (ii) Holdings shall
not have completed a public offering of its Common Stock meeting certain
requirements by the fifth anniversary of the Recapitalization Date; (iii) the
Company or the Selling Stockholders shall default on any of the material terms
of the Recapitalization; (iv) any representation or warranty made by Holdings or
the Selling Stockholders with respect to the Recapitalization shall prove to
have been materially false; (v) an Approved Sale (as defined below) has been
proposed to the Board of Directors and such a sale is not approved, for whatever
reason, by the Board of Directors within the three days of such proposal; or
(vi) other circumstances that reasonably threaten the investment of BTCP or its
assignees.
Regulated Holders (as defined in Holdings' Articles of Incorporation) who
hold shares of Class A Common Stock may convert such shares into shares of Class
B or Class C Common Stock at any time. Regulated Holders who hold shares of
Class B Common Stock or Class C Common Stock may convert such shares into shares
of Class A Common Stock at any time such conversion is permitted under law.
In connection with the consummation of the Recapitalization, Holdings,
BTCP, OTPPB, Jay F. Ecklund and the Management Stockholders (collectively, the
"Stockholders") entered into a stockholders' agreement (the "Stockholders'
Agreement"). The Stockholders' Agreement contains certain restrictions with
respect to the transferability of Holdings' capital stock and contains a grant
by Holdings to the Stockholders of preemptive rights to subscribe for future
issuances of its capital stock and securities convertible or exercisable for
capital stock, subject to certain exceptions. The Stockholders' Agreement also
includes provisions regarding designation of members of the Board of Directors
and other voting arrangements. The Stockholders' Agreement will terminate upon
the earlier of the completion of an Approved Sale (as defined in the
Stockholders' Agreement) or a public offering of Holdings Common Stock, meeting
certain requirements.
Each of the Management Stockholders acquired the shares of Class A Common
Stock held by such Management Stockholder (with respect to each Management
Stockholder, the "Employee Stock") pursuant to a Stock Subscription and
Repurchase Agreement (collectively, the "Employee Stock Agreements") between
such Management Stockholder and Holdings simultaneous with and as part of the
Recapitalization. Each of the Employee Stock Agreements provides that upon the
occurrence of certain events including the
F-13
<PAGE> 118
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
death, retirement, permanent disability, resignation for good reason or
termination without cause of the Management Stockholder, such Management
Stockholder (or his successors) will have the right (within a specified period
of time) to cause Holdings to repurchase his Employee Stock. In each instance
where a Management Stockholder has the right to cause Holdings to repurchase his
Employee Stock, Holdings has a corresponding right to cause the relevant
Management Stockholder to sell his Employee Stock to Holdings. In addition,
Holdings has the right to cause a Management Stockholder to sell his Employee
Stock to Holdings upon such Management Stockholder's termination for cause.
The repurchase price to be paid by Holdings for any Employee Stock
repurchased pursuant to the Employee Stock Agreements will, in most situations,
be the fair market value for such shares (to be determined by the board of
directors of Holdings if the shares are not then traded publicly, provided that
a Management Stockholder may request an appraisal of the repurchased shares if
such Management Stockholder disagrees with the valuation placed on such shares
by the Board of Directors). Certain Employee Stock Agreements require the
Management Stockholder to enter into a noncompetition agreement with Holdings or
receive the lesser of the fair market value or the original purchase price for
the Employee Stock to be purchased. The Employee Stock Agreement with Mr. Weil
provides that if Mr. Weil is terminated for cause, Holdings may repurchase his
Employee Stock at the lesser of its fair market value or the original purchase
price for such shares.
Holdings expects to adopt an employee stock option plan (the "Employee
Stock Option Plan") that will provide for grants of shares of nonvoting Class C
Common Stock representing approximately 16% of the fully diluted Common Stock of
Holdings. The administration of the Employee Stock Option Plan, the selection of
participants and the form and the amounts of the grants is within the sole
discretion of the Compensation Committee of the Board of Directors.
Pursuant to the terms of a Put Option Agreement (the "Put Agreement") dated
November 25, 1997 between the Company and Mr. Ecklund, Mr. Ecklund has the right
at any time after the fifth anniversary of the date of the Put Agreement, to
cause Holdings to redeem all or any portion of Mr. Ecklund's shares in Holdings.
The price at which such shares may be sold and purchased shall be the fair
market value thereof, determined either by agreement or by an appraisal.
Holdings is not obligated to redeem Mr. Ecklund's shares if Holdings is then in
default of a payment obligation under any of Holdings' indebtedness for borrowed
money or if such redemption would result in a default under any such
indebtedness.
In connection with the Recapitalization, Holdings, BTCP, OTPPB and Mr.
Ecklund entered into an equity registration rights agreement (the "Equity
Registration Rights Agreement"). The Equity Registration Rights Agreement grants
the Stockholders party thereto demand and incidental registration rights with
respect to shares of capital stock held by them, which rights will be
exercisable at any time after an initial public offering of Holdings' Common
Stock. In addition, BTCP may cause Holdings to conduct an initial public
offering at any time following the sixth anniversary of the Recapitalization.
The Equity Registration Rights Agreement contains customary terms and provisions
with respect to the registration rights contained therein.
NOTE 6. BRIDGE FACILITY
On the Recapitalization Date, Holdings borrowed $80 million under a Senior
Credit Agreement with Bankers Trust Company as agent ("BTCO") from Bankers Trust
New York Corporation ("BTNY"), an affiliate of BTCP, as initial lender (the
"Bridge Facility"). BTNY subsequently assigned a portion of the indebtedness to
other institutional investors. The Bridge Facility bears interest at the rate of
the three month LIBOR plus 6.0% per annum, such amount increasing by 50 basis
points per quarter during which the Bridge Facility is outstanding. Interest
cannot exceed 16% per annum and will accrue on a quarterly basis. Any
outstanding amount under the Bridge Facility at the end of twelve months
following Recapitalization will
F-14
<PAGE> 119
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
automatically convert to a term loan required to be paid in full on the seventh
anniversary of the Recapitalization. The obligations of Holdings under the
Bridge Facility are secured by certain pledges.
For arranging and providing the Bridge Facility, BTCO and BTNY received
fees aggregating $2.4 million. A portion of the fees paid were paid to other
institutional investors to which the indebtedness was assigned.
The Bridge Facility was repaid by Holdings on February 23, 1998 with the
proceeds from the issuance by YAC of senior subordinated notes on that date (see
Note 10).
NOTE 7. INCOME TAXES
The income tax provision for the year ended December 31, 1997 consisted of
the following:
<TABLE>
<S> <C>
Current............................................... $ 6
Deferred.............................................. 417
----
$423
====
</TABLE>
The provision for income taxes includes a deferred component that arose
from (i) the Company's change in tax status discussed in Note 2 and (ii) the
recording of certain items in different periods for financial reporting and
income tax purposes. As of December 31, 1997, the tax effects of temporary
differences which give rise to a significant portion of deferred tax assets
(liabilities) are as follows:
<TABLE>
<S> <C>
Slippage........................................... $(1,458)
Net operating losses............................... 608
Deferred Compensation.............................. 433
Depreciation....................................... (207)
Self insurance reserves............................ 175
Other items........................................ 32
-------
$ (417)
=======
</TABLE>
The Company's current period net operating loss will be available to offset
future tax liabilities. Based upon the Company's history of prior operating
earnings and its expectations for the future, management of the Company has
determined that it is more likely than not that taxable income will be
sufficient to utilize such attributes in their carryforward periods.
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provision is as follows:
<TABLE>
<S> <C>
Taxes at federal statutory rates................... $(1,926)
Benefits accruing to former S corporation
stockholders..................................... 625
Liability triggered by the Company's change in tax
status........................................... 928
Non-deductible Recapitalization expenses........... 688
Other, net......................................... 108
-------
Provision for income taxes.................... $ 423
=======
</TABLE>
NOTE 8. EMPLOYMENT AGREEMENTS AND COMPENSATION MATTERS
Existing Change in Control Agreements with certain employees provide that
if the employee is terminated without cause or leaves the employment of Holdings
for good reason following a change in control,
F-15
<PAGE> 120
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Holdings will pay to the employee his or her annual base salary and, if
applicable, the total commissions earned for the preceding twelve month period
and will continue the employee's benefits for twelve months or until the
employee obtains full time employment. As of February 6, 1998, no payments had
been made under the Change in Control Agreements.
On November 24, 1997, Holdings and Mr. Weil entered into an employment
agreement (the "Weil Employment Agreement") pursuant to which Mr. Weil has
agreed to serve as the President and Chief Executive Officer of Holdings. The
term of the Weil Employment Agreement is initially three years and expires on
November 24, 2000, unless terminated earlier in accordance with its terms. The
Weil Employment Agreement replaced an earlier agreement between Holdings and Mr.
Weil (the "Old Employment Agreement"). Base compensation under the Weil
Employment Agreement is $300 per year and such amount will increase at a minimum
of 5% each calendar year beginning January 1, 1999. If Holdings terminates Mr.
Weil's employment without cause or Mr. Weil terminates his employment for good
reason, he is entitled to receive (i) his base salary for an eighteen-month
period following the effective date of termination and (ii) a pro rated portion
of his annual incentive bonus effective as of the date of termination.
During 1997, Mr. Weil participated in a special incentive bonus plan that
was based upon the achievement of certain performance targets for that year. Mr.
Weil was paid $900 with respect to such incentive bonus plan in January 1998 and
an additional $261 in March 1998 (such amounts were accrued as of December 31,
1997) pursuant to such incentive bonus plan following the approval of the annual
financial statements by the board of directors of Holdings (the "Board of
Directors"). In addition, on January 7, 1998, Mr. Weil received a bonus of $500
(which was also accrued as of December 31, 1997) in satisfaction of certain
obligations of Holdings to Mr. Weil under the Old Employment Agreement. For 1998
and all subsequent years under the Weil Employment Agreement, Mr. Weil will
participate in the Company's Annual Management Incentive Plan (discussed below)
as such plan may from time to time be amended.
In connection with the Recapitalization and pursuant to the terms of the
Old Employment Agreement, Mr. Weil received a special bonus from the Company of
$9,218. In addition, Mr. Weil may be entitled to receive up to an additional
$3,216, representing his pro rata portion of post-Recapitalization payments that
may be made to the Selling Stockholders and Messrs. Weil, Stinchfield and
Ferguson under the terms of the Recapitalization Agreement, as described in Note
4.
On November 25, 1997 Holdings adopted the 1997 Management Recognition,
Transition and Equity Bonus Plan for officers and certain key management
employees, pursuant to which Holdings paid $2,650 in cash bonuses to certain
officers and employees of the Company. In connection with the Recapitalization,
the Company also paid a $600 special bonus to an employee pursuant to another
agreement. A portion of the proceeds of such bonuses were used to purchase Class
A Common Stock in connection with the Recapitalization.
The Company plans to implement annual bonus plans (such annual plans
referred to collectively as the "Annual Management Incentive Plans") pursuant to
which eligible members of management will each be entitled to receive
predetermined percentages of their base salaries if the Company's EBITDA exceeds
certain targets. The terms of the Annual Management Incentive Plan utilized
during any year and the eligible employees under each plan is within the sole
discretion of the Compensation Committee of the Board of Directors.
The Company has historically offered its employees participation in a
qualified 401(k)/profit-sharing plan which requires the Company to match
employee contributions up to predetermined limits for qualified employees as
defined by the plan. In addition, the Plan provides for additional employer
contributions which are made at the discretion of the Company's Board of
Directors. The Company intends to continue to offer a plan under which eligible
employees (as defined in the plan document) will be entitled to share in a bonus
F-16
<PAGE> 121
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
pool (with each eligible employee sharing in the pool pro rata based upon such
employee's base salary) if the Company's EBITDA exceeds a predetermined target
level. As of December 31, 1997 and 1996, the Company accrued $1,875 and $940,
respectively, as discretionary profit sharing for the years then ended. Of these
amounts, approximately half was contributed directly to the plan, based upon
eligibility requirements, and the remainder was declared as discretionary
bonuses to employees during each of the respective periods. Each employee
receiving a discretionary bonus had a further option to contribute all or a
portion of such amount into the 401(k) plan.
The Company had a phantom stock bonus plan with two of its employees,
whereby each employee was awarded shares of phantom stock. Under the plan,
additional compensation payments to these employees were triggered by the
occurrence of certain events, as defined in the agreements, including certain
distributions paid to the Company's stockholders, the termination of employment,
or the change in control of the Company. Compensation expenses under this plan
were approximately $4,732, $298, and $142 for the years ended December 31, 1997,
1996 and 1995, respectively. In connection with the Recapitalization, this plan
was terminated, and as of December 31, 1997, the Company had paid substantially
all of its obligations under the plan.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Management Agreement
In connection with the Recapitalization, Holdings, BTCP and OTPPB entered
into a management agreement (the Management Agreement) relating to certain
services to be provided to Holdings in the future by BTCP and OTPPB. Under the
Management Agreement, BTCP and OTPPB will provide Holdings with, among other
services, financial and strategic planning and management consulting services
throughout the term of the Stockholders' Agreement. In consideration for the
services provided to Holdings under the Management Agreement, Holdings will pay
annual fees of $188 and $63 to BTCP and OTPPB, respectively. Also in connection
with the Recapitalization, Holdings paid BTCP and OTPPB one-time transaction
fees of $1,125 and $375, respectively, and reimbursed or paid expenses
(including legal and accounting fees and expenses) of BTCP and OTPPB of
approximately $1,000 and $50, respectively, incurred by such entities in
connection with the Recapitalization.
Leases
The Company has operating leases for warehouse space and equipment. The
approximate future minimum payments under these obligations are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1998............................................... $ 3,784
1999............................................... 3,069
2000............................................... 2,365
2001............................................... 809
2002............................................... 478
Thereafter......................................... 324
-------
$10,829
=======
</TABLE>
The preceding table includes the operating lease commitments related to a
recently established call center in Oklahoma. To support this call center, the
Company has committed or expects to commit to purchase various equipment and
leasehold improvements aggregating $500 and also intends to acquire a telephone
switch with a cost of $600 (such amounts were not included above). Furthermore,
the Company
F-17
<PAGE> 122
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
has committed to acquire additional IVR equipment and computer hardware
equipment with an aggregate cost of $5,900 (such amount was not included above).
The Company intends to finance such telephone switch and equipment items through
operating leases.
Total rent expense was $2,640, $2,008, and $1,318 for the years ended
December 31, 1997, 1996, and 1995, respectively.
Guarantees
Sweepstakes performance bonds are guaranteed for certain clients based on
certain financial criteria. Holdings had guaranteed approximately $6,200 and
$7,600 in performance bonds for various clients, as of December 31, 1997 and
1996, respectively. The Company also obtains an indemnity agreement from these
clients indemnifying the Company from obligations under the performance bonds.
Other Contingencies
Holdings is a party to a release and indemnity agreement (the "Release
Agreement") with the following former directors of the Company: Thomas O. Moe,
Albert O. Foster, Jerome J. Jenko and R. Gary St. Marie. Pursuant to the Release
Agreement, Holdings released and agreed to indemnify the enumerated directors
from claims arising from their past actions as directors of the Company.
Holdings' Articles of Incorporation releases its current directors from
liability incurred for breaches of fiduciary duties, subject to certain
exceptions.
Holdings and Young America Corporation have agreed to indemnify BT Alex.
Brown Incorporated, as the Initial Purchaser of the Notes (see Note 10), against
certain liabilities under the Securities Act of 1933.
NOTE 10. SUBSEQUENT EVENTS (UNAUDITED)
The Notes Offering
On February 23, 1998, YAC issued $80,000 in senior subordinated notes (the
"Notes") due in 2006 (the "Offering"). Interest on the Notes will be payable
semiannually in arrears on February 15 and August 15 of each year, beginning
August 15, 1998. The proceeds from the Notes issuance were distributed and
loaned by YAC to its parent, Holdings, and used by Holdings to repay amounts
outstanding under the Bridge Facility described in Note 6.
The Notes are unconditionally guaranteed on an unsecured senior
subordinated basis by Holdings. The guarantee, which is full and unconditional
and which is being provided on a joint and several basis with any future
subsidiaries of YAC that become guarantors, is a general unsecured obligation of
Holdings. The guarantees will be subordinated to all existing and future senior
indebtedness of Holdings. YAC is a wholly owned subsidiary of Holdings. Separate
financial statements of YAC have not been presented as management has determined
that they would not be material to investors given that Holdings has provided a
guarantee of the Notes.
In connection with the Recapitalization discussed in Note 4, substantially
all of Holdings' assets and business were transferred to YAC. The following
table presents summarized pro forma financial information for Holdings and YAC
as if the guarantee structure had been in effect for all periods presented. The
only substantial asset retained by Holdings was certain real property which is
leased to YAC, at cost, for use in its operations.
F-18
<PAGE> 123
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Holdings............................................. $ -- $ -- $ --
YAC.................................................. 175,297 135,716 116,268
-------- -------- --------
Consolidated...................................... $175,297 $135,716 $116,268
======== ======== ========
GROSS PROFIT
Holdings............................................. $ -- $ -- $ --
YAC 29,638 20,132 10,713
-------- -------- --------
Consolidated...................................... $ 29,638 $ 20,132 $ 10,713
======== ======== ========
NET (LOSS) INCOME
Holdings............................................. $ -- $ -- $ --
YAC.................................................. (5,925) 8,432 1,014
-------- -------- --------
Consolidated...................................... $ (5,925) $ 8,432 $ 1,014
======== ======== ========
CURRENT ASSETS
Holdings............................................. $ 357 $ --
YAC.................................................. 29,998 30,193
-------- --------
Consolidated...................................... $ 30,555 $ 30,193
======== ========
NONCURRENT ASSETS
Holdings............................................. $ 2,667 $ 2,674
YAC.................................................. 8,520 3,576
-------- --------
Consolidated...................................... $ 11,187 $ 6,250
======== ========
CURRENT LIABILITIES
Holdings............................................. $ -- $ --
YAC.................................................. 19,419 24,370
-------- --------
Consolidated...................................... $ 19,419 $ 24,370
======== ========
NONCURRENT LIABILITIES
Holdings............................................. $ -- $ --
YAC.................................................. 80,000 --
-------- --------
Consolidated...................................... $ 80,000 $ --
======== ========
</TABLE>
The Notes will not be redeemable at the option of YAC prior to February 15,
2002. Subsequent to that, the Notes will be redeemable, in whole or in part, at
the option of the YAC at the following redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption set forth below:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2002.............................................. 105.813%
2003.............................................. 103.875
2004.............................................. 101.938
2005 and thereafter............................... 100.000%
</TABLE>
In addition, at any time on or prior to February 15, 2001, YAC, at its
option, may redeem, with the net cash proceeds of one or more equity offerings,
up to 35% of the aggregate principal amount of the Notes at a
F-19
<PAGE> 124
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
redemption price equal to 111.625% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided that at
least 65% of the aggregate principal amount of the Notes remains outstanding
immediately following such redemption. Additionally, upon a change of control,
each holder of Notes will have the right to require YAC to repurchase such
holder's Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date.
The Notes are not subject to any sinking fund requirement. The Notes are
general unsecured obligations of the Company and will be subordinated in right
of payment to all existing and future senior indebtedness of the Company,
including indebtedness under the New Credit Facility (see below). As of December
31, 1997, on a pro forma basis after giving effect to the Offering and New
Credit Facility, the Company would have approximately $400 of senior
indebtedness outstanding (consisting of obligations under undrawn lines of
credit) and $8,600 of unused availability under the New Credit Facility.
The indenture under which the Notes were issued contains certain covenants
with respect to YAC and any future subsidiaries that will restrict, among other
things, the incurrence of additional indebtedness, the payment of dividends, and
other restricted payments, the creation of certain liens, the use of proceeds
from sales of assets and subsidiary stock, and transactions with affiliates. The
indenture also restricts the Company's ability to consolidate or merge with or
into, or to transfer all or substantially all of its assets to another entity.
New Credit Facility
On April 7, 1998, YAC entered into a revolving credit facility (the "New
Credit Facility") with Norwest Bank Minnesota, N.A. ("Norwest"). The description
below of the New Credit Facility is subject to, and qualified in its entirety by
reference to, the definitive documentation for the New Credit Facility.
Under the New Credit Facility, borrowings are available equal to 85% of
eligible receivables subject to certain terms and conditions. The New Credit
Facility provides a $10,000 revolving credit facility, with an imbedded sublimit
of $1,000 available for letters of credit and borrowings accrue interest at
either Norwest's base rate or at an interest rate equal to the London interbank
rate for Eurodollar deposits for one, two, or three month interest periods plus
2.50%, at YAC's option. The New Credit Facility also provides for an unused line
fee of 3/8 of 1% per annum on any undrawn amounts. The New Credit Facility has a
final maturity date of March 31, 2001 and does not require scheduled interim
reductions or payments, although YAC is permitted to make optional prepayments
and commitment reductions.
The New Credit Facility is secured by a first priority security interest in
the accounts receivable and related general intangibles of YAC. In addition,
under the New Credit Facility, YAC is required to comply with financial
convenants with respect to a minimum interest coverage ratio and a minimum
current ratio. The New Credit Facility contains other covenants that restrict
acquisitions, investments, dividends, liens, and other indebtedness (including
capital leases), management fees, disposition of assets, change of voting
control and guarantees.
If the Company were unable to borrow under the New Credit Facility due to a
default or failure to meet certain specified borrowing base prerequisites for
borrowing, it could be left without sufficient liquidity to conduct its business
as currently planned. The New Credit Facility contains a cross default provision
with the Notes.
F-20
<PAGE> 125
======================================================
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 AN 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 AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF YOUNG AMERICA AND HOLDINGS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Prospectus Summary.................... 1
Risk Factors.......................... 14
Use of Proceeds....................... 22
The Exchange Offer.................... 23
The Recapitalization.................. 32
Capitalization........................ 33
Unaudited Pro Forma Consolidated
Financial Data...................... 34
Selected Historical and Pro Forma
Consolidated Financial Data......... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 48
Management............................ 57
Security Ownership of Certain
Beneficial Owners and Management.... 62
Certain Transactions.................. 65
Description of the New Credit
Facility............................ 67
Description of the Notes.............. 68
Certain Federal Income Tax
Considerations...................... 94
Book-Entry; Delivery and Form......... 96
Plan of Distribution.................. 97
Legal Matters......................... 98
Experts............................... 98
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$80,000,000
YOUNG AMERICA
CORPORATION
11 5/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2006
------------------------------------------------------
PROSPECTUS
------------------------------------------------------
, 1998
======================================================
<PAGE> 126
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.
[ALTERNATIVE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
PROSPECTUS
YOUNG AMERICA CORPORATION
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
------------------------
The 11 5/8% Series B Senior Subordinated Notes due 2006 (the "New Notes") of
Young America Corporation ("Young America") were issued in exchange for the
11 5/8% Senior Subordinated Notes due 2006 (the "Old Notes" and together with
the New Notes, the "Notes") pursuant to an exchange offer by Young America and
Young America Holdings, Inc. ("Holdings").
Interest on the New Notes will be payable semi-annually in arrears on
February 15 and August 15 of each year, commencing August 15, 1998 at the rate
of 11 5/8% per annum. The New Notes will be redeemable, in whole or in part, at
the option of Young America on or after February 15, 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time, or from time to time, on or prior to
February 15, 2001, Young America, at its option, may redeem, with the net cash
proceeds of one or more Equity Offerings (as defined herein), up to 35% of the
aggregate principal amount of the Notes issued under the Indenture (as defined
herein), at a redemption price equal to 111.625% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption;
provided that at least 65% of the aggregate principal amount of the Notes issued
under the Indenture remains outstanding immediately following such redemption.
The New Notes are general unsecured obligations of Young America and are
subordinate in right of payment to all existing and future Senior Debt (as
defined herein) of Young America, including indebtedness under the New Credit
Facility (as defined herein). The New Notes will rank pari passu in right of
payment with any future senior subordinated indebtedness of Young America and
will rank senior in right of payment to all other subordinated obligations of
Young America. The New Notes are unconditionally guaranteed (the "Guarantees")
on a senior subordinated basis by Holdings and will be unconditionally
guaranteed by any future domestic Restricted Subsidiaries (as defined herein) of
Young America having total book equity value in excess of $1.0 million (the
Subsidiary Guarantors"). The Guarantees will be general unsecured obligations of
Holdings and the Subsidiary Guarantors and will be subordinated in right of
payment to all existing and future Guarantor Senior Debt (as defined herein).
The Guarantees will rank pari passu with any future senior subordinated
indebtedness of Holdings and the Subsidiary Guarantors and will rank senior in
right of payment to all other subordinated obligations of Holdings and the
Subsidiary Guarantors. As of December 31, 1997, on a pro forma basis after
giving effect to the issuance of the Notes and the New Credit Facility, Young
America and Holdings would have had approximately $0.4 million of Senior Debt
outstanding (consisting of obligations under undrawn letters of credit) under a
commitment for up to $10.0 million (subject to availability under the terms of
the New Credit Facility, which would have been approximately $9.0 million as of
December 31, 1997). See "Capitalization."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. Young America and Holdings do not
currently intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotations system. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the New Notes.
This Prospectus has been prepared for and is to be used by BT Alex. Brown
Incorporated ("BTAB") in connection with offers and sales related to
market-making transactions of the New Notes. BTAB may act as principal or agent
in such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. Young America will not receive any of the
proceeds of such sales. See "Plan of Distribution."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS IN CONNECTION WITH THE EXCHANGE OFFER AND IN
EVALUATING AN INVESTMENT IN THE NEW NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
BTALEX.BROWN
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 127
[ALTERNATIVE SUBSECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NEW NOTES
As of the date of this Prospectus, the Company does not intend to apply for
a listing of the New Notes on a securities exchange or on any automated dealer
quotation system. The Company has been advised by BTAB that as of the date of
this Prospectus, BTAB intends to make a market in the New Notes. BTAB is not
obligated to do so, however, and any market-making activities with respect to
the New Notes may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act, and may be limited during the Exchange Offer and the
pendency of any Shelf Registration Statement (as defined herein). Because BTAB
is an affiliate of the Company, following consummation of the Exchange Offer,
BTAB will be required to deliver a current "market-making prospectus" and
otherwise comply with the registration requirements of the Securities Act in
connection with any secondary market sale of the New Notes. Accordingly, the
ability of BTAB to make a market in the New Notes may, in part, depend on the
ability of the Company to maintain a current market-making prospectus.
There can be no assurance as to the liquidity of any markets that may
develop for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market develops for the New
Notes, future trading prices of the New Notes will depend on many factors,
including among other things, the Company's financial condition and results of
operations. The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
Depending on those and other factors, the New Notes may trade at a discount from
their principal amount.
<PAGE> 128
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New Notes
by BTAB in market-making transactions. The Company will not receive any of the
proceeds from such transactions.
<PAGE> 129
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by BTAB in connection with offers
and sales of the New Notes in market-making transactions effected from time to
time. BTAB may act as a principal or agent in such transactions, including as
agent for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices. The Company will not receive any
of the proceeds of such sales. The Company has agreed to indemnify BTAB against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments which BTAB might be required to make in respect thereof.
See "Certain Transactions."
Affiliates of BTAB currently own 53.6% of the Common Stock (including 45%
of the Voting Stock). See "Security Ownership of Certain Beneficial Owners and
Management". BTAB has informed the Company that it does not intend to confirm
sales of the New Notes to any accounts over which it exercises discretionary
authority without the prior specific written approval of such transactions by
the customer.
The Company has been advised by BTAB that, subject to applicable laws and
regulations, BTAB currently intends to make a market in the New Notes following
completion of the Exchange Offer. However, BTAB is not obligated to do so and
any such market-making may be interrupted or discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk
Factors -- Trading Market for the New Notes."
<PAGE> 130
[ALTERNATIVE BACK COVER FOR MARKET-MAKING PROSPECTUS]
======================================================
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 AN 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 AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF YOUNG AMERICA AND HOLDINGS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Prospectus Summary.................... 1
Risk Factors.......................... 14
Use of Proceeds....................... 22
The Recapitalization.................. 32
Capitalization........................ 33
Unaudited Pro Forma Consolidated
Financial Data...................... 34
Selected Historical and Pro Forma
Consolidated Financial Data......... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 48
Management............................ 57
Security Ownership of Certain
Beneficial Owners and Management.... 62
Certain Transactions.................. 65
Description of the New Credit
Facility............................ 67
Description of the Notes.............. 68
Certain Federal Income Tax
Considerations...................... 94
Book-Entry; Delivery and Form......... 96
Plan of Distribution.................. 97
Legal Matters......................... 98
Experts............................... 98
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$80,000,000
YOUNG AMERICA
CORPORATION
11 5/8% SERIES B SENIOR
SUBORDINATED NOTES DUE 2006
- ------------------------------------------------------
PROSPECTUS
- ------------------------------------------------------
BT ALEX.BROWN
, 1998
======================================================
<PAGE> 131
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521, Subd. 2 of the Minnesota Business Corporation Act (the
"MBCA") requires every Minnesota corporation to indemnify a person made or
threatened to be made a party to a proceeding by reason of the former or present
official capacity of such person with respect to such corporation, against
judgments, penalties, fines, including, without limitation, excise taxes
assessed against such person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with such proceeding with
respect to the same acts or omissions if such person (1) has not been
indemnified by another organization or employee benefit plan for the same
judgements, penalties or fines; (2) acted in good faith; (3) received no
improper personal benefit, and statutory procedure has been followed in the case
of any conflict of interest by a director; (4) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and (5)
in the case of acts or omission occurring in the performance of such person's
official capacity of director, or for a person not a director, in such person's
official capacity as an officer, board committee member or employee, reasonably
believed that the conduct was not opposed to the best interest of the
corporation. In addition, Section 302A.521, Subd. 3, requires, in certain
instances, payment by a corporation, upon written request, of reasonable
expenses incurred by such person in advance of final disposition of such
proceeding. A decision as to the indemnification required under the MBCA by a
corporation with respect to any proceeding is to be made by a disinterested
majority of the board of directors present at a meeting at which a disinterested
quorum is present, or by a designated committee of such board of directors, by
special legal counsel, by the shareholders, or, in a proceeding brought by any
party with respect to an indemnification claim, by a court of competent
jurisdiction.
The Bylaws of Young America and Holdings provide that Young America and
Holdings shall, to the extent authorized under the MBCA, indemnify any directors
or officers of Young America or Holdings, as the case may be, for acts or
omissions covered by Section 302A.521 of the MBCA.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Articles of Incorporation of Young America
3.2 Amended and Restated Articles of Incorporation of Holdings
3.3 Bylaws of Young America
3.4 Restated Bylaws of Holdings
4.1 Indenture dated as of February 23, 1998 for the Notes
(including the form of New Note attached as Exhibit B
thereto) among Young America, Holdings and Marine Midland
Bank, as Trustee
4.2 Registration Rights Agreement dated as of February 23, 1998
among Young America, Holdings and the Initial Purchaser
*5.1 Opinion of O'Sullivan Graev & Karabell, LLP
10.1 Recapitalization Agreement dated November 25, 1997 among
Holdings, Jay F. Ecklund ("Ecklund"), John F. Ecklund 1995
Irrevocable Trust, Sheldon McKensie Ecklund 1995 Irrevocable
Trust, John F. Ecklund 1997 Irrevocable Trust, Sheldon
McKensie Ecklund 1997 Irrevocable Trust, Jay F. Ecklund 1997
Irrevocable Annuity Trust (the "Ecklund Trusts") and BTCP.
10.2 Escrow Agreement dated as of November 25, 1997 among
Holdings, Ecklund, the Ecklund Trusts and Norwest Bank
Minnesota, National Association, as Escrow Agent
10.3 Put Option Agreement dated as of November 25, 1997 between
Holdings and Ecklund
10.4 Stock Purchase Agreement dated November 25, 1997 between
Holdings and BTCP
10.5 Stock Purchase Agreement dated November 25, 1997 between
Holdings and OTPPB
10.6 Stockholders' Agreement dated as of November 25, 1997 among
Holdings, BTCP, OTPPB and Ecklund
10.7 Registration Rights Agreement dated as of November 25, 1997
among Holdings, BTCP, OTPPB and Ecklund.
</TABLE>
II-1
<PAGE> 132
<TABLE>
<C> <S>
10.8 Purchase Agreement dated as of February 18, 1998 among Young America, Holdings and BTAB
10.9 Management Fee Agreement dated as of November 25, 1997 among Holdings, BTCP and OTPPB
10.10 Stock Subscription and Repurchase Agreement dated November 25, 1997 between Holdings and Charles D.
Weil
10.11 Amendment to Stock Subscription and Repurchase Agreement dated as of February 23, 1998 between
Holdings and Charles D. Weil
10.12 Stock Subscription and Repurchase Agreement dated November 25, 1997 between Holdings and L. Joseph
Kulas
10.13 Employment Agreement dated November 24, 1997 between Holdings and Charles D. Weil
10.14 Employment Agreement dated August 1, 1996 between Holdings and L. Joseph Kulas
10.15 1997 Management Recognition, Transition and Equity Bonus Plan of Holdings dated November 25, 1997
10.16 Change in Control Agreement dated February 21, 1997 between Holdings and L. Joseph Kulas
*10.17 Form of Holdings 1998 Management Incentive Plan
*10.18 Credit Agreement dated April 7, 1998 between Young America and Norwest Bank Minnesota, National
Association
12.1 Statement re: computation of ratios
16.1 Letter re Change in Certifying Accountant
21.1 Subsidiaries of the Registrants
*23.1 Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of McGladrey & Pullen, LLP
24.1 Powers of Attorney (included on the signature pages)
25.1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of Marine Midland
Bank as Trustee
27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
*99.4 Form of Letter to Clients
</TABLE>
- ---------------
* To be filed by Amendment.
(b) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
II-2
<PAGE> 133
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the MBCA, the Act, the
Certificate of Incorporation and Bylaws of Young America or Holdings, or
otherwise, the registrants have 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 the registrants of expenses incurred or paid by a director, officer
or controlling person of any registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants 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.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 8th day of April, 1998.
Young America Corporation
By: /s/ CHARLES D. WEIL
--------------------------------------
Name: Charles D. Weil
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ROBERT MARAKOVITS AND CHARLES D. WEIL, AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR 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 REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed as of the 8th day of April,
1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ CHARLES D. WEIL President and Chief Executive Officer
- -------------------------------------------- (principal executive officer)
Charles D. Weil
/s/ L. JOSEPH KULAS Vice President of Finance, Treasurer,
- -------------------------------------------- Secretary and Chief Financial Officer
L. Joseph Kulas (principal financial and accounting officer)
/s/ ROBERT MARAKOVITS Chairman of the Board
- --------------------------------------------
Robert Marakovits
Director
- --------------------------------------------
Jay F. Ecklund
/s/ RICHARD D. GERSTEN Director
- --------------------------------------------
Richard D. Gersten
/s/ J. MARK A. MACDONALD Director
- --------------------------------------------
J. Mark A. MacDonald
</TABLE>
II-4
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 8th day of April, 1998.
Young America Holdings, Inc.
By: /s/ CHARLES D. WEIL
------------------------------------
Name: Charles D. Weil
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ROBERT MARAKOVITS AND CHARLES D. WEIL, AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR 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 REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed as of the 8th day of April,
1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ CHARLES D. WEIL President and Chief Executive Officer
- -------------------------------------------- (principal executive officer)
Charles D. Weil
/s/ L. JOSEPH KULAS Vice President of Finance, Treasurer,
- -------------------------------------------- Secretary and Chief Financial Officer
L. Joseph Kulas (principal financial and accounting officer)
/s/ ROBERT MARAKOVITS Chairman of the Board
- --------------------------------------------
Robert Marakovits
Director
- --------------------------------------------
Jay F. Ecklund
/s/ RICHARD D. GERSTEN Director
- --------------------------------------------
Richard D. Gersten
/s/ J. MARK A. MACDONALD Director
- --------------------------------------------
J. Mark A. MacDonald
</TABLE>
II-5
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
YAC CORP.
ARTICLE FIRST
The name of the corporation (herein called the "Corporation") is YAC Corp.
The address of the registered office of the Corporation in the State of
Minnesota is National Registered Agents, Inc., 1295 Bandana Blvd., N. Suite 300,
St. Paul, MN 55108-5116.
ARTICLE SECOND
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Business Corporation Law of
the State of Minnesota.
ARTICLE THIRD
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 1,000 shares, all of which shall be designated
Common Stock and shall have a par value of $.01 per share.
ARTICLE FOURTH
The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
David J. D'Urso O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 24th Floor
New York, New York 10112
</TABLE>
ARTICLE FIFTH
(a) The number of directors of the Corporation shall be such as from
time to time shall be fixed in the manner provided in the By-laws of the
Corporation. The election of directors of the Corporation need not be by
ballot unless the By-laws so require.
(b) No shareholder entitled to vote for directors shall have the
right to cumulate those votes in the election of directors.
<PAGE> 2
ARTICLE SIXTH
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director, except that this Article shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 302A.559 or 80A.23 of the Minnesota Statutes, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the Minnesota Business Corporation Law is amended after the date of
incorporation of the Corporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Minnesota Business Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE SEVENTH
No shareholder shall have a preemptive right to acquire shares of the
corporation whenever the corporation proposes to issue new or additional shares
or new or additional securities other than shares that are exchangeable for,
convertible into, or carry a right to acquire new or additional shares of the
corporation.
ARTICLE EIGHTH
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
(a) In furtherance and not in limitation of the powers conferred by
the laws of the State of Minnesota, the Board of Directors is expressly
authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any manner
not inconsistent with the laws of the State of Minnesota or this
Articles of Incorporation;
<PAGE> 3
(ii) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the Corporation,
secured or unsecured, and to include therein such provisions as to
redemption, conversion or other terms thereof as the Board of
Directors in its sole discretion may determine, and to authorize the
mortgaging or pledging, as security therefor, of any property of the
Corporation, real or personal, including after-acquired property;
(iii) to determine whether any, and if any, what part, of the
net profits of the Corporation or of its surplus shall be declared
in dividends and paid to the stockholders, and to direct and
determine the use and disposition of any such net profits or such
surplus; and
(iv) to fix from time to time the amount of net profits of the
Corporation or of its surplus to be reserved as working capital or
for any other lawful purpose.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the
State of Minnesota, of this Articles of Incorporation and of the By-laws
of the Corporation.
(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the By-laws of the Corporation.
(c) From time to time any of the provisions of this Articles of
Incorporation may be altered, amended or repealed, and other provisions
authorized by the laws of the State of Minnesota at the time in force may
be added or inserted, in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
Corporation by these Articles of Incorporation are granted subject to the
provisions of this paragraph (c).
******
****
<PAGE> 4
IN WITNESS WHEREOF, I, the undersigned, being the sole incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Minnesota, DO HEREBY CERTIFY, under
penalties of perjury, that this is my act and deed and that the facts
hereinabove stated are truly set forth and, accordingly, I have hereunto set my
hand as of the 19th day of November, 1997.
--------------------
David J. D'Urso
Sole Incorporator
<PAGE> 5
[SEAL OF THE STATE MINNESOTA SECRETARY OF STATE
OF MINNESOTA] AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, PLEASE READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME: (List the name of the company prior to any desired name change)
YAC Corp.
- --------------------------------------------------------------------------------
This amendment is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State.
------------------------
The following amendment(s) of articles regulating the above corporation were
adopted: (Insert full text of newly amended article(s) indicating which
article(s) is (are) being amended or added.) If the full text of the amendment
will not fit in the space provided, attach additional numbered pages. (Total
number of pages including this form 1.)
ARTICLE 1
---------------
The name of the corporation (hereinafter called the "Corporation") is
Young America Corporation.
The address of the registered office of the Corporation in the State of
Minnesota is National Registered Agents, Inc., 1295 Bandana Blvd., N. Suite 300,
St. Paul, MN 55108-5116.
This amendment has been approved pursuant to Minnesota Statutes chapter 302A or
317A. I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
/s/ Charles D. Weil
----------------------------------------------------
(Signature of Authorized Person)
================================================================================
INSTRUCTIONS FOR OFFICE USE ONLY
1. Type or print with black ink.
2. A Filing Fee of: $35.00, made
payable to the Secretary of State.
3. Return completed forms to:
Secretary of State STATE OF MINNESOTA
180 State Office Building DEPARTMENT OF STATE
100 Constitution Ave. FILED
St. Paul, MN 55155-1299
(612)296-2883 JAN 16 1998
/s/ Joan Anderson Growe
Secretary of State
<PAGE> 1
Exhibit 3.2
ARTICLES OF AMENDMENT
AMENDING AND RESTATING
ARTICLES OF INCORPORATION
OF
YOUNG AMERICA CORPORATION
Young America Corporation, a Minnesota corporation, hereby adopts
and files with the Secretary of State these Articles of Amendment Amending and
Restating Articles of Incorporation of Young America Corporation pursuant to
Section 302A.139 of the Minnesota Business Corporation Act.
1. The name of the corporation is Young America Corporation.
2. The document entitled "Amendment and Restatement of Articles of
Incorporation of Young America Corporation," marked Exhibit A attached
hereto, contains the full text of the amended and restated articles of
incorporation of Young America Corporation.
3. The amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
4. These Articles of Amendment and Restating Articles of
Incorporation of Young America Corporation have been approved and adopted
by the directors and shareholders of Young America Corporation as required
by the Minnesota Business Corporation Act.
5. The Amendment and Restatement of Articles of Incorporation
attached hereto as Exhibit A amend and restate the articles of the
corporation in their entirety and such restated articles supersede the
original articles and all amendments to them.
IN WITNESS WHEREOF, the undersigned, the Chairman of Young America
Corporation, being duly authorized on behalf of Young America Corporation, has
executed this document this 24th day of November, 1997.
YOUNG AMERICA CORPORATION
By /s/ Jay F. Ecklund
---------------------
Jay F. Ecklund
Its Chairman
<PAGE> 2
AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
YOUNG AMERICA CORPORATION
This Amendment and Restatement has been adopted pursuant to Chapter 302A
of the Minnesota Business Corporation Act and supersedes the prior Articles and
all amendments or restatements thereto.
ARTICLE FIRST
NAME
The name of the corporation (hereinafter referred to as the "Corporation")
is Young America Corporation.
ARTICLE SECOND
REGISTERED OFFICE
The registered office of the Corporation in the State of Minnesota is at
717 Faxon Road, Young America, Minnesota 55397.
ARTICLE THIRD
CAPITAL STOCK
3.1. Certain Defined Terms
As used herein, the following capitalized terms shall have the
following meanings:
"Articles" means this Amendment and Restatement of Articles of
Incorporation, as the same may from time to time be further amended or
restated.
"Designations" means, with respect to a particular class of capital
stock of the Corporation, the designations, powers, preference and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof.
"Person" shall be construed broadly and shall include an individual,
a partnership, a corporation, an association, a joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or
political subdivision thereof.
1
<PAGE> 3
"Regulated Stockholder" means (i) BT Capital Partners, Inc. and any
other Person (A) that is licensed as a Small Business Investment Company
by the United States Small Business Administration, (B) that holds equity
securities of the Corporation and (C) that has given written notice to the
Corporation that such Person is a Regulated Stockholder and (ii) Ontario
Teachers' Pension Plan Board.
"Stockholders' Agreement" means the Stockholders' Agreement dated as
of November 25, 1997, among the Corporation and the Stockholders named
therein, as amended or modified from time to time.
3.2. Authorized Shares
The total number of shares of stock which the Corporation shall have
authority to issue is 6,000,000 shares of common stock, $1.00 par value
(collectively, the "Common Stock"), consisting of:
(a) 3,000,000 shares designated as Class A Common Stock (the "Class
A Common Stock");
(b) 1,500,000 shares designated as Class B Common Stock (the "Class
B Common Stock"); and
(c) 1,500,000 shares designated as Class C Common Stock (the "Class
C Common Stock").
3.3. Common Stock
Except as otherwise provided herein or required by applicable law,
all shares of Common Stock shall be identical in all respects and shall
entitle the holders thereof to the same Designations.
(a) Voting Rights. Except as otherwise required by applicable law or
as set forth herein, the holders of Class B Common Stock and Class C
Common Stock shall not be entitled to vote, and the holders of Class A
Common Stock shall be entitled to vote together, as a single class, on all
matters to be voted on by the Corporation's shareholders. Except as
otherwise set forth herein or required by applicable law, each share of
Class A Common Stock shall entitle the holder thereof to cast one vote,
provided, however, that notwithstanding the foregoing provisions of this
Section 3.3(a), at any time after the occurrence of a Trigger Event (as
defined in the Stockholders' Agreement), each share of Class A Common
Stock and each share of Class B Common Stock shall entitle the holder
thereof to cast one vote, voting as a single class, on all matters to be
voted on by the Corporation's shareholders (except as otherwise required
by applicable law). The affirmative vote of a majority of the total number
of shares entitled to be voted on any issue at a shareholder meeting at
which a quorum is present shall constitute the approval of the matter
voted on.
2
<PAGE> 4
(b) In addition to, and without limiting the generality of the
foregoing, the affirmative vote of a majority of the total number of
shares of Class B Common Stock voting at a meeting at which a quorum is
present, voting separately as a class (with each share entitling the
holder to one vote at all times), will be required for (i) the
authorization, issuance or sale of additional shares of Class B Common
Stock, (ii) the reclassification, cancellation or retirement of the Class
B Common Stock, (iii) any amendment, modification, rescission or waiver of
any provision of these Articles that adversely affects the Class B Common
Stock or (iv) 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 (x) such non-voting
securities will vote with such voting securities, as a single class and
ratably on a per share basis, upon the occurrence of a Trigger Event and
(y) all other consideration is equal on a per share basis.
(c) In addition to, and without limiting the generality of the
foregoing, the affirmative vote of a majority of the total number of
shares of Class C Common Stock voting at a meeting at which a quorum is
present, voting separately as a class (with each share entitling the
holder to one vote at all times), will be required for (i) the
authorization, issuance or sale of additional shares of Class C Common
Stock, (ii) the reclassification, cancellation or retirement of the Class
C Common Stock, (iii) any amendment, modification, rescission or waiver of
any provision of these Articles that adversely affects the Class C Common
Stock or (iv) any merger or consolidation of the Corporation with or into
another entity or entities, or any recapitalization or reorganization, in
which shares of Class C 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 C 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 all other consideration
is equal on a per share basis.
(d) Dividends and Distributions. Any dividend or distribution on the
Common Stock shall be payable on shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock, share and share alike; provided,
however, that in (i) the case of dividends or distributions payable in
shares of Common Stock, 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 paid in shares of, or options, warrants or
rights to acquire, or securities convertible into or exchangeable for,
Common Stock of the same class upon which the dividend or distribution is
being paid and (ii) if such dividends or distributions consist of other
voting securities of the Corporation, the Corporation shall make available
to each holder of Class B Common Stock and Class C
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Common Stock, at such holder's request, dividends or distributions
consisting of non-voting securities of the Corporation which are otherwise
identical to the voting securities; provided that in the case of the
holders of Class B Common Stock, the non-voting securities of the
Corporation delivered to such holders will vote with the Class B Common
Stock, as a single class and ratably on a per share basis, upon the
occurrence of a Trigger Event.
The Corporation shall not in any manner subdivide (by stock split,
stock dividend or otherwise) or combine (by reverse stock split or
otherwise) any class of outstanding Common Stock unless all other classes
of Common Stock shall be proportionately subdivided or combined. All such
subdivisions and combinations shall be payable to the holder of shares of
any class of Common Stock only in shares of such class.
(e) 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 and the preferences on any outstanding preferred stock, the
holders of shares of Class A Common Stock, Class B Common Stock and Class
C Common Stock shall be entitled to share ratably, share and share alike,
in the remaining net assets of the Corporation.
(f) Conversion.
(i) Conversion of Class A into Class B Common Stock. Subject
to and upon compliance with the provisions hereof, any Regulated
Stockholder 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.
(ii) Conversion of Class B into Class A Common Stock. Subject
to and upon compliance with the provisions hereof, each record
holder of Class B Common Stock shall be entitled to convert, at any
time and from time to time, any or all of the shares of Class B
Common Stock held by such stockholder into the same number of shares
of Class A Common Stock. A written request for conversion from a
Regulated Stockholder stating such holder's reasonable belief that a
conversion is not prohibited by any law or regulation applicable to
it in its capacity as a Regulated Stockholder shall be conclusive
and shall obligate the Corporation to effect such conversion in a
timely manner.
(iii) Conversion of Class A Common Stock into Class C Common
Stock. Subject to and upon compliance with the provisions hereof,
any Regulated Stockholder 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 C Common Stock.
(iv) Conversion of Class C into Class A Common Stock. Subject
to and upon compliance with the provisions hereof, any Regulated
Stockholder shall be entitled to convert, at any time and from time
to time, any or all of the shares of Class C Common Stock held by
such stockholder into the same number of shares of Class A Common
Stock. A written request for conversion from a Regulated Stockholder
stating such
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<PAGE> 6
holder's reasonable belief that a conversion is not prohibited by
any law or regulation applicable to it in its capacity as a
Regulated Stockholder shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely manner.
(v) Automatic Conversion of Class C Common Stock. Upon the
sale or transfer by any Regulated Stockholder of any shares of Class
C Common Stock to any Person who is not a Regulated Stockholder,
such shares of Class C Common Stock shall automatically convert
without further action (an "Automatic Conversion") into an equal
number of shares of Class A Common Stock.
(g) Conversion Procedures.
(i) Mechanics. Each conversion of shares of any class of
Common Stock of the Corporation into shares of another class of
Common Stock of the Corporation (other than an Automatic Conversion)
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 of the Corporation as the Corporation
may designate by written notice to the holders of such class 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 the shares 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. A holder may
make any such notice of conversion conditional upon the happening of
any event or the passage of such time as is specified by such holder
in such conversion notice, and may rescind any notice of conversion
prior to the effective time thereof specified in any such notice.
Promptly after such surrender and the receipt of such written notice
of conversion, 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 a Deferral Period, 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 a
Deferral Period, 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
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<PAGE> 7
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, such Converted Shares
shall be deemed to be duly authorized, validly issued, fully paid
and non-assessable, with no personal liability attaching to the
ownership thereof and free from all taxes, liens or charges with
respect thereto due to any action of the Corporation. The
Corporation shall take all such actions as may be necessary to
assure that all such shares may be so issued without violation of
any applicable law or any requirements of any domestic securities
exchange upon which such shares 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 in any manner which would
interfere with the timely conversion of any shares. 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 such shares; 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 shares converted. No fractional shares of capital stock or
scrip shall be issued upon conversion of any shares. The number of
full shares issuable upon conversion shall be computed on the basis
of the aggregate number of shares to be converted by a holder.
Instead of any fractional shares which would otherwise be issuable
upon conversion of Common Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal
to the product of (i) the price of one share of such Common Stock as
determined in good faith by the Board and (ii) such fractional
interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such
fractional interests.
(h) Notice of Conversion, Redemption, Repurchase, etc. to 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 voting 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 directly or indirectly 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 Section 3.3(h) or such holder's affiliates)
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
"Deferral 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, 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
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<PAGE> 8
response to the notices issued pursuant to this Section 3.3(h) at the end
of the Deferral Period. Upon complying with the procedures hereinabove set
forth in this paragraph (b) of this Section 3.3, 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.
(i) Organic Changes. In case of any reorganization, reclassification
or change of shares of any class of 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 or change of outstanding shares of any class of common
stock), each holder of a share of any class of 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 such class of common stock into which
such shares 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 or
incorporation of the resulting or surviving corporation or otherwise for
the protection of the conversion rights of the shares of Class A Common
Stock, Class B Common Stock and Class C 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 conversion of
such shares of Class A Common Stock, Class B Common Stock or Class C
Common Stock into which such Class A Common Stock, Class B Common Stock or
Class C Common Stock might have been converted immediately prior to such
event.
3.4. Miscellaneous.
(a) 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 its capital
stock. Upon the surrender of any certificate representing shares of any
class of capital 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 be registered in
such name and will represent such number of shares of such class as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. The
issuance of new certificates shall be made without charge to the holders
of the surrendered certificates for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such issuance,
other than any applicable transfer tax resulting from the issuance of the
new certificate registered in a name other than the name in which the
surrendered certificate was registered.
(b) Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation of the ownership and the loss, theft, destruction or
mutilation of any certificate
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<PAGE> 9
evidencing one or more shares of any class of capital stock, and in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Corporation (provided that if the holder is
a financial institution or other institutional investor its own agreement
will be 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.
(c) Notices. Unless otherwise provided in these Articles, 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 or 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).
ARTICLE FOURTH
CUMULATIVE VOTING
Other than as otherwise provided herein, there shall be no
cumulative voting by the shareholders of the Corporation. ARTICLE FIFTH
PRE-EMPTIVE RIGHTS
The shareholders of the Corporation shall have no pre-emptive right to
subscribe for any issue of shares of any class of the Corporation now or
hereafter made.
ARTICLE SIXTH
DIRECTORS
(a) The Corporation shall be governed by a Board of Directors
elected in the manner set forth within the by-laws of the Corporation (the
"By-laws"). The number of directors comprising the Board of Directors
shall be as determined in accordance with the procedures established
therefore within the By-laws. The presence of at least one BT Director
shall be required to constitute a quorum at any meeting of the Board of
Directors or any committee thereof. At each meeting of the Corporation's
Board of Directors (or committee thereof) at which a quorum is present
each director shall be entitled to one vote on each matter to be voted on
at such meeting; provided, however, that notwithstanding the foregoing
provisions of this Article Sixth, at any time after the occurrence of a
Trigger Event, the affirmative assent of at least one BT Director (as
defined in the Stockholders' Agreement) shall be required for any action
(whether by vote or by written consent) of the Board of Directors (or any
committee
8
<PAGE> 10
thereof). The election of directors of the Corporation need not be by ballot
unless the By-laws so require.
ARTICLE SEVENTH
EXCULPATION
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 302A.559 or 80A.23 of the Minnesota
Business Corporation Act, or (iv) for any transaction from which the director
derived any improper personal benefit. If the Minnesota Business Corporation Act
is amended after the date of incorporation of the Corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Minnesota Business
Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE EIGHTH
BY-LAWS
In furtherance and not in limitation of the powers conferred by the
laws of the State of Minnesota, the Board of Directors is expressly authorized
and empowered to make, alter, amend or repeal the By-laws in any manner not
inconsistent with the laws of the State of Minnesota or these Articles of
Incorporation.
ARTICLE NINTH
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Minnesota may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation, order a meeting of the creditors or any class of
creditors, and/or the stockholders or class of stockholders of this Corporation,
as the case may be, to be summoned in such manner as the said court directs.
9
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If a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders, or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
10
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[SEAL OF THE STATE MINNESOTA SECRETARY OF STATE
OF MINNESOTA] AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, PLEASE READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME: (List the name of the company prior to any desired name change)
YOUNG AMERICA CORPORATION
- --------------------------------------------------------------------------------
This amendment is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State.
------------------------
The following amendment(s) of articles regulating the above corporation were
adopted: (Insert full text of newly amended article(s) indicating which
article(s) is (are) being amended or added.) If the full text of the amendment
will not fit in the space provided, attach additional numbered pages. (Total
number of pages including this form 1.)
ARTICLE 1
---------------
The name of the corporation (hereinafter called the "Corporation") is
Young America Holdings, Inc.
The address of the registered office of the Corporation in the State of
Minnesota is National Registered Agents, Inc., 1295 Bandana Blvd., N. Suite 300,
St. Paul, MN 55108-5116.
This amendment has been approved pursuant to Minnesota Statutes chapter 302A or
317A. I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
/s/ Charles D. Weil
----------------------------------------------------
(Signature of Authorized Person)
================================================================================
INSTRUCTIONS FOR OFFICE USE ONLY
1. Type or print with black ink.
2. A Filing Fee of: $35.00, made
payable to the Secretary of State.
3. Return completed forms to:
Secretary of State STATE OF MINNESOTA
180 State Office Building DEPARTMENT OF STATE
100 Constitution Ave. FILED
St. Paul, MN 55155-1299
(612)296-2883 JAN 16 1998
/s/ Joan Anderson Growe
Secretary of State
<PAGE> 1
Exhibit 3.3
YOUNG AMERICA CORPORATION
Incorporated under the laws
of the State of Minnesota
---------------------------
AMENDED AND RESTATED
BY-LAWS
---------------------------
As adopted on April 7, 1998
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS OF
YOUNG AMERICA CORPORATION
ARTICLE I
OFFICES
1.1 Registered Office.
The registered office of Young America Corporation (the "Corporation"), in
the State of Minnesota and the registered agent in charge thereof shall be as
set forth in the Articles of Incorporation.
1.2 Other Offices.
The Corporation may also have an office or offices at any other place or
places within or outside the State of Minnesota.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
2.1 Annual Meetings.
The annual meeting of the stockholders for the election of directors, and
for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board of Directors of the Corporation (the "Board") and designated in the notice
or waiver of notice thereof, except that no annual meeting need be held if all
actions, including the election of directors, required by the Business
Corporation Law of the State of Minnesota (the "Minnesota Statute") to be taken
at a stockholders' annual meeting are taken by written consent in lieu of
meeting pursuant to Section 10 of this Article II.
2.2 Special Meetings.
A special meeting of the stockholders for any purpose or purposes may be
called by those persons designated in Section 302A.433 of the Minnesota
Statutes, as well as the Chairman of the Board, to be held at such place, date
and
<PAGE> 3
hour as shall be designated in the notice or waiver of notice thereof.
2.3 Notice of Meetings.
Except as otherwise required by statute, the Articles of Incorporation of
the Corporation (the "Articles") or these By-laws, notice of each annual or
special meeting of the stockholders shall be given to each stockholder of record
entitled to vote at such meeting not less than 10 nor more than 60 days before
the day on which the meeting is to be held, by delivering written notice thereof
to him personally, or by mailing a copy of such notice, postage prepaid,
directly to him at his address as it appears in the records of the Corporation,
or by transmitting such notice thereof to him at such address by telegraph,
cable or other telephonic transmission. Every such notice shall state the place,
the date and hour of the meeting, and, in case of a special meeting, the purpose
or purposes for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice of
any adjourned meeting of stockholders shall not be required to be given, except
when expressly required by law.
2.4 Quorum.
At each meeting of the stockholders, except where otherwise provided by
the Articles or these By-laws, the holders of a majority of the issued and
outstanding shares of Common Stock of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. In the absence of a quorum, a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote, or, in the absence of all the stockholders entitled to vote,
any officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
<PAGE> 4
2.5 Organization.
(a) Unless otherwise determined by the Board, at each meeting of the
stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
(i) the Chairman;
(ii)the President;
(iii) any director, officer or stockholder of the Corporation
designated by the Board to act as chairman of such meeting and to preside
thereat if the Chairman or the President shall be absent from such
meeting; or
(iv) a stockholder of record who shall be chosen chairman of
such meeting by a majority in voting interest of the stockholders present
in person or by proxy and entitled to vote thereat.
(b) The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
2.6 Order of Business.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
2.7 Voting.
Except as otherwise provided by law, the Articles or these By-laws, at
each meeting of the stockholders, every stockholder of the Corporation shall be
entitled to one vote in person or by proxy for each share of Common Stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to Section 7 of Article VI as the record
date for the determination of stockholders entitled to vote at such meeting.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. A person whose stock is pledged shall be entitled to vote,
unless, in the transfer by the pledgor on the books of the Corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or his proxy may represent such
<PAGE> 5
stock and vote thereon. If shares or other securities having voting power stand
in the record of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary shall be given written notice
to the contrary and furnished with a copy of the instrument or order appointing
them or creating the relationship wherein it is so provided, their acts with
respect to voting shall have the following effect:
(i) if only one votes, his act binds all;
(ii) if more than one votes, the act of the majority so voting
binds all; and
(iii) if more than one votes, but the vote is evenly split on
any particular matter, such shares shall be voted in the manner provided
by law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 7 shall be
a majority or even-split in interest. The Corporation shall not vote directly or
indirectly any share of its own capital stock. Any vote of stock may be given by
the stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted after eleven months from its date, unless
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Articles or these
By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot upon any question, such vote by ballot shall be taken. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
2.8 Inspection.
The chairman of the meeting may at any time appoint one or more inspectors
to serve at any meeting of the stockholders. Any inspector may be removed, and a
new inspector or inspectors appointed, by the Board at any time. Such inspectors
shall decide upon the qualifications of voters, accept and count votes, declare
the results of such
<PAGE> 6
vote, and subscribe and deliver to the secretary of the meeting a Articles
stating the number of shares of stock issued and outstanding and entitled to
vote thereon and the number of shares voted for and against the question,
respectively. The inspectors need not be stockholders of the Corporation, and
any director or officer of the Corporation may be an inspector on any question
other than a vote for or against his election to any position with the
Corporation or on any other matter in which he may be directly interested.
Before acting as herein provided, each inspector shall subscribe an oath
faithfully to execute the duties of an inspector with strict impartiality and
according to the best of his ability.
2.9 List of Stockholders.
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote thereat, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to any such meeting, during ordinary business hours, for
a period of at least 10 days prior to such meeting, either at a place within the
city where such meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. Such list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.10 Stockholders' Consent in Lieu of Meeting.
Any action required by the Minnesota Statute to be taken at any annual or
special meeting of the stockholders of the Corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, by a consent in
writing, as permitted by the Minnesota Statute.
Aritcle III
BOARD OF DIRECTORS
3.1 General Powers.
The business, property and affairs of the Corporation shall be managed by
or under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
<PAGE> 7
Articles directed or required to be exercised or done by the stockholders.
3.2 Number and Term of Office.
The number of directors shall be fixed from time to time by the Board.
Directors need not be stockholders. Each director shall hold office until his
successor is elected and qualified, or until his earlier death or resignation or
removal in the manner hereinafter provided.
3.3 Election of Directors.
At each meeting of the stockholders for the election of directors at which
a quorum is present, the persons receiving the greatest number of votes, up to
the number of directors to be elected, of the stockholders present in person or
by proxy and entitled to vote thereon shall be the directors; provided, however,
that for purposes of such vote no stockholder shall be allowed to cumulate his
votes. Unless an election by ballot shall be demanded as provided in Section 7
of Article II, election of directors may be conducted in any manner approved at
such meeting.
3.4 Resignation, Removal and Vacancies.
(a) Any director may resign at any time by giving written notice to
the Board, the Chairman, the President or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, upon
receipt thereof; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(b) Any director or the entire Board may be removed, with or without
cause, at any time by vote of the holders of a majority of the shares then
entitled to vote at an election of directors or by written consent of the
stockholders pursuant to Section 10 of Article II.
(c) Vacancies occurring on the Board for any reason may be filled by
vote of the stockholders or by the stockholders' written consent pursuant to
Section 10 of Article II, or by vote of the Board or by the directors' written
consent pursuant to Section 6 of this Aritcle III. If the number of directors
then in office is less than a quorum, such vacancies may be filled by a vote of
a majority of the directors then in office.
3.5 Meetings.
(a) Annual Meetings. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization and
the transaction of other
<PAGE> 8
business, unless it shall have transacted all such business by written consent
pursuant to Section 6 of this Aritcle III.
(b) Other Meetings. Other meetings of the Board shall be held at
such times and places as the Board, the Chairman, the President or any director
shall from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director of
each meeting, including the time, place and purpose of such meeting. Notice of
each such meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least two days before the date on which
such meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place
or places within or outside the State of Minnesota as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number of
directors then in office shall be present at any meeting of the Board in order
to constitute a quorum for the transaction of business at such meeting, and the
vote of a majority of those directors present at any such meeting at which a
quorum is present shall be necessary for the passage of any resolution or act of
the Board, except as otherwise expressly required by law or these By-laws. In
the absence of a quorum for any such meeting, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum shall
be present.
(f) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman;
(ii) the President (if a director); or any director designated
by a majority of the directors present.
<PAGE> 9
(iii) The Secretary or, in the case of his absence, an
Assistant Secretary, if an Assistant Secretary has been appointed and is
present, or any person whom the chairman of the meeting shall appoint
shall act as secretary of such meeting and keep the minutes thereof.
3.6 Directors' Consent in Lieu of Meeting.
Any action required or permitted to be taken at any meeting of the Board
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 signed by all
the directors then in office and such consent is filed with the minutes of the
proceedings of the Board.
3.7 Action by Means of Conference Telephone or Similar Communications Equipment.
Any one or more members of the Board may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
3.8 Committees.
The Board may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
one or more directors of the Corporation, which to the extent provided in said
resolution or resolutions shall have and may exercise the powers of the Board in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it,
such committee or committees to have such name or names as may be determined
from time to time by resolution adopted by the Board. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board shall
have power to change the members of any such committee at any time, to fill
vacancies and to discharge any such committee, either with or without cause, at
any time.
ARTICLE IV
OFFICERS
4.1 Executive Officers.
The principal officers of the Corporation shall be a Chairman, if one is
appointed (and any references to the
<PAGE> 10
Chairman shall not apply if a Chairman has not been appointed), a President, a
Secretary, and a Treasurer, and may include such other officers as the Board may
appoint pursuant to Section 3 of this Article 4. Any two or more offices may be
held by the same person.
4.2 Authority and Duties.
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent so provided, by the Board.
4.3 Other Officers.
The Corporation may have such other officers, agents and employees as the
Board may deem necessary, including one or more Assistant Secretaries, one or
more Assistant Treasurers and one or more Vice Presidents, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board, the Chairman, or the President may from time to time determine. The Board
may delegate to any principal officer the power to appoint and define the
authority and duties of, or remove, any such officers, agents, or employees.
4.4 Term of Office, Resignation and Removal.
(a) All officers shall be elected or appointed by the Board and
shall hold office for such term as may be prescribed by the Board. Each officer
shall hold office until his successor has been elected or appointed and
qualified or until his earlier death or resignation or removal in the manner
hereinafter provided. The Board may require any officer to give security for the
faithful performance of his duties.
(b) Any officer may resign at any time by giving written notice to
the Board, the Chairman, the President or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, at
the time it is accepted by action of the Board. Except as aforesaid, the
acceptance of such resignation shall not be necessary to make it effective.
(c) All officers and agents elected or appointed by the Board shall
be subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
<PAGE> 11
4.5 Vacancies.
If the office of Chairman, President, Secretary or Treasurer becomes
vacant for any reason, the Board shall fill such vacancy, and if any other
office becomes vacant, the Board may fill such vacancy. Any officer so appointed
or elected by the Board shall serve only until such time as the unexpired term
of his predecessor shall have expired, unless reelected or reappointed by the
Board.
4.6 The Chairman.
The Chairman shall give counsel and advice to the Board and the officers
of the Corporation on all subjects concerning the welfare of the Corporation and
the conduct of its business and shall perform such other duties as the Board may
from time to time determine. Unless otherwise determined by the Board, he shall
preside at meetings of the Board and of the Stockholders at which he is present.
4.7 The President.
The President shall be the chief executive officer of the Corporation. The
President shall have general and active management and control of the business
and affairs of the Corporation subject to the control of the Board and shall see
that all orders and resolutions of the Board are carried into effect. The
President shall from time to time make such reports of the affairs of the
Corporation as the Board of Directors may require and shall perform such other
duties as the Board may from time to time determine.
4.8 The Secretary.
The Secretary shall, to the extent practicable, attend all meetings of the
Board and all meetings of the stockholders and shall record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He may give,
or cause to be given, notice of all meetings of the stockholders and of the
Board, and shall perform such other duties as may be prescribed by the Board,
the Chairman or the President, under whose supervision he shall act. He shall
keep in safe custody the seal of the Corporation and affix the same to any duly
authorized instrument requiring it and, when so affixed, it shall be attested by
his signature or by the signature of the Treasurer or, if appointed, an
Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody the
Articles books and stockholder records and such other books and records as the
Board may direct, and shall perform all other duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board, the Chairman or the President.
<PAGE> 12
4.9 The Treasurer.
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Chairman, President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation and shall perform
all other duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the Board, the Chairman or the
President.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1 Execution of Documents.
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; unless so
designated or expressly authorized by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
5.2 Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
5.3 Proxies with Respect to Stock or Other Securities of Other Corporations.
The Board shall designate the officers of the Corporation who shall have
authority from time to time to appoint an agent or agents of the Corporation to
exercise in
<PAGE> 13
the name and on behalf of the Corporation the powers and rights which the
Corporation may have as the holder of stock or other securities in any other
corporation, and to vote or consent with respect to such stock or securities.
Such designated officers may instruct the person or persons so appointed as to
the manner of exercising such powers and rights, and such designated officers
may execute or cause to be executed in the name and on behalf of the Corporation
and under its corporate seal or otherwise, such written proxies, powers of
attorney or other instruments as they may deem necessary or proper in order that
the Corporation may exercise its powers and rights.
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
6.1 Articles for Shares.
Every owner of stock of the Corporation shall be entitled to have a
Articles certifying the number and class of shares owned by him in the
Corporation, which shall be in such form as shall be prescribed by the Board.
Articles shall be numbered and issued in consecutive order and shall be signed
by, or in the name of, the Corporation by the Chairman, the President or any
Vice President, and by the Treasurer (or an Assistant Treasurer, if appointed)
or the Secretary (or an Assistant Secretary, if appointed). In case any officer
or officers who shall have signed any such Articles or Articles shall cease to
be such officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such Articles or Articles shall have been
delivered by the Corporation, such Articles or Articles may nevertheless be
adopted by the Corporation and be issued and delivered as though the person or
persons who signed such Articles had not ceased to be such officer or officers
of the Corporation.
6.2 Record.
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each Articles for
stock of the Corporation issued, the number of shares represented by each such
Articles, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in whose
name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes regarding the Corporation.
<PAGE> 14
6.3 Transfer and Registration of Stock.
(a) The transfer of stock and Articles which represent the stock of
the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the
Minnesota Code (the Uniform Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of the Corporation shall be
made only on the books of the Corporation upon request of the registered holder
thereof, or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and upon the surrender
of the Articles or Articles for such shares properly endorsed or accompanied by
a stock power duly executed.
6.4 Addresses of Stockholders.
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon him by mail directed to him at his post-office
address, if any, as the same appears on the share record books of the
Corporation or at his last known post-office address.
6.5 Lost, Destroyed and Mutilated Articles.
The holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the Articles therefor, and
the Board may, in its discretion, cause to be issued to him a new Articles or
Articles for such shares, upon the surrender of the mutilated Articles or, in
the case of loss or destruction of the Articles, upon satisfactory proof of such
loss or destruction, and the Board may, in its discretion, require the owner of
the lost or destroyed Articles or his legal representative to give the
Corporation a bond in such sum and with such surety or sureties as it may direct
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such Articles.
6.6 Regulations.
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these By-laws, concerning the issue, transfer and
registration of Articles for stock of the Corporation.
<PAGE> 15
6.7 Fixing Date for Determination of Stockholders of Record.
(a) 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, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall be not more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the Minnesota Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
Minnesota Statute, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the
<PAGE> 16
purpose of any other lawful action, the Board may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
ARTICLE VII
SEAL
The Board may provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "YAC Corp. -
Corporate Seal - 1997 Minnesota."
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
9.1 Indemnification.
(a) As provided in the Articles, to the fullest extent permitted by
the Minnesota Statute 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 breach of fiduciary duty as a director.
(b) Without limitation of any right conferred by paragraph (a) of
this Section 1, each director, officer and employee of the Corporation shall be
indemnified to the fullest extent provided under Section 302A.521 of the
Minnesota Statutes.
(c) The rights to indemnification and to the advancement of expenses
conferred in this Article IX shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Articles, vote of
stockholders or disinterested directors or otherwise.
<PAGE> 17
9.2 Insurance.
The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or any person who is or was serving at the request of
the Corporation as a director, officer, employer or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Minnesota Statute.
ARTICLE X
AMENDMENT
Any by-law (including these By-laws) may be adopted, amended or repealed
by the vote of the holders of a majority of the shares then entitled to vote or
by the stockholders' written consent pursuant to Section 10 of Article II, or by
the vote of the Board or by the directors' written consent pursuant to Section 6
of Aritcle III.
* * * * *
* * *
*
<PAGE> 1
Exhibit 3.4
================================================================================
YOUNG AMERICA HOLDINGS, INC.
Incorporated under the laws
of the State of Minnesota
---------------------------
AMENDED AND RESTATED
BY-LAWS
---------------------------
As adopted on April 7 , 1998
================================================================================
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS OF
YOUNG AMERICA HOLDINGS, INC.
ARTICLE I
OFFICES
1.1. Registered Office.
The registered office of Young America Holdings, Inc. (the "Corporation"),
in the State of Minnesota, shall be at 717 Faxon Road, Young America, Minnesota
55397.
1.2. Other Offices.
The Corporation may also have an office or offices at any other place or
places within or outside the State of Minnesota.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
2.1. Annual Meetings.
The annual meeting of the stockholders for the election of directors, and
for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board of Directors (the "Board") and designated in the notice or waiver of
notice thereof, except that no annual meeting need be held if all actions,
including the election of directors, required by the Business Corporation Act of
the State of Minnesota (the "Minnesota Statute") to be taken at a stockholders'
annual meeting are taken by written consent in lieu of meeting pursuant to
Section 2.10.
2.2. Special Meetings.
A special meeting of the stockholders for any purpose or purposes may be
called as provided within the Minnesota Statute.
<PAGE> 3
2.3. Notice of Meetings.
Except as otherwise required by statute, the Articles of Incorporation of
the Corporation (the "Articles") or these By-laws, notice of each annual or
special meeting of the stockholders shall be given to each stockholder of record
entitled to vote at such meeting not less than 10 nor more than 60 days before
the day on which the meeting is to be held, by delivering written notice thereof
to him personally, or by mailing a copy of such notice, postage prepaid,
directly to him at his address as it appears in the records of the Corporation,
or by transmitting such notice thereof to him, her or it at such address by
telegraph, cable or other telephonic transmission. Every such notice shall state
the place, the date and hour of the meeting, and, in case of a special meeting,
the purpose or purposes for which the meeting is called. Notice of any meeting
of stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice of
any adjourned meeting of stockholders shall not be required to be given, except
when expressly required by law.
2.4. Quorum.
At each meeting of the stockholders, except where otherwise provided by
the Articles or these By-laws, the holders of a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. In the absence of a quorum, a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote, or, in the absence of all the stockholders entitled to vote,
any officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
2.5. Organization.
(a) Unless otherwise determined by the Board, at each meeting of the
stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
2
<PAGE> 4
(i) the Chairman;
(ii) the President;
(iii) any director, officer or stockholder of the Corporation
designated by the Board to act as chairman of such meeting and to preside
thereat if the Chairman or the President shall be absent from such
meeting; or
(iv) a stockholder of record who shall be chosen chairman of such
meeting by a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat.
(b) The Secretary or, if he or she shall be presiding over such meeting in
accordance with the provisions of this Section 2.5 or if he or she shall be
absent from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary has been appointed and is present) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
2.6. Order of Business.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but (subject to applicable law) such
order of business may be changed by a majority in voting interest of those
present in person or by proxy at such meeting and entitled to vote thereat.
2.7. Voting.
Except as otherwise provided by law, the Articles or these By-laws, at
each meeting of the stockholders, every stockholder of the Corporation shall be
entitled to one vote in person or by proxy for each share of Common Stock of the
Corporation held by him, her or it and registered in his name on the books of
the Corporation on the date fixed pursuant to Section 6.7 as the record date for
the determination of stockholders entitled to vote at such meeting. Persons
holding stock in a fiduciary capacity shall be entitled to vote the shares so
held. A person whose stock is pledged shall be entitled to vote, unless, in the
transfer by the pledgor on the books of the Corporation, he, she or it has
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or his proxy may represent such stock and vote thereon. If shares or other
securities having voting power stand in the record of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary shall be
given written notice to the contrary and
3
<PAGE> 5
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
(i) if only one votes, his act binds all;
(ii) if more than one votes, the act of the majority so voting binds
all; and
(iii) if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by
law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 2.7 shall
be a majority or even-split in interest. The Corporation shall not vote directly
or indirectly any share of its own capital stock. Any vote of stock may be given
by the stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided ,
however, that no proxy shall be voted after three years from its date, unless
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Articles or these
By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot upon any question, such vote by ballot shall be taken. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
2.8. Inspection.
The chairman of the meeting may at any time appoint one or more inspectors
to serve at any meeting of the stockholders. Any inspector may be removed, and a
new inspector or inspectors appointed, by the Board at any time. Such inspectors
shall decide upon the qualifications of voters, accept and count votes, declare
the results of such vote, and subscribe and deliver to the secretary of the
meeting a certificate stating the number of shares of stock issued and
outstanding and entitled to vote thereon and the number of shares voted for and
against the question, respectively. The inspectors need not be stockholders of
the Corporation, and any director or officer of the Corporation may be an
inspector on any question other than a vote for or against his election to any
position with the Corporation or on any other matter in which he or she may be
directly
4
<PAGE> 6
interested. Before acting as herein provided, each inspector shall subscribe an
oath faithfully to execute the duties of an inspector with strict impartiality
and according to the best of his ability.
2.9. List of Stockholders.
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote thereat, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to any such meeting, during ordinary business hours, for
a period of at least 10 days prior to such meeting, either at a place within the
city where such meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. Such list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.10. Stockholders' Consent in Lieu of Meeting.
Any action required by the Minnesota Statute to be taken at any annual or
special meeting of the stockholders of the Corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, by a consent in
writing, as permitted by the Minnesota Statute.
ARTICLE III
BOARD OF DIRECTORS
3.1. General Powers.
The business, property and affairs of the Corporation shall be managed by
or under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Articles directed or required to be exercised or done by the stockholders.
3.2. Number and Term of Office.
The number of directors shall be fixed from time to time by the Board.
Directors need not be stockholders. Each director shall hold office until his
successor is elected and qualified,
5
<PAGE> 7
or until his earlier death or resignation or removal in the manner hereinafter
provided.
3.3. Election of Directors.
At each meeting of the stockholders for the election of directors at which
a quorum is present, the persons receiving the greatest number of votes, up to
the number of directors to be elected, of the stockholders present in person or
by proxy and entitled to vote thereon shall be the directors; provided, however,
that for purposes of such vote no stockholder shall be allowed to cumulate his
votes. Unless an election by ballot shall be demanded as provided in Section
2.7, election of directors may be conducted in any manner approved at such
meeting.
3.4. Resignation, Removal and Vacancies.
(a) Any director may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified therein or, if the time be not specified, upon
receipt thereof; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(b) Except as otherwise provided in the Stockholders' Agreement dated as
of November 25, 1997 among the Corporation and the other parties named therein
(as such agreement may from time to time be amended, restated or supplanted, the
"Stockholders' Agreement), any director or the entire Board may be removed, with
or without cause, at any time by vote of the holders of a majority of the shares
then entitled to vote at an election of directors or by written consent of the
stockholders pursuant to Section 2.10.
(c) Except as otherwise provided in the Stockholders' Agreement, vacancies
occurring on the Board for any reason may be filled by vote of the stockholders
or by the stockholders' written consent pursuant to Section 2.10, or by vote of
the Board or by the directors' written consent pursuant to Section 3.6. If the
number of directors then in office is less than a quorum, such vacancies may be
filled by a vote of a majority of the directors then in office.
3.5. Meetings.
(a) Annual Meetings. As soon as practicable after each annual election of
directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 3.6.
6
<PAGE> 8
(b) Other Meetings. Other meetings of the Board shall be held at such
times and places as the Board, the Chairman, the President or any director shall
from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director of each
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him or her at his or
her residence or usual place of business, at least two days before the date on
which such meeting is to be held, or shall be sent to him or her at such place
by telegraph, cable, wireless or other form of recorded communication, or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held, but notice need not be given to any director
who shall attend such meeting. A written waiver of notice, signed by the person
entitled thereto, whether before or after the time of the meeting stated
therein, shall be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or outside the State of Minnesota as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number of
directors, which majority must include at least one BT Director (as defined in
the Stockholders' Agreement), then in office shall be present at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and the majority vote of those directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or act of the Board, except as otherwise expressly required by law,
the Articles or these By-laws; provided, however, that notwithstanding the
foregoing, at any time after the occurrence of a Trigger Event (as defined in
the Stockholders' Agreement), the affirmative assent of at least one BT Director
(as defined in the Stockholders' Agreement) shall be required for any action
(whether by vote or by written consent) of the Board (or any committee thereof).
In the absence of a quorum for any such meeting, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum shall
be present.
(f) Organization. At each meeting of the Board, one of the following shall
act as chairman of the meeting and preside thereat, in the following order of
precedence:
(i) the Chairman;
(ii) the President (if a director); or
7
<PAGE> 9
(iii) any director designated by a majority of the directors
present.
The Secretary or, in the case of his absence, an Assistant Secretary, if
an Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
3.6. Directors' Consent in Lieu of Meeting.
Any action required or permitted to be taken at any meeting of the Board
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 signed by all
the directors then in office and such consent is filed with the minutes of the
proceedings of the Board.
3.7. Action by Means of Conference Telephone or Similar Communications
Equipment.
Any one or more members of the Board may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
3.8. Committees.
Subject to the proviso contained within Section 3.5(e), the Board may, by
resolution or resolutions passed by a majority of the whole Board, designate one
or more committees, each such committee to consist of one or more directors of
the Corporation, which to the extent provided in said resolution or resolutions
shall have and may exercise the powers of the Board in the management of the
business and affairs of the Corporation, such committee or committees to have
such name or names as may be determined from time to time by resolution adopted
by the Board. A majority of all the members of any such committee may determine
its action and fix the time and place of its meetings, unless the Board shall
otherwise provide. Except as otherwise provided in the Stockholders' Agreement,
the Board shall have power to change the members of any such committee at any
time, to fill vacancies and to discharge any such committee, either with or
without cause, at any time.
8
<PAGE> 10
ARTICLE IV
OFFICERS
4.1. Executive Officers.
The principal officers of the Corporation shall be a Chairman, if one is
appointed (and any references to the Chairman shall not apply if a Chairman has
not been appointed), a President, a Secretary, and a Treasurer, and may include
such other officers as the Board may appoint pursuant to Section 4.3. Any two or
more offices may be held by the same person.
4.2. Authority and Duties.
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent so provided, by the Board.
4.3. Other Officers.
The Corporation may have such other officers, agents and employees as the
Board may deem necessary, including one or more Assistant Secretaries, one or
more Assistant Treasurers and one or more Vice Presidents, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board, the Chairman, or the President may from time to time determine. The Board
may delegate to any principal officer the power to appoint and define the
authority and duties of, or remove, any such officers, agents, or employees.
4.4. Term of Office, Resignation and Removal.
(a) All officers shall be elected or appointed by the Board and shall hold
office for such term as may be prescribed by the Board. Each officer shall hold
office until his successor has been elected or appointed and qualified or until
his earlier death or resignation or removal in the manner hereinafter provided.
The Board may require any officer to give security for the faithful performance
of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified therein or, if the time be not specified, at the
time it is accepted by action of the Board. Except as aforesaid, the acceptance
of such resignation shall not be necessary to make it effective.
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<PAGE> 11
(c) All officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
4.5. Vacancies.
If the office of Chairman, President, Secretary or Treasurer becomes
vacant for any reason, the Board shall fill such vacancy, and if any other
office becomes vacant, the Board may fill such vacancy. Any officer so appointed
or elected by the Board shall serve only until such time as the unexpired term
of his predecessor shall have expired, unless reelected or reappointed by the
Board.
4.6. The Chairman.
The Chairman shall give counsel and advice to the Board and the officers
of the Corporation on all subjects concerning the welfare of the Corporation and
the conduct of its business and shall perform such other duties as the Board may
from time to time determine. Unless otherwise determined by the Board, he or she
shall preside at meetings of the Board and of the Stockholders at which he or
she is present.
4.7. The President.
The President shall be the chief executive officer of the Corporation. The
President shall have general and active management and control of the business
and affairs of the Corporation subject to the control of the Board and shall see
that all orders and resolutions of the Board are carried into effect. The
President shall from time to time make such reports of the affairs of the
Corporation as the Board may require and shall perform such other duties as the
Board may from time to time determine.
4.8. The Secretary.
The Secretary shall, to the extent practicable, shall attend all meetings
of the Board and all meetings of the stockholders and shall record all votes and
the minutes of all proceedings in a book to be kept for that purpose. He or she
may give, or cause to be given, notice of all meetings of the stockholders and
of the Board, and shall perform such other duties as may be prescribed by the
Board, the Chairman or the President, under whose supervision he or she shall
act. He or she shall keep in safe custody the certificate books and stockholder
records and such other books and records as the Board may direct, and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the Board, the
Chairman or the President.
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<PAGE> 12
4.9. The Treasurer.
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Chairman, President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation and shall perform
all other duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him or her by the Board, the Chairman or
the President.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1. Execution of Documents.
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; unless so
designated or expressly authorized by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
5.2. Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
11
<PAGE> 13
5.3. Proxies with Respect to Stock or Other Securities of Other Corporations.
The Board shall designate the officers of the Corporation who shall have
authority from time to time to appoint an agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation, and to vote or consent with respect to such stock or
securities. Such designated officers may instruct the person or persons so
appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its powers and rights.
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
6.1. Certificates for Shares.
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number and class of shares owned by him, her or it in
the Corporation, which shall be in such form as shall be prescribed by the
Board. Certificates shall be numbered and issued in consecutive order and shall
be signed by, or in the name of, the Corporation by the Chairman, the President
or any Vice President, and by the Treasurer (or an Assistant Treasurer, if
appointed) or the Secretary (or an Assistant Secretary, if appointed). In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate had not
ceased to be such officer or officers of the Corporation.
6.2. Record.
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in whose
name shares of stock stand on the
12
<PAGE> 14
stock record of the Corporation shall be deemed the owner thereof for all
purposes regarding the Corporation.
6.3. Transfer and Registration of Stock.
(a) The transfer of stock and certificates which represent the stock of
the Corporation shall be governed by Section 302A.417 of the Minnesota Statutes,
as amended from time to time.
(b) Registration of transfers of shares of the Corporation shall be made
only on the books of the Corporation upon request of the registered holder
thereof, or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and upon the surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a stock power duly executed.
6.4. Addresses of Stockholders.
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, her or it, and, if any stockholder shall fail to designate such address,
corporate notices may be served upon him, her or it by mail directed to him, her
or it at his post-office address, if any, as the same appears on the share
record books of the Corporation or at his last known post-office address.
6.5. Lost, Destroyed and Mutilated Certificates.
The holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board may, in its discretion, cause to be issued to him, her or it a new
certificate or certificates for such shares, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
6.6. Regulations.
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these By-laws, concerning the issue, transfer and
registration of certificates for stock of the Corporation.
13
<PAGE> 15
6.7. Fixing Date for Determination of Stockholders of Record.
(a) 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, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which record date shall be not more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which date shall
be not more than 10 days after the date upon which the resolution fixing the
record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the Minnesota Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
Minnesota Statute, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exc hange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more
14
<PAGE> 16
than 60 days prior to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto.
ARTICLE VII
SEAL
The Corporation shall have no corporate seal.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
The Corporation shall indemnify all officers and directors of the
Corporation for such expenses and liabilities, in such manner, under such
circumstances and to such extent as permitted by Section 302A.521 of the
Minnesota Statute, as now enacted or hereafter amended. Unless otherwise
approved by the Board, the Corporation shall not indemnify any employee of the
Corporation who is not otherwise entitled to indemnification pursuant to this
Article. The Board may authorize the purchase and maintenance of insurance
and/or the execution of individual agreements for the purpose of such
indemnification, and the Corporation shall advance all reasonable costs and
expenses (including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this Article, all in
a manner, under circumstances and to the extent permitted by Section 302A.521 of
the Minnesota Statute, as now enacted or hereafter amended.
ARTICLE X
AMENDMENT
Except as otherwise provided in the Stockholders' Agreement, these By-laws
may be amended or altered by a vote of the majority of the whole Board at any
meeting provided that notice of such proposed amendment shall have been given in
the
15
<PAGE> 17
notice given to the directors of such meeting. Such authority in the Board is
subject to the power of the shareholders to change or repeal such By-laws by a
majority vote of the shareholders present or represented at any regular or
special meeting of shareholders called for such purpose, and the Board shall not
make or alter any By-laws fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filling vacancies in the Board,
or fixing the number of directors or their classifications, qualifications, or
terms of office.
* * * * *
* * *
*
16
<PAGE> 1
Exhibit 4.1
YOUNG AMERICA CORPORATION
as Issuer
and
YOUNG AMERICA HOLDINGS, INC.
as Guarantor
and
MARINE MIDLAND BANK
as Trustee
-------------------------
INDENTURE
Dated as of February 23, 1998
----------------------
Up to $125,000,000
11 5/8% Senior Subordinated Notes due 2006, Series A
11 5/8% Senior Subordinated Notes due 2006, Series B
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1)....................................... 7.10
(a)(2)...................................... 7.10
(a)(3)...................................... N.A.
(a)(4)...................................... N.A.
(a)(5)...................................... 7.08; 7.10
(b)......................................... 7.08; 7.10; 11.02
(c)......................................... N.A.
311(a).......................................... 7.11
(b)......................................... 7.11
(c)......................................... N.A.
312(a).......................................... 2.05
(b)......................................... 11.03
(c)......................................... 11.03
313(a).......................................... 7.06
(b)(1)...................................... N.A.
(b)(2)...................................... 7.06
(c)......................................... 7.06; 11.02
(d)......................................... 7.06
314(a).......................................... 4.07; 4.08
(b)......................................... N.A.
(c)(1)...................................... 11.04
(c)(2)...................................... 11.04
(c)(3)...................................... N.A.
(d)......................................... N.A.
(e)......................................... 11.05
(f)......................................... N.A.
315(a).......................................... 7.01(b)
(b)......................................... 7.05
(c)......................................... 7.01(a)
(d)......................................... 7.01(c)
(e)......................................... 6.11
316(a)(last sentence)........................... 2.09
(a)(1)(A)................................... 6.05
(a)(1)(B)................................... 6.04
(a)(2)...................................... N.A.
(b)......................................... 6.07
(c)......................................... 9.04
317(a)(1)....................................... 6.08
(a)(2)...................................... 6.09
(b)......................................... 2.04
318(a).......................................... N.A.
(c)......................................... 11.01
- ----------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
-i-
<PAGE> 3
TABLE OF CONTENTS
Page
----
ARTICLE ON
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.................................................1
SECTION 1.02. Incorporation by Reference of TIA..........................27
SECTION 1.03. Rules of Construction......................................27
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating............................................28
SECTION 2.02. Execution and Authentication; Aggregate
Principal Amount...........................................29
SECTION 2.03. Registrar and Paying Agent.................................30
SECTION 2.04. Paying Agent To Hold Assets in Trust.......................30
SECTION 2.05. Holder Lists...............................................31
SECTION 2.06. Transfer and Exchange......................................31
SECTION 2.07. Replacement Notes..........................................32
SECTION 2.08. Outstanding Notes..........................................32
SECTION 2.09. Treasury Notes.............................................33
SECTION 2.10. Temporary Notes............................................33
SECTION 2.11. Cancellation...............................................33
SECTION 2.12. Defaulted Interest.........................................34
SECTION 2.13. CUSIP Number...............................................34
SECTION 2.14. Deposit of Monies..........................................35
SECTION 2.15. Restrictive Legends........................................35
SECTION 2.16. Book-Entry Provisions for Global Security..................35
SECTION 2.17. Special Transfer Provisions................................37
SECTION 2.18. Liquidated Damages Under Registration
Rights Agreement...........................................40
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.........................................40
SECTION 3.02. Selection of Notes To Be Redeemed..........................40
SECTION 3.03. Optional Redemption........................................41
SECTION 3.04. Notice of Redemption.......................................41
SECTION 3.05. Effect of Notice of Redemption.............................42
SECTION 3.06. Deposit of Redemption Price................................43
SECTION 3.07. Notes Redeemed in Part.....................................43
-ii-
<PAGE> 4
Page
----
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes...........................................43
SECTION 4.02. Maintenance of Office or Agency............................44
SECTION 4.03. Corporate Existence........................................44
SECTION 4.04. Payment of Taxes and Other Claims..........................44
SECTION 4.05. Maintenance of Properties and Insurance....................44
SECTION 4.06. Compliance Certificate; Notice of Default..................45
SECTION 4.07. Compliance with Laws.......................................46
SECTION 4.08. Reports to Holders.........................................46
SECTION 4.09. Waiver of Stay, Extension or Usury Laws....................46
SECTION 4.10. Limitation on Restricted Payments..........................47
SECTION 4.11. Limitation on Transactions with Affiliates.................50
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness........51
SECTION 4.13. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries........................51
SECTION 4.14. Additional Guarantees......................................52
SECTION 4.15. Change of Control..........................................53
SECTION 4.16. Limitation on Asset Sales..................................55
SECTION 4.17. Prohibition on Incurrence of Senior
Subordinated Debt..........................................58
SECTION 4.18. Limitation on Liens........................................59
SECTION 4.19. Conduct of Business........................................59
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets...................59
SECTION 5.02. Successor Corporation Substituted..........................61
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default..........................................61
SECTION 6.02. Acceleration...............................................63
SECTION 6.03. Other Remedies.............................................63
SECTION 6.04. Waiver of Past Defaults....................................64
SECTION 6.05. Control by Majority........................................64
SECTION 6.06. Limitation on Suits........................................65
SECTION 6.07. Right of Holders To Receive Payment........................65
SECTION 6.08. Collection Suit by Trustee.................................65
SECTION 6.09. Trustee May File Proofs of Claim...........................66
SECTION 6.10. Priorities.................................................66
SECTION 6.11. Undertaking for Costs......................................67
SECTION 6.12. Restoration of Rights and Remedies.........................67
-iii-
<PAGE> 5
Page
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee..........................................67
SECTION 7.02. Rights of Trustee..........................................68
SECTION 7.03. Individual Rights of Trustee...............................70
SECTION 7.04. Trustee's Disclaimer.......................................70
SECTION 7.05. Notice of Default..........................................70
SECTION 7.06. Reports by Trustee to Holders..............................71
SECTION 7.07. Compensation and Indemnity.................................71
SECTION 7.08. Replacement of Trustee.....................................72
SECTION 7.09. Successor Trustee by Merger, Etc...........................73
SECTION 7.10. Eligibility; Disqualification..............................73
SECTION 7.11. Preferential Collection of Claims Against
the Company................................................74
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.......................74
SECTION 8.02. Application of Trust Money.................................76
SECTION 8.03. Repayment to the Company...................................77
SECTION 8.04. Reinstatement..............................................77
SECTION 8.05. Acknowledgment of Discharge by Trustee.....................77
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.................................78
SECTION 9.02. With Consent of Holders....................................78
SECTION 9.03. Compliance with TIA........................................79
SECTION 9.04. Revocation and Effect of Consents..........................79
SECTION 9.05. Notation on or Exchange of Notes...........................80
SECTION 9.06. Trustee To Sign Amendments, Etc............................80
ARTICLE TEN
SUBORDINATION
SECTION 10.01. Notes Subordinated to Senior Debt..........................80
SECTION 10.02. Suspension of Payment When Senior Debt is in Default.......81
SECTION 10.03. Notes Subordinated to Prior Payment of All
Senior Debt on Dissolution, Liquidation or
Reorganization of Company..................................82
SECTION 10.04. Holders To Be Subrogated to Rights of Holders of
Senior Debt................................................84
SECTION 10.05. Obligations of the Company Unconditional...................84
SECTION 10.06. Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice.......................................85
SECTION 10.07. Application by Trustee of Assets Deposited with It.........85
SECTION 10.08. No Waiver of Subordination Provisions......................86
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SECTION 10.09. Holders Authorize Trustee To Effectuate
Subordination of Notes.....................................86
SECTION 10.10. Right of Trustee to Hold Senior Debt.......................87
SECTION 10.11. This Article Ten Not To Prevent Events of Default..........87
SECTION 10.12. No Fiduciary Duty of Trustee to Holders of Senior
Debt.......................................................88
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls...............................................88
SECTION 11.02. Notices....................................................88
SECTION 11.03. Communications by Holders with Other Holders...............90
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.........90
SECTION 11.05. Statements Required in Certificate or Opinion..............90
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar..................91
SECTION 11.07. Legal Holidays.............................................91
SECTION 11.08. Governing Law..............................................91
SECTION 11.09. No Adverse Interpretation of Other Agreements..............91
SECTION 11.10. No Personal Liability......................................91
SECTION 11.11. Successors.................................................91
SECTION 11.12. Duplicate Originals........................................92
SECTION 11.13. Severability...............................................92
SECTION 11.14. Independence of Covenants..................................92
ARTICLE TWELVE
GUARANTEE OF NOTES
SECTION 12.01. Unconditional Guarantee....................................92
SECTION 12.02. Limitations on Guarantees..................................94
SECTION 12.03. Execution and Delivery of Guarantee........................94
SECTION 12.04. Release of a Guarantor.....................................94
SECTION 12.05. Waiver of Subrogation......................................95
SECTION 12.06. Immediate Payment..........................................96
SECTION 12.07. No Set-Off.................................................96
SECTION 12.08. Obligations Absolute.......................................96
SECTION 12.09. Obligations Continuing.....................................96
SECTION 12.10. Obligations Not Reduced....................................97
SECTION 12.11. Obligations Reinstated.....................................97
SECTION 12.12. Obligations Not Affected...................................97
SECTION 12.13. Waiver.....................................................99
SECTION 12.14. No Obligation To Take Action Against the Company...........99
SECTION 12.15. Dealing with the Company and Others........................99
SECTION 12.16. Default and Enforcement...................................100
SECTION 12.17. Amendment, Etc............................................100
SECTION 12.18. Acknowledgment............................................100
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SECTION 12.19. Costs and Expenses........................................100
SECTION 12.20. No Merger or Waiver; Cumulative Remedies..................100
SECTION 12.21. Survival of Obligations...................................101
SECTION 12.22. Guarantee in Addition to Other Obligations................101
SECTION 12.23. Severability..............................................101
SECTION 12.24. Successors and Assigns....................................101
ARTICLE THIRTEEN
SUBORDINATION OF GUARANTEE
SECTION 13.01. Guarantee Obligations Subordinated to Guarantor
Senior Debt...............................................102
SECTION 13.02. Suspension of Guarantee Obligations When Guarantor
Senior Debt Is in Default.................................102
SECTION 13.03. Guarantee Obligations Subordinated to Prior Payment
of All Guarantor Senior Debt on Dissolution,
Liquidation or Reorganization of Such Guarantor...........104
SECTION 13.04. Holders of Guarantee Obligations To Be Subrogated to
Rights of Holders of Guarantor Senior Debt................105
SECTION 13.05. Obligations of the Guarantors Unconditional...............106
SECTION 13.06. Trustee Entitled To Assume Payments Not Prohibited
in Absence of Notice......................................107
SECTION 13.07. Application by Trustee of Assets Deposited with It........107
SECTION 13.08. No Waiver of Subordination Provisions.....................108
SECTION 13.09. Holders Authorize Trustee To Effectuate
Subordination of Guarantee Obligations....................108
SECTION 13.10. Right of Trustee To Hold Guarantor Senior Debt............109
SECTION 13.11. No Suspension of Remedies.................................109
SECTION 13.12. No Fiduciary Duty of Trustee to Holders of Guarantor
Senior Debt...............................................109
SIGNATURES..............................................................
EXHIBIT A - Form of Series A Note.....................................A-1
Exhibit B - Form of Series B Note.....................................B-1
Exhibit C - Form of Legend for Global Notes...........................C-1
Exhibit D - Form of Certificate To Be Delivered in
Connection with Transfers to Non-QIB Accredited
Investors.................................................D-1
Exhibit E - Form of Certificate To Be Delivered in
Connection with Transfers Pursuant to
Regulation S..............................................E-1
Exhibit F - Form of Guarantee.........................................F-1
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<PAGE> 8
INDENTURE, dated as of February 23, 1998, by and among Young America
Corporation, a Minnesota corporation (the "Company"), Young America Holdings,
Inc. (the "Guarantor") and Marine Midland Bank, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 11 5/8%
Senior Subordinated Notes due 2006, Series A, and 11 5/8% Senior Subordinated
Notes due 2006, Series B to be issued in exchange for the 11 5/8% Senior
Subordinated Notes due 2006, Series A, pursuant to the Registration Rights
Agreement (as defined herein) and, to provide therefor, the Company and the
Guarantor have duly authorized the execution and delivery of this Indenture. All
things necessary to make the Notes (as defined herein), when duly issued and
executed by the Company, and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid and binding
agreement of the Company and the Guarantor, have been done.
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's 11
5/8% Senior Subordinated Notes due 2006, Series A and Series B.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person, and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Additional Interest" shall have the meaning set forth in the
Registration Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
<PAGE> 9
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"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000;
(ii) the sale, issuance, exchange, conveyance or other disposition or transfer
of property or assets (including the issuance or transfer of Capital Stock of
Restricted Subsidiaries) in connection with the acquisition of Replacement
Assets (including in connection with Asset Acquisitions and trade-ins and
like-kind exchanges of property or assets); and (iii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under Section 5.01.
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or foreign law for the relief of debtors.
"Blockage Period" has the meaning provided in Section 10.02.
<PAGE> 10
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"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Bridge Facility" means the $80.0 million senior credit agreement
dated November 25, 1997 among Holdings, the lenders party thereto and Bankers
Trust Company as agent.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in the city of New York are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) 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 thereof; (ii)
marketable direct 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, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital
<PAGE> 11
-4-
and surplus of not less than $250,000,000; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company or Holdings to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of this Indenture), other than to the Permitted Holders; (ii) the approval by
the holders of Capital Stock of the Company or Holdings, as the case may be, of
any plan or proposal for the liquidation or dissolution of the Company or
Holdings, as the case may be (whether or not otherwise in compliance with the
provisions of this Indenture); (iii) any Person or Group (other than the
Permitted Holders) shall become the owner, directly or indirectly, beneficially
or of record, of shares representing more than 50% of the aggregate ordinary
voting power represented by the issued and outstanding Capital Stock of the
Company or Holdings; or (iv) the replacement of a majority of the Board of
Directors of the Company or Holdings over a two-year period from the directors
who constituted the Board of Directors of the Company or Holdings, as the case
may be, at the beginning of such period and such replacement shall not have been
approved (x) in accordance with the Stockholders Agreement, (y) by the Permitted
Holders or (z) by a vote of at least a majority of the Board of Directors of the
Company or Holdings, as the case may be, then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Commission" means the SEC.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
<PAGE> 12
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"Company" means Young America Corporation, a Minnesota corporation,
until a successor replaces it pursuant to this Indenture, and thereafter means
such successor.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period, (B) Consolidated Interest Expense, (C)
fees, expenses or charges relating to any equity or debt issuances, Asset
Acquisitions or Investments permitted by the terms of this Indenture (whether or
not successful), (D) all payments made under the Recapitalization documents and
(E) Consolidated Non-cash Charges, less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed-Charge Coverage Ratio" means, with respect to
any Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four-Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated
Fixed-Charge Coverage Ratio (the "Transaction Date") to Consolidated
Fixed-Charges of such Person for the Four-Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed-Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness or the issuance of any Designated
Preferred Stock of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness or the
issuance or redemption of other Designated Preferred Stock (and the application
of the proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four-Quarter Period or at any
time subsequent to the last day of the Four-Quarter Period and on or prior to
the Transaction Date, as if such incurrence or repayment or issuance or
redemption, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four-Quarter Period and (ii) any Asset Sales,
Asset Acquisitions or the Recapitalization or any similar transactions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA (including
any pro forma expense and cost reductions calculated on a basis consistent with
Regulation S-X of the Exchange Act)
<PAGE> 13
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attributable to the assets which are the subject of the Asset Acquisition or
Asset or Asset Sale during the Four-Quarter Period) occurring during the
Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four-Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed-Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed-Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed-Charges" means, with respect to any Person for
any period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments (or accruals
therefor) on any series of Preferred Stock of such Person or any Subsidiary of
such Person (other than dividends paid in Qualified Capital Stock or paid to
such Person or any Subsidiary of such Person) during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person
for any period, the sum of, without duplication: (i) the aggregate of all cash
and non-cash interest expense (minus amortization or write-off of deferred
financing costs included in cash or non-cash interest expense and minus interest
income) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with GAAP.
<PAGE> 14
-7-
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
and losses from Asset Sales or abandonments or reserves relating thereto, (b)
items classified as extraordinary, nonrecurring or unusual gains, losses or
charges, and the related tax effects, each determined in accordance with GAAP,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
referent Person or is merged or consolidated with the referent Person or any
Restricted Subsidiary of the referent Person, (d) the net income (but not loss)
of any Restricted Subsidiary of the referent Person to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary of the referent
Person, except to the extent of cash dividends or distributions paid to the
referent Person or to a Wholly Owned Restricted Subsidiary of the referent
Person by such Person, (f) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date or, for the
purposes of determining the Consolidated Fixed-Charge Coverage Ratio, the first
day of the Four-Quarter Period in question, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued) and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-Cash Charges" means, with respect to any Person,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"consolidation" means, with respect to any Person, the consolidation
of the accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
<PAGE> 15
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such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 140 Broadway, 12th Floor, New York, New York 10005-1108.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Credit Agreement" means the Credit Agreement to be entered into
between the Company, the lenders party thereto in their capacities as lenders
thereunder and Norwest Bank Minnesota, N.A., as agent, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing, substituting for or otherwise restructuring (including increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted by Section 4.12 or adding Restricted Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor, substitute or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Defeasance Payment" means any distribution from any defeasance
trust described under Article Eight.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designated Preferred Stock" means Preferred Stock of the Company or
any of its Subsidiaries that is so designated as Designated Preferred Stock
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company, on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause (iii) of the first paragraph of Section 4.10.
"Designated Senior Debt" means (i) Indebtedness under or in respect
of the Credit Agreement and (ii) any other
<PAGE> 16
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Indebtedness constituting Senior Debt which, at the time of determination, has
an aggregate principal amount of at least $25.0 million and is specifically
designated in the instrument evidencing such Senior Debt as "Designated Senior
Debt" by the Company.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of related
transactions (except arising exclusively as a consequence of such member's
relationship to the Company).
"Disqualified Capital Stock" means that portion of any Capital Stock
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
(other than an event which would constitute a Change of Control), matures
(excluding any maturity as the result of any optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof (except, in
each case, upon the occurrence of a Change of Control) on or prior to the final
maturity date of the Notes.
"Equity Interest" means Capital Stock and all warrants, options, or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a public or private offering of Qualified
Capital Stock of Holdings or the Company for aggregate net cash proceeds of at
least $10.0 million.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Notes" means the 11 5/8% Senior Subordinated Notes due
2006, Series B to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement.
"Exchange Offer" has the meaning provided in the Registration Rights
Agreement.
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value
<PAGE> 17
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shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"Foreign Subsidiary" means any Subsidiary of the Company organized
under the laws of a country or jurisdiction other than the United States or any
state or territory thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect on the Issue
Date.
"Global Note" has the meaning provided in Section 2.01.
"guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, 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 or other obligation 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 or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part) (but if in part, only to the extent thereof); provided,
however, that the term "guarantee" shall not include (A) endorsements for
collection or deposit in the ordinary course of business and (B) guarantees
(other than guarantees of Indebtedness) by the Company in respect of assisting
one or more Subsidiaries in the ordinary course of their respective businesses,
including without limitation guarantees of trade obligations and operating
leases, on ordinary business terms. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantees" means the guarantees of the Company's obligations under
this Indenture and the Notes by (i) Holdings (the "Holdings Guarantee") and (ii)
a Restricted Subsidiary (the "Subsidiary Guarantee").
"Guarantee Obligations" has the meaning set forth in Section 13.01.
<PAGE> 18
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"Guarantor" means: (i) Holdings and (ii) each of the Company's
Restricted Subsidiaries that in the future executes a supplemental indenture in
which such Restricted Subsidiary agrees to be bound by the terms of this
Indenture as a Guarantor (each a "Subsidiary Guarantor"); provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of this Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of, (x) all monetary obligations of
every nature of the Company under the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities and (y) all Interest
Swap Obligations whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any
Indebtedness of such Guarantor to a Restricted Subsidiary of such Guarantor,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, other than Capitalized Lease Obligations
and Purchase Money Indebtedness, (iv) Indebtedness represented by Disqualified
Capital Stock, (v) any liability for federal, state, local or other taxes owed
or owing by such Guarantor, (vi) Indebtedness incurred in violation of the
provisions set forth under Section 4.12, (vii) Indebtedness which, when incurred
and without respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company and (viii) any Indebtedness
which is, by its express terms, subordinated in right of payment to any other
Indebtedness of such Guarantor.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
<PAGE> 19
-12-
"Holdings" means Young America Holdings, Inc., a Minnesota
corporation.
"Holdings Guarantee" has the meaning provided for in the definition
of Guarantees.
"incur" has the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured, (viii) all Obligations under
currency agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock. Indebtedness shall
not include Obligations in respect of performance or other surety bonds incurred
to the extent required by applicable law in connection with the sweepstakes
management services provided by the Company or any of its Subsidiaries that are
indemnified by the Company's or such Subsidiary's customer. For purposes hereof,
Obligations under operating leases shall not constitute Indebtedness.
<PAGE> 20
-13-
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Notes" means collectively, (i) the 11 5/8% Senior
Subordinated Notes due 2006, Series A, of the Company issued on the Issue Date
and (ii) one or more series of 11 5/8% Senior Subordinated Notes due 2006 that
are issued under this Indenture subsequent to the Issue Date pursuant to Section
2.02, in each case for so long as such securities constitute Restricted
Securities.
"Initial Purchaser" means BT Alex. Brown Incorporated.
"interest," when used with respect to any Note means the amount of
all interest accruing on such Note, including any applicable defaulted interest
pursuant to Section 2.12 and any Additional Interest pursuant to the
Registration Rights Agreement.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Notes.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) 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 by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its
<PAGE> 21
-14-
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Restricted Subsidiary, as the case
may be. For the purposes of Section 4.10, (i) "Investment" shall include and be
valued at the fair market value of the net assets of any Restricted Subsidiary
at the time such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided, that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
former Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Initial
Notes.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 11.07.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Majority Stockholder" has the meaning provided for in Section
4.11(b).
"Maturity Date" means February 15, 2006.
"Moody's" means Moody's Investors Service, Inc. and its successors.
<PAGE> 22
-15-
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
(including in order to obtain any consent required therefor) and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Amount" has the meaning set forth in Section
4.16.
"Net Proceeds Offer Payment Date" has the meaning set forth in
Section 4.16.
"Net Proceeds Offer Trigger Date" has the meaning set forth in
Section 4.16.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.
"Notes" means, collectively, the Initial Notes, the Private Exchange
Notes, if any, and the Exchange Notes, treated as a single class of securities
under this Indenture.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering" means the offering by the Company of the Initial Notes on
the Issue Date.
"Officer" means, with respect to any Person, the Chairman of the
Board of Directors, the Chief Executive Officer,
<PAGE> 23
-16-
the President, any Vice President, the Chief Financial Officer, the Treasurer,
the Controller, or the Secretary of such Person, or any other officer designated
by the Board of Directors serving in a similar capacity and with respect to the
Trustee or any agent of the Trustee, a Trust Officer.
"Officers' Certificate" means a certificate signed by two Officers
of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
"Permitted Holder" means BT Capital Partners, Inc. and its
Affiliates or, in the case of the Company, Holdings.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Notes issued in the Offering;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (a) $15.0 million or (b) 85% of Receivables of the Company and
its Restricted Subsidiaries reduced in each case by any required permanent
repayments pursuant to Section 4.16 (which are accompanied by a
corresponding permanent commitment reduction) thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness
of the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with this Indenture to the extent the
notional principal amount of such Interest Swap Obligations does not, at
the time of incurrence thereof, exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
<PAGE> 24
-17-
(v) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien held by any Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company; provided, that if as of any date any
Person other than the Company or a Wholly Owned Restricted Subsidiary of
the Company owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided, that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under this
Indenture and the Notes and (b) if as of any date any Person other than a
Wholly Owned Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two Business Days of
incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(ix) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $5.0 million at
any one time outstanding;
(x) Refinancing Indebtedness;
<PAGE> 25
-18-
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10.0 million
at any one time outstanding; and
(xii) any Indebtedness deemed to have been incurred pursuant to any
agreements entered into in connection with the Recapitalization.
"Permitted Investments" means each of the following: (i) Investments
by the Company or any Restricted Subsidiary of the Company in any Person that is
or will become immediately after such Investment a Wholly Owned Restricted
Subsidiary of the Company or that will merge or consolidate into the Company or
a Restricted Subsidiary of the Company; (ii) Investments in the Company by any
Restricted Subsidiary of the Company; provided, that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and this Indenture; (iii)
Investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1.0 million
at any one time outstanding; (v) Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses and
otherwise in compliance with this Indenture; (vi) Investments in Unrestricted
Subsidiaries or other entities not to exceed $5.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (viii)
Investments made by the Company or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
Section 4.16; (ix) Investments of a Person or any of its Subsidiaries existing
at the time such Person becomes a Restricted Subsidiary of the Company or at the
time such Person merges or consolidates with the Company or any of its
Restricted Subsidiaries, in either case in compliance with the Indenture;
provided that such Investments were not made by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company by such merger or consolidation; and (x) loans to
Holdings to enable Holdings to repay the Bridge Facility and evidenced by an
intercompany note as in effect as of the Issue Date or as amended in a manner
not materially adverse to the Holders.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
<PAGE> 26
-19-
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) attachment or judgment Liens not giving rise to an Event of
Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation or another Capitalized Lease Obligation with the same financing
source;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired in the ordinary course of
business; provided, however, that (A) the related Purchase Money
Indebtedness shall not exceed the purchase price or cost of installation,
construction or improvement of such property or assets and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and other property and assets securing other Purchase Money Indebtedness
to the same financing source and (B) the Lien securing such Indebtedness
shall be created within 90 days of such acquisition;
(viii) any (a) interest or title of a lessor or sublessor under any
lease, (b) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to (including, without limitation,
ground leases or other prior leases of the demised premises, mortgages,
mechanic's liens, tax liens, and easements), or (c) subordination of
<PAGE> 27
-20-
the interest of the lessee or sublessee under such lease to any
restrictions or encumbrance refered to in the preceding clause (b);
(ix) Liens arising from filing UCC financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by the Indenture under which the Company or any of its
Restricted Subsidiaries is a lessee;
(x) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(xii) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating, reciprocal
easement or similar agreements entered into in the ordinary course of
business of the Company and its Restricted Subsidiaries;
(xiii) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by the Company or any Restricted Subsidiary
in the ordinary course of business in accordance with past practices;
(xiv) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xv) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xvi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xvii) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.12; provided, that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Restricted Subsidiary of
the Company and (B) such Liens do
<PAGE> 28
-21-
not extend to or cover any property or assets of the Company or of any of
its Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company;
(xviii) licenses of patents, trademarks and other intellectual
property rights granted by the Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material respect
with the ordinary conduct of the business of the Company or any such
Restricted Subsidiary;
(xix) other Liens securing obligations incurred in the ordinary
course of business which obligations or judgments do not exceed $10.0
million in the aggregate at any one time outstanding pursuant to clause
(xi) of the definition of Permitted indebtedness; and
(xx) Liens on the assets of the Company or any Subsidiary Guarantor
securing Senior Debt or Guarantor Senior Debt.
"Person" means an individual, partnership, limited liability
company, corporation, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Principals" means BT Capital Partners, Inc. and Ontario Teachers'
Pension Plan Board.
"Private Exchange Notes" shall have the meaning provided in the
Registration Rights Agreement.
"Private Placement Legend" has the meaning provided in Section 2.15
<PAGE> 29
-22-
"Property" means, with respect to any Person, any interests of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock,
partnership interests and other equity or ownership interests in any other
Person.
"Purchase Money Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Recapitalization" means the recapitalization of Holdings pursuant
to the Recapitalization Agreement dated as of November 25, 1997.
"Receivables" means any right of payment from or on behalf of any
obligor, whether constituting an account, chattel paper, instrument, general
intangible or otherwise, arising from the financing by the Company or any
Restricted Subsidiary of the Company of merchandise or services, and monies due
thereunder, security in the merchandise and services financed thereby, records
related thereto, and the right to payment of any interest or finance charges and
other obligations with respect thereto, proceeds from claims on insurance
policies related thereto, any other proceeds related thereto, and any other
related rights.
"Record Date" means the Record Dates specified in the Notes.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption, including principal and
premium, if any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in
<PAGE> 30
-23-
whole or in part. "Refinanced" and "Refinancing" shall have correlative
meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or
any Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with Section 4.12 (other than pursuant to clauses (ii), (iv), (v), (vi), (vii),
(viii), (ix) or (xi) of the definition of Permitted Indebtedness), in each case
that does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company in connection with such Refinancing) or (2) create Indebtedness
with (A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or (B) a final
maturity earlier than the final maturity of the Indebtedness being Refinanced;
provided, that (x) if such Indebtedness being Refinanced is Indebtedness of the
Company, then such Refinancing Indebtedness shall be Indebtedness solely of the
Company and the Subsidiary Guarantors, if any, and (y) if such Indebtedness
being Refinanced is subordinate or junior to the Notes, then such Refinancing
Indebtedness shall be subordinate to the Notes at least to the same extent and
in the same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date by and among the Company, the Guarantor and
the Initial Purchaser.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S under the Securities Act.
"Replacement Assets" means the properties or assets (including
Capital Stock and working capital assets) of a kind used or usable in the
businesses of the Company and its Restricted Subsidiaries permitted by Section
4.19.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Designated Senior Debt; provided that if,
and for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times constitute
the holders of a majority in outstanding principal amount of such Designated
Senior Debt in respect of any Designated Senior Debt.
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"Restricted Payment" shall have the meaning set forth in Section
4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party providing for
the leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person or to any other Person from whom funds have
been or are to be advanced by such Person on the security of such property.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Senior Debt" means, the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, to the extent such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters
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of credit, fees, expenses and indemnities and (y) all Interest Swap Obligations
whether outstanding on the Issue Date or thereafter incurred. Notwithstanding
the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the
Company to a Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on
behalf of, any shareholder, director, officer or employee of the Company or any
Subsidiary of the Company (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services, (iv) Indebtedness
represented by Disqualified Capital Stock, (v) any liability for federal, state,
local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in
violation of the Indenture provisions set forth under Section 4.12, (vii)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code is without recourse to the
Company and (viii) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of the Company.
"Significant Subsidiary" with respect to any Person, means any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Securities Act.
"Stockholders' Agreement" means the Stockholders' Agreement dated as
of November 25, 1997 among Holdings and the stockholders of Holdings named
therein, as such agreement may from time to time be amended, supplemented or
replaced.
"Subsidiary," with respect to any Person, means (i) any corporation
of which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" has the meaning provided for in the
definition of Guarantees.
"Subsidiary Guarantor" has the meaning provided for in the
definition of Guarantor.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03; provided, however, that, in the event the
Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the
extent
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required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture, or in the case of
a successor trustee, an officer assigned to the department, division or group
performing the corporation trust work of such successor and assigned to
administer this Indenture.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with Section
4.10 and (y) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.12 and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of 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.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities having ordinary voting power for the election of directors (other
than directors' qualifying shares or an immaterial amount of shares required to
be owned by other Persons pursuant to applicable law) are owned by such Person
or any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the
Guarantor or any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. 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 of any date of determination;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and words in the
plural include the singular;
(5) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision; and
(6) any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time and
includes any successor statute, law or regulation; provided, however, that
any reference to the Bankruptcy Law shall mean the Bankruptcy Law as
applicable to the relevant case.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A hereto. The
Exchange Notes and the Trustee's certificate of authentication relating thereto
shall be substantially in the form of Exhibit B hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication. Each Note shall have an executed Guarantee
endorsed thereon substantially in the form of Exhibit F hereto executed in the
manner required by Section 12.03.
The terms and provisions contained in the Notes, annexed hereto as
Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes offered
and sold in reliance on Regulation S shall be issued initially in the form of
one or more permanent global Notes in registered form, substantially in the form
set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as
custodian for the Depository, duly executed by the Company (and having an
executed Guarantee endorsed thereon) and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Exhibit C. The
aggregate principal amount of the Global Note may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
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Notes issued in exchange for interests in a Global Note pursuant to
Section 2.16 may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "Physical
Notes").
All Notes offered and sold in reliance on Regulation S shall remain
in the form of a Global Note until the consummation of the Exchange Offer
pursuant to the Registration Rights Agreement; provided, however, that all of
the time periods specified in the Registration Rights Agreement to be complied
with by the Company and the Guarantor have been so complied with.
SECTION 2.02. Execution and Authentication; Aggregate Principal
Amount.
Two Officers of the Company and the Guarantor shall sign (each of
whom shall have been duly authorized by all requisite corporate actions) the
Notes for the Company and the Guarantees for the Guarantor by manual or
facsimile signature.
If an Officer whose signature is on a Note or a Guarantee was an
Officer at the time of such execution but no longer holds that office or
position at the time the Trustee authenticates the Note, the Note shall
nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue
in the aggregate principal amount not to exceed $125,000,000 in one or more
series; provided that the aggregate principal amount of Initial Notes on the
Issue Date shall not exceed $80,000,000, (ii) Private Exchange Notes from time
to time for issue only in exchange for a like principal amount of Initial Notes
and (iii) Exchange Notes for issue only in an Exchange Offer, pursuant to the
Registration Rights Agreement, for a like principal amount of Initial Notes, in
each case upon a written order of the Company in the form of an Officers'
Certificate of the Company. Each such written order shall specify the amount of
Notes to be authenticated and whether the Notes are to be issued as Physical
Notes or Global Notes or such other information as the Trustee may reasonably
request. The aggregate principal amount of Notes outstanding at any time may not
exceed $125,000,000, except as provided in Sections 2.07 and 2.08.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same
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rights as an Agent to deal with the Company or with any Affiliate of the
Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Notes may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional paying agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. The Company may act as its
own Paying Agent, except that for the purposes of payments on the Notes pursuant
to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company
may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
Any of the Registrar, the Paying Agent or any other agent may resign upon 30
days' notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
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 the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, premium, if any, or interest on, the Notes (whether
such assets have been distributed to it by the Company or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
Default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to distribute all
assets held by
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it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause the Registrar to furnish
to the Trustee before each Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of the Holders, which list may
be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to Sections 2.16 and 2.17, when Notes are presented to the
Registrar or a co-Registrar with a request to register the transfer of such
Notes or to exchange such Notes for an equal principal amount of Notes of other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transaction are met; provided, however, that the Notes presented or surrendered
for registration of transfer or exchange shall be duly endorsed or accompanied
by a written instrument of transfer in form satisfactory to the Company, the
Trustee and the Registrar or co-Registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Notes and the Guarantor shall execute Guarantees thereon at the Registrar's or
co-Registrar's request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, fee or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Section 2.10, 3.04, 4.15, 4.16
or 9.05, in which event the Company shall be responsible for the payment of such
taxes).
The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Note (i) during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of Notes and
ending at the close of business on the day of such mailing and (ii) selected
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for redemption in whole or in part pursuant to Article Three, except the
unredeemed portion of any Note being redeemed in part.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note and
the Guarantor shall execute a Guarantee thereon if the Trustee's requirements
are met. If required by the Trustee or the Company, such Holder must provide an
indemnity bond or other indemnity of reasonable tenor, sufficient in the
reasonable judgment of the Company, the Guarantor and the Trustee, to protect
the Company, the Guarantor, the Trustee or any Agent from any loss which any of
them may suffer if a Note is replaced. Every replacement Note shall constitute
an additional obligation of the Company and the Guarantor.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent holds
U.S. Legal Tender sufficient to pay all of the principal, premium, if any, and
interest due on the Notes payable on that date and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Notes shall be deemed not to be outstanding and
interest on them shall cease to accrue.
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SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver, consent or notice, Notes owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which a Trust Officer of the Trustee actually knows are so owned
shall be so considered. The Company shall notify the Trustee, in writing, when
it or, to its knowledge, any of its Affiliates repurchases or otherwise acquires
Notes, of the aggregate principal amount of such Notes so repurchased or
otherwise acquired and such other information as the Trustee may reasonably
request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company consider appropriate for temporary Notes and so
indicate in the Officers' Certificate. Without unreasonable delay, the Company
shall prepare, the Trustee shall authenticate and the Guarantor shall execute
Guarantees on, upon receipt of a written order of the Company pursuant to
Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent, and no one else, shall cancel and, at the written direction of the
Company, shall dispose, in its customary manner, of all Notes surrendered for
registration of transfer, exchange, payment or cancellation. Subject to Section
2.07, the Company may not issue new Notes to replace Notes that they have paid
or delivered to the Trustee for cancellation. If the Company shall acquire any
of the Notes, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
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SECTION 2.12. Defaulted Interest.
The Company will pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Notes. The Company shall, to
the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months, and, in the case of a partial
month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default 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 on or 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 provided in
this Section; provided, however, that in no event shall the Company deposit
monies proposed to be paid in respect of defaulted interest later than 11:00
a.m. New York City time of the proposed Default Interest Payment Date. At least
15 days before the subsequent special record date, the Company shall mail (or
cause to be mailed) to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing, any interest which is paid prior to the expiration of the 30-day
period set forth in Section 6.01(a) shall be paid to Holders as of the regular
record date for the Interest Payment Date for which interest has not been paid.
Notwithstanding the foregoing, 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 Notes may be listed, and upon such notice
as may be required by such exchange.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and, if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided, however, that no representation is hereby
deemed to be
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made by the Trustee as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
or exchange shall not be affected by any defect in or omission of such numbers.
The Company shall promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Payment Date and Net Proceeds Offer Payment Date, as the case may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a Restricted
Security shall bear the legend (the "Private Placement Legend") as set forth in
Exhibit A on the face thereof until such legend may be removed pursuant to
Section 2.17(d).
Each Global Note shall also bear the legend as set forth in Exhibit
C on the face thereof.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Notes initially shall (i) be registered in the name
of the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit C.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under the
Global Notes, and the Depository may be treated by the Company, the Trustee and
any Agent of the Company or the Trustee as the absolute owner of such Global
Note 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 Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
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(b) Transfers of a Global Note shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository or the Trustee to
issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Note to beneficial owners pursuant to paragraph
(b), the Registrar shall (if one or more Physical Notes are to be issued)
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall execute,
the Guarantor shall execute Guarantees on, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b) of this Section 2.16, such Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, the Guarantor shall execute Guarantees on and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depository in exchange for its beneficial interest in the Global Note, an equal
aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered
in exchange for an interest in a Global Note pursuant to paragraph (b) or (c) of
this Section 2.16 shall, except as otherwise provided by paragraphs (a)(i)(x)
and (d) of Section 2.17, bear the Private Placement Legend.
(f) The Holder of a Global Note 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 Notes.
(g) 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 Depository or other Person with respect to
any ownership interest in the Securities, with respect to the accuracy of the
records of the Depository or its nominee or of any participant or member
<PAGE> 44
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thereof or with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depository) of any notice (including any
notice of redemption) or the payment of any amount, 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 under the Securities shall be given or made
only to the registered Holders (which shall be the Depository or its nominee in
the case of a Global Security). The rights of beneficial owners in any Global
Security in global form shall be exercised only through the Depository subject
to the applicable rules and procedures of the Depository. The Trustee may rely
and shall be fully protected and indemnified pursuant to Section 7.07 in relying
upon information furnished by the Depository with respect to any beneficial
owners, its members and participants.
(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 without limitation any transfers between or
among Depository 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 this Indenture, and
to examine the same to determine substantial compliance as to form with the
express requirements hereof.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that the
Registrar has received a written certificate from the transferor to the
effect that neither the Company nor any Affiliate of the Company has held
any beneficial interest in such Note, or portion thereof, at any time on
or prior to the second anniversary of the Issue Date) or (y) (1) in the
case of a transfer to an Institutional Accredited Investor which is not a
QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit D hereto
or (2) in the case of a transfer to a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit E hereto; and
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(ii) if the proposed transferor is an Agent Member seeking to
transfer an interest in the Global Note, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall
register the transfer and reflect on its books and records the date and a
decrease in the principal amount of the Global Note from which such
interests are to be transferred in an amount equal to the principal amount
of the Notes to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Restricted
Security if such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has been
made in compliance with the provisions of Rule 144A to a transferee who
has signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in writing, that it is
purchasing the 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 QIB 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 it 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; and
(ii) if the proposed transferee is an Agent Member, and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in a Global Note, upon receipt by the Registrar
of written instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of such Global
Note in an amount equal to the principal amount of the Physical Notes to
be transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture, a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository
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or by the Depository or any such nominee to a successor Depository or a nominee
of such successor Depository.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the second anniversary of the Issue
Date (provided, however, that the Registrar has received a written certificate
from the transferor to the effect that neither the Company nor any Affiliate of
the Company has held any beneficial interest in such Note, or portion thereof,
at any time prior to or on the second anniversary of the Issue Date), or (ii)
there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee 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.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain in accordance with its customary
procedures copies of all letters, notices and other written communications
received pursuant to Section 2.16 or this Section 2.17. The Company shall have
the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time during the Registrar's normal
business hours upon the giving of reasonable written notice to the Registrar.
(f) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate of the Company (other than by an Affiliate of the Company) in a
transaction or a chain of transactions not involving any public offering, shall,
until two years after the last date on which the Company or any Affiliate of the
Company was an owner of such Note, in each case, bear the Private Placement
Legend, unless otherwise agreed by the Company (with written notice thereof to
the Trustee).
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SECTION 2.18. Liquidated Damages Under Registration Rights
Agreement.
Under certain circumstances, the Company shall be obligated to pay
certain liquidated damages to the Holders, all as set forth in Section 4 of the
Registration Rights Agreement. The terms thereof are hereby incorporated herein
by reference.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5 of the
Notes, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of the Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.01
45 days before the Redemption Date (unless a shorter notice period shall be
satisfactory to the Trustee, as evidenced in a writing signed on behalf of the
Trustee), together with an Officers' Certificate stating that such redemption
shall comply with the conditions contained herein and in the Notes. Any such
notice may be cancelled at any time prior to notice of such redemption being
mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed at
any time, selection of such Notes, or portions thereof, for redemption will be
made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such other method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000 or
less shall be redeemed in part; and provided, further, that if a partial
redemption is made with the proceeds of an Equity Offering, selection of the
Notes or portions thereof for redemption shall be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
the procedures of the Depository), unless such method is otherwise prohibited. A
new Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original Note.
On and after the applicable Redemption Date, interest will cease to accrue on
Notes or portions thereof called for redemption as long as the Company has
deposited with the Paying
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Agent for the Notes funds in satisfaction of the applicable Redemption Price.
SECTION 3.03. Optional Redemption.
The Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after February 15, 2002, upon not
less than 30 nor more than 60 days' notice, at the following Redemption Prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on February 15 of the years set forth below,
plus, in each case, accrued and unpaid interest, if any, thereon to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002............................ 105.813%
2003............................ 103.875%
2004............................ 101.938%
2005 and thereafter............. 100.000%
</TABLE>
At any time, or from time to time, on or prior to February 15, 2001,
the Company may, at its option, use the net cash proceeds of one or more Equity
Offerings to redeem up to 35% of the aggregate principal amount of the Notes
issued under the Indenture at a Redemption Price equal to 111.625% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, that at least 65% of the principal amount of
Notes issued under the Indenture remains outstanding immediately following such
redemption. In order to effect the foregoing redemption with the proceeds of any
Equity Offering, the Company shall make such redemption not more than 120 days
after the consummation of any such Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first
class mail to each Holder of Notes to be redeemed at its registered address,
with a copy to the Trustee and any Paying Agent. At the Company's request, the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. The Company shall provide such notices of redemption to the
Trustee at least five days before the intended mailing date.
Each notice of redemption shall identify (including the CUSIP
number) the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if any,
to be paid;
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(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption
is being made;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest, if
any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes or applicable portions thereof called for
redemption ceases to accrue on and after the Redemption Date, and the only
remaining right of the Holders of such Notes is to receive payment of the
Redemption Price plus accrued interest as of the Redemption Date, if any,
upon surrender to the Paying Agent of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes in
the aggregate principal amount equal to the unredeemed portion thereof
will be issued; and
(8) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.04,
such notice of redemption shall be irrevocable and Notes called for redemption
become due and payable on the Redemption Date and at the Redemption Price plus
accrued interest as of such date, if any. Upon surrender to the Trustee or
Paying Agent, such Notes called for redemption shall be paid at the Redemption
Price plus accrued interest thereon to the Redemption Date, but installments of
interest, the maturity of which is on or prior to the Redemption Date, shall be
payable to Holders of record at the close of business on the relevant record
dates referred to in the Notes. Interest shall accrue on or after the Redemption
Date and shall be payable only if the Company defaults in payment of the
Redemption Price.
<PAGE> 50
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SECTION 3.06. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with Section
2.14, the Company shall deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Redemption Price plus accrued interest, if any, of all
Notes to be redeemed on that date. The Paying Agent shall promptly return to the
Company any U.S. Legal Tender so deposited which is not required for that
purpose, except with respect to monies owed as obligations to the Trustee
pursuant to Article Seven.
Unless the Company fails to comply with the preceding paragraph and
default in the payment of such Redemption Price plus accrued interest, if any,
interest on the Notes to be redeemed will cease to accrue on and after the
applicable Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture.
(b) An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or any of its Affiliates) holds, prior to 11:00 a.m. New York City
time on that date, U.S. Legal Tender designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
pursuant to the terms of this Indenture or the Notes.
(c) 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.
<PAGE> 51
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SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do
or cause to be done, at its own cost and expense, all things necessary to
preserve and keep in full force and effect its respective corporate existence
and the corporate existence of each of its Restricted Subsidiaries in accordance
with the respective organizational documents of each such Restricted Subsidiary
and the material rights (charter and statutory) and franchises of the Company
and each such Restricted Subsidiary; provided, however, that the Company shall
not be required to preserve, with respect to itself, any material right or
franchise and, with respect to any of its Restricted Subsidiaries, any such
existence, material right or franchise, if the Board of Directors of the Company
shall determine in good faith that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon it or any of its
Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
Lien upon the property of the Company or any of its Subsidiaries; 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
negotiations or proceedings properly instituted and diligently conducted for
which adequate reserves, to the extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of the Restricted
Subsidiaries to, maintain all properties used or
<PAGE> 52
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useful in the conduct of its business in good working order and condition
(subject to ordinary wear and tear) and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto; provided,
however, that nothing in this Section 4.05 shall prevent the Company or any of
the Restricted Subsidiaries from discontinuing the operation and maintenance of
any of its properties, if such discontinuance is (i) in the ordinary course of
business pursuant to customary business terms or (ii) in the good faith judgment
of the respective Boards of Directors or other governing body of the Company or
Restricted Subsidiary, as the case may be, desirable in the conduct of their
respective businesses and is not disadvantageous in any material respect to the
Holders.
(b) The Company shall provide or cause to be provided, for itself
and each of the Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the good faith
judgment of the Company, are adequate and appropriate for the conduct of the
business of the Company and its Restricted Subsidiaries in a prudent manner,
with reputable insurers.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) Each of the Company and the Guarantor shall deliver to the
Trustee, within 120 days after the end of each of the Company's fiscal years, an
Officers' Certificate (provided, however, that one of the signatories to each
such Officers' Certificate shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company or the
Guarantor, as the case may be,), as to such Officers' knowledge, without
independent investigation, of the Company's compliance with all conditions and
covenants under this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and in the event any Default of the
Company's exists, such Officers shall specify the nature of such Default. Each
such Officers' Certificate shall also notify the Trustee should the Company
elect to change the manner in which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.08 shall be accompanied by a written
report of the Company's independent certified public accountants (who shall be a
firm of established national reputation) stating (A) that their audit
examination has included a review of the terms of this Indenture and the form of
the Notes as they relate to accounting matters, and (B) whether, in connection
with their audit examination, any Default or Event of Default has come to their
attention and if such a Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; provided, however, that,
without any restriction as to
<PAGE> 53
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the scope of the audit examination, such independent certified public
accountants shall not be liable by reason of any failure to obtain knowledge of
any such Default or Event of Default that would not be disclosed in the course
of an audit examination conducted in accordance with generally accepted auditing
standards.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 11.02 hereof,
by registered or certified mail or by facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action within 10 days of its becoming aware of such
occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole.
SECTION 4.08. Reports to Holders.
The Company will deliver to the Trustee within 15 days after filing
of the same with the Commission, copies of the quarterly and annual reports and
of the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of Section 314(a) of the TIA.
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or
<PAGE> 54
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advantage of, any stay or extension law or any usury law or other law that would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 4.10. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Capital Stock) of the Company) on or in respect of the
Company's Equity Interests to holders of such Equity Interests;
(b) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company;
(c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes; or
(d) make any Investment (other than a Permitted Investments)
(each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing, or (ii) the Company is not able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.12, or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and on or prior to the date
the Restricted
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Payment occurs (the "Reference Date") (treating such period as a single
accounting period); plus
(x) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Subsidiary of the Company) from the issuance
and sale subsequent to the Issue Date and on or prior to the Reference
Date of Equity Interests (other than Disqualified Capital Stock) of the
Company; plus
(y) without duplication of any amounts included in clause (iii)(x)
above, 100% of the aggregate net cash proceeds of any equity contribution
received by the Company; plus
(z) without duplication, the sum of (1) the aggregate amount
returned in cash on or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date, whether through interest
payments, principal payments, dividends or other distributions or
payments, (2) the net cash proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company) and (3) upon
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary,
the fair market value of such Subsidiary; provided, however, that the sum
of clauses (1), (2) and (3) above shall not exceed the aggregate amount of
all such Investments made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth above will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Equity Interests of the Company, either
(i) solely in exchange for Equity Interests (other than Disqualified
Capital Stock) of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of Equity Interests (other than Disqualified
Capital Stock) of the Company;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes, either (i) solely
in exchange for Equity Interests (other than Disqualified Capital Stock)
of the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) Equity Interests
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(other than Disqualified Capital Stock) of the Company or (B) Refinancing
Indebtedness;
(4) so long as no Default or Event of Default shall have occurred
and be continuing, payments by the Company to redeem or repurchase or to
enable Holdings to redeem or repurchase Equity Interests of Holdings or
the Company, as the case may be, issued to or on behalf of directors,
officers and employees of the Company or any of its Subsidiaries pursuant
to Company policy with respect to directors, officers and employees of the
Company or any of its Subsidiaries who have died or become disabled or
whose employment or other relationship with the Company or any of its
Subsidiaries has been terminated or pursuant to the terms of employment
contracts, other agreements or employee stock option or stock benefit
plans of Holdings, the Company or any of its Subsidiaries not to exceed
$1.0 million in any fiscal year; provided, however, that if such amount is
not used in its entirety within such fiscal year, the unutilized amount
may be utilized solely in the next succeeding fiscal year;
(5) the making of payments by the Company to Holdings to pay
operating and administrative expenses of Holdings, including, without
limitation, directors' fees and expenses, legal and audit expenses and
corporate franchise and other taxes, not to exceed $500,000 in any fiscal
year;
(6) if no Default or Event of Default shall have occurred and be
continuing as a consequence thereof, the declaration and payment of
dividends to holders of any class or series of Designated Preferred Stock
issued after the Issue Date; provided, however, that for the most recently
ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date of issuance of such
Designated Preferred Stock, after giving effect to such issuance on a pro
forma basis, the Company and its Restricted Subsidiaries would have had a
Consolidated Fixed-Change Ratio greater than 2.0 to 1.0;
(7) payments made or to be made in connection with the
Recapitalization or to Holdings to enable Holdings to make such payments;
(8) the distribution by the Company of the proceeds of the Offering
to Holdings to enable Holdings to repay the Bridge Facility; and
(9) payments to Holdings under a tax sharing agreement between
Holdings and the Company.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of this Section
4.10, amounts expended pursuant to
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clauses (1), (2)(ii), (3)(ii)(A), (4) and (6) shall be included in such
calculation.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (each an
"Affiliate Transaction"), other than (x) Affiliate Transactions permitted under
paragraph (b) of this Section 4.11 and (y) Affiliate Transactions on terms that
are no less favorable to the Company or such Restricted Subsidiary than those
that might reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate of the
Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $1.0 million shall be approved by a majority of the Disinterested
Directors of the Company or such Restricted Subsidiary, as the case may be, such
approval to be evidenced by a Board Resolution stating that such majority of
Disinterested Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related to
a common plan) that involves an aggregate fair market value of more than $7.5
million, or more than $1.0 million and the Company does not have any
Disinterested Directors, the Company or such Restricted Subsidiary, as the case
may be, shall, prior to the consummation thereof, obtain a favorable opinion as
to the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided, such
transactions are not otherwise prohibited by this Indenture; (iii) the existence
of or performance by the Company or any Restricted Subsidiary under any
agreement as in effect as of the Issue Date or any amendment thereto or any
replacement agreement therefor or any transaction contemplated thereby
(including pursuant to any
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amendment thereto or any replacement agreement therefor) so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments permitted by this Indenture; (v) payment of customary
annual management, consulting and advisory fees and related expenses to the
Principals and their Affiliates; (vi) the payment of all fees and expenses
related to the Recapitalization; (vii) loans to employees of the Company and its
Subsidiaries which are approved by the Board of Directors of the Company in good
faith; (viii) the issuance of equity incentives or equity-based incentives (such
as stock appreciation rights) or the granting or payment of any other
compensation or benefit to employees or officers of the Company or any
Subsidiary; provided that none of such employees or officers are Affiliates of
any person owning more than 50% of the issued and outstanding capital stock (or
rights to acquire capital stock) of Holdings (a "Majority Stockholder"); and
(ix) employment or consulting agreements or arrangements entered into with
Persons who are not Affiliates of any Majority Stockholder.
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, if no Default or Event
of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Subsidiary Guarantor may incur Indebtedness (including, without limitation,
Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur
Acquired Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than (x) 2.0 to 1.0, if
the date of such incurrence is on or prior to March 1, 1999, or (y) 2.5 to 1.0,
if the date of such incurrence is after March 1, 1999.
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances, or pay any Indebtedness or other obligation owed to the Company or any
other Restricted Subsidiary of the Company; or (c) transfer any of its property
or assets to the
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Company or any other Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) this Indenture; (3) the Credit Agreement; (4) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (5) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (6) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in clause
(c) above on the property so acquired; (8) contracts for the sale of assets,
including, without limitation, customary restrictions with respect to a
Restricted Subsidiary of the Company pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary; (9) secured Indebtedness
otherwise permitted to be incurred pursuant to Section 4.12 and 4.18 that limit
the right of the debtor to dispose of the assets securing such Indebtedness;
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business; (11) agreements
governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clauses (1) through (10) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clauses; or (12) agreements governing Indebtedness permitted to be incurred
pursuant to Section 4.12; provided that the provisions relating to such
encumbrance or restriction contained in such Indebtedness are no less favorable
to the Company in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
contained in the Credit Agreement.
SECTION 4.14. Additional Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another domestic Restricted Subsidiary
having total book equity value in excess of $1.0 million, then such transferee
or acquired or other Restricted Subsidiaries shall (a) execute and deliver to
the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which
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such Restricted Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and this Indenture on the terms set forth in this
Indenture and (b) deliver to the Trustee an Opinion of Counsel stating that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Guarantor for all purposes of this Indenture.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued interest to the date of purchase.
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following any Change of Control, the Company covenants to
(i) repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require repayment
upon a Change of Control or offer to repay in full and terminate all commitments
under Indebtedness under the Credit Agreement and all other such Senior Debt and
to repay the Indebtedness owed to each lender which has accepted such offer or
(ii) obtain the requisite consents under the Credit Agreement and all other
Senior Debt to permit the repurchase of the Notes as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase Notes pursuant to the provisions
described below. The Company's failure to comply with the immediately preceding
sentence shall constitute an Event of Default under Section 6.01(iii) and not
under Section 6.01(ii).
(c) Within 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder at such Holder's last registered address, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Change of Control Offer. Such
notice shall state:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.15, that all Notes tendered and not withdrawn will be accepted
for payment and that the Change of Control Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by
law;
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(ii) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 30 days nor later
than 45 days from the date such notice is mailed, other than as may be
required by law) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in making payment therefor,
any Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the
Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased portion of
the Notes surrendered; provided, however, that each Note purchased and
each new Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent in accordance with Section
2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued
interest, if any, of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price plus accrued interest,
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if any, and the Trustee shall promptly authenticate and mail to such Holders new
Notes equal in principal amount to any unpurchased portion of the Notes
surrendered. Any Notes not so accepted shall be promptly mailed by the Company
to the Holder thereof. For purposes of this Section 4.15, the Trustee shall act
as the Paying Agent.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.15, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the provisions of this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Asset Sales.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by the Company's Board of Directors);
(ii) at least 75% of the consideration received by the Company or
the Restricted Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the time of
such disposition; provided that the amount of (a) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets, and (b) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary
into cash within 180 days after such Asset Sale (to the extent of the cash
received) shall be deemed to be cash for the purposes of this provision;
and
(iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (A)
to prepay any Senior Debt or Guarantor Senior Debt and, in the case of any
Senior Debt under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit facility, (B) to
make expenditures for Replacement
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Assets or (C) a combination of prepayment and investment permitted by the
foregoing clauses (iii)(A) and (iii)(B).
On the 271st day after an Asset Sale or such earlier date, if any,
as the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A) through (iii)(C) of the preceding paragraph (each a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A) through (iii)(C) of the preceding paragraph (each
a "Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary to make an offer to purchase (a "Net Proceeds Offer") on a
date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45
days following the applicable Net Proceeds Offer Trigger Date, from all Holders
on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount
at a price equal to 100% of the principal amount of the Notes to be purchased,
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided, however, that if at any time any non-cash consideration received by
the Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.16. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5.0 million resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not just the
amount in excess of $5.0 million, shall be applied as required pursuant to this
paragraph). To the extent the aggregate amount of the Notes tendered pursuant to
the Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company
may use such deficiency for general corporate purposes. Upon completion of such
offer to purchase, the Net Proceeds Offer Amount shall be reset at zero.
In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.16, and shall comply with the provisions of this Section 4.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.16.
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(b) Each Net Proceeds Offer pursuant to this Section 4.16 shall be
mailed or caused to be mailed, by first class mail, by the Company within 25
days after the Net Proceeds Offer Trigger Date to all Holders at their last
registered addresses, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Net Proceeds Offer and shall state the following terms:
(i) that the Net Proceeds Offer is being made pursuant to this
Section 4.16, that all Notes tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Notes
tendered in a Net Proceeds Offer plus accrued interest at the expiration
of such offer exceeds the aggregate Net Proceeds Offer Amount, the Company
shall select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Notes
in denominations of $1,000 or multiples thereof shall be purchased) and
that the Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law;
(ii) the purchase price (including the amount of accrued interest)
and the Net Proceeds Offer Payment Date (which shall be not less than 30
nor more than 45 days following the applicable Net Proceeds Offer Trigger
Date and which shall be at least five Business Days after the Trustee
receives notice thereof from the Company);
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in making payment therefor,
any Note accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a Net
Proceeds Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Net
Proceeds Offer Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased; and
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(vii) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased portion of
the Notes surrendered; provided, however, that each Note purchased and
each new Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof;
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Notes or portions thereof tendered pursuant to the Net
Proceeds Offer which are to be purchased in accordance with item (b)(i) above,
(ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal
Tender sufficient to pay the purchase price plus accrued interest, if any, of
all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price
plus accrued interest, if any. For purposes of this Section 4.16, the Trustee
shall act as the Paying Agent. The Trustee shall promptly authenticate and mail
to such Holders new Notes equal in principal amount to any unpurchased portion
of the Notes surrendered. Upon the payment of the purchase price for the Notes
accepted for purchase, the Trustee shall return the Notes purchased to the
Company for cancellation. Any monies remaining after the purchase of Notes
pursuant to a Net Proceeds Offer shall be returned within three Business Days by
the Trustee to the Company except with respect to monies owed as obligations to
the Trustee pursuant to Article Seven. For purposes of this Section 4.16, the
Trustee shall act as the Paying Agent.
(c) The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.16, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the provisions of this Section 4.16 by virtue thereof.
SECTION 4.17. Prohibition on Incurrence of Senior Subordinated Debt.
The Company and the Guarantors will not incur or suffer to exist
Indebtedness that is senior in right of payment to the Notes or the Guarantees,
as the case may be, and subordinate in right of payment by its terms to any
other Indebtedness of the Company or such Guarantor, as the case may be.
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SECTION 4.18. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date or any proceeds therefrom, or assign
or otherwise convey any right to receive income or profits therefrom unless (i)
in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes are equally and ratably secured, except for (A)
Liens existing as of the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date; (B) Liens securing Senior Debt and Guarantor
Senior Debt; (C) Liens securing the Notes and the Guarantees; (D) Liens of the
Company or a Wholly Owned Restricted Subsidiary of the Company on assets of the
Company or any Restricted Subsidiary of the Company; (E) Liens securing
Refinancing Indebtedness which is incurred to Refinance any Indebtedness which
has been secured by a Lien permitted under the Indenture and which has been
incurred in accordance with the provisions of this Indenture; provided, however,
that such Liens (1) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (2) do not extend to or cover
any property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so Refinanced; and (F) Permitted Liens.
SECTION 4.19. Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or reasonably similar, ancillary or
related to or a reasonable extension, development or expansion of the businesses
in which the Company and its Restricted Subsidiaries are engaged on the Issue
Date.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the
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Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of the Company's assets (determined on a consolidated basis
for the Company and the Company's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Notes and the performance of every covenant of the Notes,
this Indenture and the Registration Rights Agreement on the part of the Company
to be performed or observed; (ii) immediately after giving effect to such
transaction on a pro forma basis and the assumption contemplated by clause
(i)(2)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(2) shall be able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 4.12 hereof; (iii) immediately
before and immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of this Indenture and that all conditions precedent in
this Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be
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the transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with Section
5.01, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes with the same effect as if such successor had been
named as the Company herein.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(i) the failure to pay interest on any Notes when the same becomes
due and payable and the default continues for a period of 30 days (whether
or not such payment is prohibited by Article Ten of this Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by Article Ten of this
Indenture);
(iii) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default continues
for a period of 30 days after written notice specifying the default (and
demanding that such default be remedied) is delivered to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least
25% of the outstanding principal amount of the Notes (except in the case
of a default with respect to observance or performance of any of the terms
or provisions of Section 5.01, which will constitute an Event of Default
with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions
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thereof) the principal amount of any Indebtedness of the Company or any
Restricted Subsidiary of the Company, or the acceleration of the final
stated maturity of any such Indebtedness if the aggregate principal amount
of such Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) the Company, Holdings or any of its Significant Subsidiaries
pursuant to or under or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case or proceeding;
(b) consents to the entry of an order for relief against it in
an involuntary case or proceeding;
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property;
(d) makes a general assignment for the benefit of its
creditors; or
(e) shall generally not pay its debts when such debts become
due or shall admit in writing its inability to pay its debts
generally;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against Holdings, the Company or any
Significant Subsidiary of the Company in an involuntary case or
proceeding,
(b) appoints a Custodian of Holdings, the Company or any
Significant Subsidiary of the Company for all or substantially all
of its Properties, or
(c) orders the liquidation of Holdings, the Company or any
Significant Subsidiary of the Company,
and in each case the order or decree remains unstayed and in effect for 60
days; or
(viii) any Guarantee ceases to be in full force and effect or is
declared to be null and void and unenforceable
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or is found to be invalid or a Guarantor denies its liability under its
Guarantees.
SECTION 6.02. Acceleration.
(a) If an Event of Default specified in Section 6.01 (other than an
Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect
to the Company) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal of
and accrued interest on all the Notes to be due and payable by notice in writing
to the Company and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice") and the same
(i) shall become immediately due and payable or (ii) if there are any amounts
outstanding under the Credit Agreement, shall become immediately due and payable
upon the first to occur of an acceleration under the Credit Agreement or five
Business Days after receipt by the Company, the Trustee and the Representative
under the Credit Agreement and under other Designated Senior Debt of such
Acceleration Notice. If an Event of Default of the type described in clause (vi)
or (vii) above with respect to the Company occurs and is continuing, then all
unpaid principal of, and premium, if any, and accrued and unpaid interest on all
of the outstanding Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
(b) At any time after a declaration of acceleration with respect to
the Notes as described in the preceding paragraph, the Holders of a majority in
principal amount of the Notes may rescind and cancel such declaration and its
consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of such
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements, advances and any other
amounts due the Trustee under Section 7.07 and (v) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the
description of Events of Default above, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or
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in equity to collect the payment of the principal of, premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
All rights of action and claims under this Indenture or the Notes
may be enforced by the Trustee even if it does not possess any of the Notes or
does not produce any of them in the proceeding. A delay or omission by the
Trustee or any Holder 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 to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Prior to the declaration of acceleration of the Notes, the Holders
of not less than a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may, on behalf of the Holders of all the
Notes, waive any existing Default or Event of Default and its consequences under
this Indenture, except a Default or Event of Default specified in Section
6.01(i) or (ii) or in respect of any provision hereof which cannot be modified
or amended without the consent of the Holder so affected pursuant to Section
9.02. When a Default or Event of Default is so waived, it shall be deemed cured
and shall cease to exist. This Section 6.04 shall be in lieu of ss. 316(a)(1)(B)
of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly excluded
from this Indenture and the Notes, as permitted by the TIA.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of the Notes may not enforce
this Indenture or the Notes except as provided in this Article Six and under the
TIA. The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however, that
the Trustee may refuse to follow any direction (a) that conflicts with any rule
of law or this Indenture, (b) that the Trustee determines may be unduly
prejudicial to the rights of another Holder, or (c) that may expose the Trustee
to personal liability for which reasonable indemnity provided to the Trustee
against such liability shall be inadequate in the judgment of the Trustee;
provided, further, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction or this
Indenture. This Section 6.05 shall be in lieu of ss. 316(a)(1)(A) of the TIA,
and such ss. 316(a)(1)(A) of the TIA is hereby expressly excluded from this
Indenture and the Notes, as permitted by the TIA.
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SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding with respect to this Indenture or the Notes or any remedy hereunder,
unless the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and this
Indenture, the Trustee has failed to institute such proceeding within 25 days
after receipt of such notice, request and offer of indemnity and the Trustee,
within such 25-day period, has not received directions inconsistent with such
written request by Holders of not less than a majority in aggregate principal
amount of the outstanding Notes.
The foregoing limitations shall not apply to a suit instituted by a
Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of any
other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture, the right of
any Holder of a Note to receive payment of the principal of, premium, if any,
and interest on such Note, on or after the respective due dates expressed or
provided for in such Note, or to bring suit for the enforcement of any such
payment on or after the respective due dates, is absolute and unconditional and
shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (i) or (ii) of Section
6.01 occurs and is continuing, the Trustee may recover judgment in its own name
and as trustee of an express trust against the Company, or any other obligor on
the Notes for the whole amount of the principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum provided for by the
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and any other
amounts due the Trustee under Section 7.07.
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SECTION 6.09. 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 (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Company or Restricted Subsidiaries (or any other obligor upon the Notes), their
creditors or their property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. The Company's
payment obligations under this Section 6.09 shall be secured in accordance with
the provisions of Section 7.07. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six it
shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: subject to Article Ten, to Holders for interest accrued on the
Notes, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for interest;
Third: subject to Article Ten, to Holders for the principal amounts
(including any premium) owing under the Notes, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Notes for the principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
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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 may in its discretion require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to any suit by the Trustee, any suit by a
Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in aggregate principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee may exercise such of the rights and powers vested in it by this
Indenture and shall use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be
implied in this Indenture that are adverse to the Trustee.
(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
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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 that by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(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.
(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 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may consult
with counsel of its selection and may require an Officers' Certificate or
an Opinion of Counsel, which shall conform to Sections 11.04 and 11.05.
The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officers' Certificate or Opinion of
Counsel.
(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 that it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled, upon reasonable
notice to the Company, to examine the books, records, and premises of the
Company, personally or by agent or attorney and to consult with the
officers and representatives of the Company, including the Company's
accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee security
or indemnity satisfactory to the Trustee against the costs, expenses and
liabilities which may be incurred by it in compliance with such request,
order or direction.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(h) Delivery of reports, information and documents to the Trustee
under Section 4.08 is for informational purposes only and the Trustee's
receipt of the foregoing shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of their covenants
hereunder (as to which the Trustee is entitled to rely exclusively on
Officers' Certificates).
(i) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved
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or established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officer's Certificate or an Opinion of Counsel.
(j) The Trustee shall not be charged with knowledge of any Default
or Event of Default, of the identity of any Restricted Subsidiary or of
the existence or any Asset Sale or Change of Control unless either (i) a
Trust Officer shall have actual knowledge thereof, or (ii) the Trustee
shall have received written notice thereof from the Company or any Holder
of the Notes.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, Holdings, any
of their Subsidiaries, or their respective Affiliates with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture, the Notes or any Guarantee, and it shall not be accountable
for the Company's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Company in this Indenture or the Notes
other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to a Trust Officer, the Trustee shall mail to each Holder notice of
the uncured Default or Event of Default within 90 days after obtaining knowledge
thereof. Except in the case of a Default or an Event of Default in payment of
principal of, or interest on, any Note, including an accelerated payment, a
Default in payment on the Change of Control Payment Date pursuant to a Change of
Control Offer or on the Net Proceeds Offer Payment Date pursuant to a Net
Proceeds Offer and a Default in compliance with Article Five hereof, the Trustee
may withhold the notice if and so long as its Board of Directors, the executive
committee of its Board of Directors or a committee of its directors and/or Trust
Officers in good faith determines that withholding the notice is in the interest
of the Holders. The foregoing sentence of this Section 7.05 shall be in lieu of
the proviso to ss. 315(b) of the TIA and such proviso to ss. 315(b) of the TIA
is hereby expressly excluded from this Indenture and the Notes, as permitted by
the TIA.
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SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after August 1 of each year beginning with 1998, the
Trustee shall, to the extent that any of the events described in TIA ss. 313(a)
occurred within the previous twelve months, but not otherwise, mail to each
Holder a brief report dated as of such date that complies with TIA ss. 313(a).
The Trustee also shall comply with TIA ss.ss. 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the Commission and each stock exchange, if
any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes become
listed on any stock exchange and the Trustee shall comply with TIA ss. 313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. 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 in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any predecessor
Trustee) and its agents, employees, stockholders, Affiliates and directors and
officers for, and hold them each harmless against, any and all loss, liability,
damage, claim or expense (including reasonable fees and expenses of counsel),
including taxes (other than taxes based on the income of the Trustee) incurred
by them except for such actions to the extent caused by any negligence, bad
faith or willful misconduct on their part, arising out of or in connection with
the acceptance or administration of this trust, including the reasonable costs
and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of their rights, powers or
duties hereunder. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity; provided, however,
that any failure to so notify the Company shall not relieve the Company of its
indemnity obligations hereunder except to the extent the Company's ability to
defend such claim shall be prejudiced thereby. At the Trustee's sole discretion,
the Company shall defend the claim and the Trustee shall cooperate and may
participate in the defense; provided, however, that any settlement of a claim
shall be approved in writing by the Trustee if such settlement would result in
an admission of liability by
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the Trustee or if such settlement would not be accompanied by a full release of
the Trustee for all liability arising out of the events giving rise to such
claim. Alternatively, the Trustee may at its option have separate counsel of its
own choosing and the Company shall pay the reasonable fees and expenses of such
counsel.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or premium, if any, or interest on particular
Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(vi) or (vii) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the resignation or
removal of the Trustee and the termination of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing at least 10 days in advance of such resignation. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee and
appoint a successor Trustee with the Company's consent, by so notifying the
Company and the Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in aggregate principal
amount of the outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all
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property held by it as Trustee to the successor Trustee, subject to the lien
provided in Section 7.07, 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 Company shall mail
notice of such successor Trustee's appointment to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in aggregate principal amount of the outstanding Notes
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 Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss. 310(a)(1), (2) and (5). The Trustee (or, in the case
of a Trustee that is a corporation included in a bank holding company system,
the related bank holding company) shall have a combined capital and surplus of
at least $100 million as set forth in its most recent published annual report of
condition, and have a Corporate Trust Office in the City of New York. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA ss. 310(a)(2). 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
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TIA ss. 310(b)(1) are met. The provisions of TIA ss. 310 shall apply to the
Company and Holdings, as obligors of the Notes.
SECTION 7.11. Preferential Collection of Claims Against the 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 therein. The
provisions of TIA ss. 311 shall apply to the Company and Holdings, as obligor on
the Notes.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
This Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in this Indenture) as to all outstanding
Notes when (i) either (a) all Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under this Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with.
The Company may, at its option and at any time, elect to have its
obligations and the corresponding obligations of the Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on the Notes when
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such payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payments,
(iii) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of this Section 8.01. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company and the Guarantors, if
any, released with respect to covenants contained in Sections 4.04, 4.08 and
4.10 through 4.19 and Article Five ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event of Covenant Defeasance, those
events described under Section 6.01 (except those events described in Section
6.01(i),(ii),(vi) and (vii)) will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders cash in United States dollars, non-callable
U.S. Government Obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants as certified to the Trustee, to pay the
principal of, premium, if any, and interest on the Notes on the stated
date for payment thereof or on the applicable Redemption Date, as the case
may be;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders 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
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times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
under Section 6.01(vi) or (vii) from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under this Indenture or
any 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;
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with; and
(viii) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Senior Debt, including, without limitation, those
arising under the Indenture and (B) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01, and
shall apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of the principal of
and interest on the Notes. The Trustee shall be under no obligation to invest
said U.S. Legal Tender or U.S. Government Obligations except as it may agree in
writing with the Company.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the
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Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.01
or the principal and interest received in respect thereof.
SECTION 8.03. Repayment to the Company.
Subject to Section 8.01, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for one year; provided, however,
that the Trustee or such Paying Agent, before being required to make any
payment, may at the expense of the Company cause to be published once in a
newspaper of general circulation in the City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein which shall be at least 30 days from the date of such
publication or mailing any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.01 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 Company's and each of the Guarantor's obligations under this
Indenture, the Notes and the Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.01 until such time as the
Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with Section 8.01; provided, however, that
if the Company has made any payment of interest on or principal of any Notes
because of the reinstatement of their obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or
Paying Agent.
SECTION 8.05. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 have been satisfied, (ii)
the Company has paid or caused to be paid all other sums payable hereunder by
the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
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discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01;
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Company and the
Trustee may amend, waive or supplement this Indenture without notice to or
consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; (b)
to comply with Section 4.14 or 5.01 of this Indenture; (c) to provide for
uncertificated Notes in addition to certificated Notes; (d) to comply with any
requirements of the Commission in order to effect or maintain the qualification
of this Indenture under the TIA; or (e) to make any change that would provide
any additional benefit or rights to the Holders or that does not adversely
affect the rights of any Holder. Notwithstanding the foregoing, the Trustee and
the Company may not make any change that adversely affects the rights of any
Holder under this Indenture without the consent of such Holder. In formulating
its opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
Opinion of Counsel.
SECTION 9.02. With Consent of Holders.
All other modifications and amendments of this Indenture may be made
with the consent of the Holders of a majority in the then outstanding principal
amount of the then outstanding Notes, except that, without the consent of each
Holder of the Notes affected thereby, no amendment may, directly or indirectly:
(i) reduce the amount of Notes whose Holders must consent to any amendment; (ii)
reduce the rate of or change or have the effect of changing the time for payment
of interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor (except that
provisions affecting the requirement to repurchase Notes following a Change of
Control or certain Asset Sales may be amended by the Company, the Trustee and
the Holders of not less than a majority in aggregate principal amount of the
Notes then outstanding); (iv) make any Notes payable in money other than that
stated in the Notes;
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(v) make any change in provisions of this Indenture protecting the right of each
Holder of a Note to receive payment of principal of and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment or
permitting Holders of a majority in principal amount of Notes to waive Defaults
or Events of Default; (vi) modify or change any provision of this Indenture
affecting the ranking of the Notes or any Guarantee in a manner which adversely
affects the Holders; or (vii) release any Guarantor from any of its obligations
under its Guarantee or this Indenture otherwise than in accordance with the
terms of this Indenture.
After an amendment, supplement or waiver under this Section 9.02
becomes effective (as provided in Section 9.04), the Company shall mail to the
Holders affected thereby a notice briefly describing the amendment, supplement
or waiver. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record Date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a Record Date is fixed, then notwithstanding the second
sentence of the
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immediately preceding paragraph, those Persons who were Holders at such Record
Date (or their duly designated proxies), and only those Persons, shall be
entitled to revoke any consent previously given, whether or not such Persons
continue to be Holders after such Record Date. No such consent shall be valid or
effective for more than 90 days after such Record Date unless consents from
Holders of the requisite percentage in principal amount of outstanding Notes
required hereunder for the effectiveness of such consents shall have also been
given and not revoked within such 90 day period.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note,
the Trustee may require the Holder of such Note to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such supplement or waiver the Trustee shall be entitled
to receive indemnity reasonably satisfactory to it, and shall be fully protected
in relying upon, in addition to the documents required by Section 11.04, an
Opinion of Counsel and an Officers' Certificate of the Company, stating that no
Event of Default shall occur as a result of such amendment, supplement or waiver
and that the execution of any amendment, supplement or waiver authorized
pursuant to this Article Nine is authorized or permitted by this Indenture,
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company. Such
Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE TEN
SUBORDINATION
SECTION 10.01. Notes Subordinated to Senior Debt.
The Company covenants and agrees, and each Holder of the Notes, by
its acceptance thereof, likewise covenants and agrees, that all Notes shall be
issued subject to the provisions of this Article Ten; and each Person holding
any Note, whether upon original issue or upon registration of transfer,
assignment
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or exchange thereof, accepts and agrees that the payment of all Obligations on
the Notes by the Company shall, to the extent and in the manner herein set
forth, be subordinated and junior in right of payment to the prior payment in
full in cash or Cash Equivalents of all Obligations on the Senior Debt,
including, without limitation, the Company's obligations under the Credit
Agreement; that the subordination is for the benefit of, and shall be
enforceable directly by, the holders of Senior Debt, and that each holder of
Senior Debt whether now outstanding or hereafter created, incurred, assumed or
guaranteed shall be deemed to have acquired Senior Debt in reliance upon the
covenants and provisions contained in this Indenture and the Notes.
SECTION 10.02. Suspension of Payment When Senior Debt is in Default.
(a) If any default occurs and is continuing in the payment when due,
whether at maturity, upon redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by, or on behalf of, the Company
or any other Person on its behalf with respect to any Obligations on the Notes,
or to acquire any of the Notes for cash or property or otherwise. In addition,
if any other event of default occurs and is continuing with respect to any
Designated Senior Debt, as such event or default is defined in the instrument
creating or evidencing such Designated Senior Debt, permitting the holders of
such Designated Senior Debt then outstanding to accelerate the maturity thereof
and if the Representative for the respective issue of Designated Senior Debt
gives written notice of the event of default to the Trustee (a "Default
Notice"), then, unless and until all events of default have been cured or waived
or have ceased to exist or the Trustee receives notice thereof from the
Representative for the respective issue of Designated Senior Debt terminating
the Blockage Period (as defined below), during the 180 days after the delivery
of such Default Notice (the "Blockage Period"), neither the Company nor any
other Person on its behalf shall (x) make any payment of any kind or character
with respect to any Obligations on the Notes or (y) acquire any of the Notes for
cash or property or otherwise. Notwithstanding anything therein to the contrary,
in no event will a Blockage Period extend beyond 180 days from the date the
payment on the Notes was due and only one such Blockage Period may be commenced
within any 360 consecutive days. No event of default which existed or was
continuing on the date of the commencement of any Blockage Period with respect
to the Designated Senior Debt shall be, or be made, the basis for the
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach
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of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 10.02(a), such payment shall be held for the benefit of, and shall be
paid over or delivered to, the holders of Senior Debt (pro rata to such holders
on the basis of the respective amount of Senior Debt held by such holders) or
their respective Representatives, as their respective interests may appear. The
Trustee shall be entitled to rely on information regarding amounts then due and
owing on the Senior Debt, if any, received from the holders of Senior Debt (or
their Representatives) or, if such information is not received from such holders
or their Representatives, from the Company and only amounts included in the
information provided to the Trustee shall be paid to the holders of Senior Debt.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Section 6.02 or to pursue any rights or remedies
hereunder; provided that all Senior Debt thereafter due or declared to be due
shall first be paid in full in cash or Cash Equivalents before the Holders are
entitled to receive any payment of any kind or character with respect to
Obligations on the Notes.
SECTION 10.03. Notes Subordinated to Prior Payment of All Senior
Debt on Dissolution, Liquidation or Reorganization
of Company.
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise. Upon any such dissolution, winding-up, liquidation, reorganization,
receivership or similar proceeding, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Notes
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or the Trustee under this Indenture would be entitled, except for the provisions
hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holders or by the Trustee under this Indenture if received by them,
directly to the holders of Senior Debt (pro rata to such holders on the basis of
the respective amounts of Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is prohibited by this Section 10.03, such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Debt (pro rata to such holders on the basis of the
respective amount of Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Debt.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of all or substantially all of its
assets, to another Person upon the terms and conditions provided in Article Five
hereof and as long as permitted under the terms of the Senior Debt shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section if
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such other Person shall, as a part of such consolidation, merger, conveyance or
transfer, assume the Company's obligations hereunder in accordance with Article
Five hereof.
SECTION 10.04. Holders To Be Subrogated to Rights of Holders of
Senior Debt.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt, the Holders of the Notes shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Debt until the Notes shall be
paid in full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of the Senior Debt by or on behalf of the Company
or by or on behalf of the Holders by virtue of this Article Ten which otherwise
would have been made to the Holders shall, as between the Company and the
Holders of the Notes, be deemed to be a payment by the Company to or on account
of the Senior Debt, it being understood that the provisions of this Article Ten
are and are intended solely for the purpose of defining the relative rights of
the Holders of the Notes, on the one hand, and the holders of the Senior Debt,
on the other hand.
SECTION 10.05. Obligations of the Company Unconditional.
Nothing contained in this Article Ten or elsewhere in this Indenture
or in the Notes is intended to or shall impair, as between the Company and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the Holders and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Ten of the holders of Senior Debt in respect
of cash, property or notes of the Company received upon the exercise of any such
remedy. Upon any payment or distribution of assets or securities of the Company
referred to in this Article Ten, the Trustee, subject to the provisions of
Sections 7.01 and 7.02, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any liquidation,
dissolution, winding-up or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent
or other Person making any payment or distribution to the Trustee or to the
Holders for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of Senior Debt and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and
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all other facts pertinent thereto or to this Article Ten. Nothing in this
Article Ten shall apply to the claims of, or payments to, the Trustee under or
pursuant to Section 7.07. The Trustee shall be entitled to rely on the delivery
to it of a written notice by a Person representing himself or itself to be a
holder of any Senior Debt (or a trustee on behalf of, or other representative
of, such holder) to establish that such notice has been given by a holder of
such Senior Debt or a trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Ten, 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.
SECTION 10.06. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article Ten. Regardless of anything to the contrary contained in this Article
Ten or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Debt or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from the Company, or from a holder of Senior Debt or a
Representative therefor, together with proof satisfactory to the Trustee of such
holding of Senior Debt or of the authority of such Representative, and, prior to
the receipt of any such written notice, the Trustee shall be entitled to assume
conclusively that no such facts exist.
SECTION 10.07. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Sections 8.01 and 8.02 shall
be for the sole benefit of the Holders of the Notes and, to the extent allocated
for the payment of Notes, shall not be subject to the subordination provisions
of this Article Ten. Otherwise, any deposit of assets or securities by or on
behalf of the Company with the Trustee or any Paying Agent (whether or not in
trust) for the payment of principal of
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or interest on any Notes shall be subject to the provisions of this Article Ten;
provided, however, that if prior to the second Business Day preceding the date
on which by the terms of this Indenture any such assets may become distributable
for any purpose (including, without limitation, the payment of either principal
of or interest on any Note) the Trustee or such Paying Agent shall not have
received with respect to such assets the notice provided for in Section 10.06,
then the Trustee or such Paying Agent shall have full power and authority to
receive such assets and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary received by it
on or after such date. The foregoing shall not apply to the Paying Agent if the
Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent.
Nothing contained in this Section 10.07 shall limit the right of the holders of
Senior Debt to recover payments from any Holder as contemplated by this Article
Ten.
SECTION 10.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder, or by any non-compliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
(b) Without limiting the generality of subsection (a) of this
Section 10.08, the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article Ten or the
obligations hereunder of the Holders of the Notes to the holders of Senior Debt,
do any one or more of the following: (1) change the manner, place, terms or time
of payment of, or renew or alter, Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (2) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (3) release any Person liable in any manner for
the collection or payment of Senior Debt; and (4) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 10.09. Holders Authorize Trustee To Effectuate Subordination
of Notes.
Each Holder of the Notes by such Holder's acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effect the subordination provisions
contained in this Article Ten, and appoints the Trustee such Holder's
attorney-in-fact for
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such purpose, including, in the event of any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company tending towards liquidation or
reorganization of the business and assets of the Company, the immediate filing
of a claim for the unpaid balance of such Holder's Notes in the form required in
said proceedings and cause said claim to be approved. If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or claims,
then any of the holders of the Senior Debt or their Representative is hereby
authorized to file an appropriate claim for and on behalf of the Holders of said
Notes. Nothing herein contained shall be deemed to authorize the Trustee or the
holders of Senior Debt or their Representative to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 10.10. Right of Trustee to Hold Senior Debt.
The Trustee and any agent of the Company or the Trustee shall be
entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt.
Whenever a distribution is to be made or a notice given to holders
or owners of Senior Debt, the distribution may be made and the notice may be
given to their Representative, if any.
SECTION 10.11. This Article Ten Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision of this Article Ten will not be
construed as preventing the occurrence of an Event of Default.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article Six
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or to pursue any rights or remedies hereunder or under applicable law, subject
to the rights, if any, under this Article Ten of the holders, from time to time,
of Senior Debt.
SECTION 10.12. No Fiduciary Duty of Trustee to Holders of Senior
Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and it undertakes to perform or observe such of its
covenants and obligations as are specifically set forth in this Article Ten, and
no implied covenants or obligations with respect to the Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be liable to
any such holders (other than for its willful misconduct or gross negligence) if
it shall pay over or deliver to the Holders of Notes or the Company or any other
Person money or assets in compliance with the terms of this Indenture. Nothing
in this Section 10.12 shall affect the obligation of any Person other than the
Trustee to hold such payment for the benefit of, and to pay such payment over
to, the holders of Senior Debt or their Representative.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA 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 required provision shall control; provided, however, that this Section
11.01 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 11.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
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if to the Company or any Guarantor:
Young America Corporation
717 Faxon Road
Young America, MN 55397
Telecopier Number: (612) 467-1722
Attn: Chief Financial Officer
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telecopier Number: (212) 408-2420
Attn: Frederick M. Bachman
if to the Trustee:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005-1108
Telecopier Number: (212) 658-6425
Attention: Corporate Trust Department
Each of the Company and the Trustee by written notice to the other
may designate additional or different addresses for notices to such Person. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if hand delivered; when answered
back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar
days after mailing if sent by registered or certified mail, postage prepaid
(except that a notice of change of address shall not be deemed to have been
given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to
him by first class mail or other equivalent means at his address as it appears
on the registration books of the Registrar ten (10) days prior to such mailing
and shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
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SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA ss. 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action have
been complied with (which counsel, as to factual matters, may rely on an
Officers' Certificate).
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is reasonably 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 each such
Person, such condition or covenant has been complied with.
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SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Personal Liability.
No director, officer, employee or stockholder, as such, of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Notes, this Indenture, the Guarantees
or the Registration Rights Agreement or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind their successors. All agreements of the Trustee in this Indenture shall
bind its successors.
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SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes shall
be given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
ARTICLE TWELVE
GUARANTEE OF NOTES
SECTION 12.01. Unconditional Guarantee.
Subject to the provisions of this Article Twelve, each Guarantor, if
any, hereby, jointly and severally, unconditionally and irrevocably guarantees,
on a senior subordinated basis as provided in Article Thirteen (such guarantee
to be referred to herein as a "Guarantee") to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the obligations of the Company or any other Guarantors to the
Holders or the Trustee hereunder or thereunder, that: (a) the principal of,
premium, if any, and interest on the Notes (and any Additional Interest payable
thereon) shall be duly and punctually paid in full when due, whether at
maturity, upon redemption at the option of Holders pursuant to the provisions of
the Notes relating thereto, by acceleration or otherwise, and interest on the
overdue principal and (to the extent permitted by law) interest, if any, on the
Notes and all other obligations of the Company or the Guarantors to the Holders
or the Trustee hereunder or thereunder (including amounts due the Trustee under
Section 7.07 hereof) and
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all other obligations shall be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations, the
same shall be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed, or failing
performance of any other obligation of the Company to the Holders under this
Indenture or under the Notes, for whatever reason, each Guarantor shall be
obligated to pay, or to perform or cause the performance of, the same
immediately. An Event of Default under this Indenture or the Notes shall
constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes to accelerate the obligations of the Guarantors hereunder in
the same manner and to the same extent as the obligations of the Company.
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture and each
Guarantee. Each Guarantee is a guarantee of payment and not of collection. If
any Holder or the Trustee is required by any court or otherwise to return to the
Company or to any Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or such Guarantor, any amount
paid by the Company or such Guarantor to the Trustee or such Holder, the
Guarantee of such Guarantor, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between it, on the one hand, and the Holders of Notes and the Trustee, on the
other hand, (a) subject to this Article Twelve, the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article Six hereof for the
purposes of such Guarantor's Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (b) in the event of any acceleration of such obligations
as provided in Article Six hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for the
purpose of such Guarantor's Guarantee.
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No stockholder, officer, director, employee or incorporator, past,
present or future, of any Guarantor, as such, shall have any personal liability
under any Guarantee by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor,
determined in accordance with GAAP.
SECTION 12.02. Limitations on Guarantees.
The obligations of each Guarantor under its Guarantee will be
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of such Guarantor will result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
SECTION 12.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 12.01, each
Guarantor hereby agrees that a notation of such Guarantee, substantially in the
form of Exhibit F herein, shall be endorsed on each Note authenticated and
delivered by the Trustee. Such Guarantee shall be executed on behalf of each
Guarantor by either manual or facsimile signature of two Officers of each
Guarantor, each of whom, in each case, shall have been duly authorized to so
execute by all requisite corporate action. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Note.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 12.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or
a Guarantee no longer holds that office at the time the Trustee authenticates
the Note on which such Guarantee is endorsed or at any time thereafter, such
Guarantor's Guarantee of such Note shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Guarantor.
SECTION 12.04. Release of a Guarantor.
(a) If no Default exists or would exist under this Indenture, upon
the sale or disposition of all of the Capital Stock of a Guarantor by the
Company or a Restricted Subsidiary of
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the Company in a transaction constituting an Asset Sale the Net Cash Proceeds of
which are applied, to the extent required thereby, in accordance with Section
4.16, or upon the consolidation or merger of a Guarantor with or into any Person
in compliance with Article Five (in each case, other than to the Company or an
Affiliate of the Company or a Restricted Subsidiary), or if any Guarantor is
dissolved or liquidated in accordance with this Indenture or if a Guarantor is
designated an Unrestricted Subsidiary in accordance with the provisions of this
Indenture, such Guarantor and each Subsidiary of such Guarantor that is also a
Guarantor shall be deemed released from all obligations under this Article
Twelve without any further action required on the part of the Trustee or any
Holder; provided, however, that each such Guarantor is sold or disposed of in
accordance with this Indenture. Any Guarantor not so released or the entity
surviving such Guarantor, as applicable, shall remain or be liable under its
Guarantee as provided in this Article Twelve.
(b) The Trustee shall deliver an appropriate instrument evidencing
the release of a Guarantor upon receipt of a request by the Company or such
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 12.04; provided the legal
counsel delivering such Opinion of Counsel may rely as to matters of fact on one
or more Officers' Certificates of the Company.
The Trustee shall execute any documents reasonably requested by the
Company or a Guarantor in order to evidence the release of such Guarantor from
its obligations under its Guarantee endorsed on the Notes and under this Article
Twelve.
Except as set forth in Articles Four and Five and this Section
12.04, nothing contained in this Indenture or in any of the Notes shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or another
Guarantor.
SECTION 12.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Notes or this Indenture and
such Guarantor's obligations under this Guarantee and this Indenture, in any
such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy of the Holders against the Company, whether
or not such claim, remedy or right arises in equity, or under
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contract, statute or common law, including, without limitation, the right to
take or receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentence and any amounts owing to the Trustee or the
Holders of Notes under the Notes, this Indenture, or any other document or
instrument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Indenture and that the
waiver set forth in this Section 12.05 is knowingly made in contemplation of
such benefits.
SECTION 12.06. Immediate Payment.
Each Guarantor agrees to make immediate payment to the Trustee on
behalf of the Holders of all Obligations owing or payable to the respective
Holders upon receipt of a demand for payment therefor by the Trustee to such
Guarantor in writing.
SECTION 12.07. No Set-Off.
Each payment to be made by a Guarantor hereunder in respect of the
Obligations shall be payable in the currency or currencies in which such
Obligations are denominated, and shall be made without set-off, counterclaim,
reduction or diminution of any kind or nature.
SECTION 12.08. Obligations Absolute.
The obligations of each Guarantor hereunder are and shall be
absolute and unconditional and any monies or amounts expressed to be owing or
payable by each Guarantor hereunder which may not be recoverable from such
Guarantor on the basis of a Guarantee shall be recoverable from such Guarantor
as a primary obligor and principal debtor in respect thereof.
SECTION 12.09. Obligations Continuing.
The obligations of each Guarantor hereunder shall be continuing and
shall remain in full force and effect until all the obligations have been paid
and satisfied in full. Each Guarantor agrees with the Trustee that it will from
time to time deliver to the Trustee suitable acknowledgments of its continued
liability hereunder and under any other instrument or instruments
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in such form as counsel to the Trustee may advise and as will prevent any action
brought against it in respect of any default hereunder being barred by any
statute of limitations now or hereafter in force and, in the event of the
failure of a Guarantor so to do, it hereby irrevocably appoints the Trustee the
attorney and agent of such Guarantor to make, execute and deliver such written
acknowledgment or acknowledgments or other instruments as may from time to time
become necessary or advisable, in the judgment of the Trustee on the advice of
counsel, to fully maintain and keep in force the liability of such Guarantor
hereunder.
SECTION 12.10. Obligations Not Reduced.
The obligations of each Guarantor hereunder shall not be satisfied,
reduced or discharged solely by the payment of such principal, premium, if any,
interest, fees and other monies or amounts as may at any time prior to discharge
of this Indenture pursuant to Article 8 be or become owing or payable under or
by virtue of or otherwise in connection with the Notes or this Indenture.
SECTION 12.11. Obligations Reinstated.
The obligations of each Guarantor hereunder shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
which would otherwise have reduced the obligations of any Guarantor hereunder
(whether such payment shall have been made by or on behalf of the Company or by
or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders
upon the insolvency, bankruptcy, liquidation or reorganization of the Company or
any Guarantor or otherwise, all as though such payment had not been made. If
demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Guarantor as provided herein.
SECTION 12.12. Obligations Not Affected.
The obligations of each Guarantor hereunder shall not be affected,
impaired or diminished in any way by any act, omission, matter or thing
whatsoever, occurring before, upon or after any demand for payment hereunder
(and whether or not known or consented to by any Guarantor or any of the
Holders) which, but for this provision, might constitute a whole or partial
defense to a claim against any Guarantor hereunder or might operate to release
or otherwise exonerate any Guarantor from any of its obligations hereunder or
otherwise affect such obligations, whether occasioned by default of any of the
Holders or otherwise, including, without limitation:
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(a) any limitation of status or power, disability, incapacity or
other circumstance relating to the Company or any other Person, including
any insolvency, bankruptcy, liquidation, reorganization, readjustment,
composition, dissolution, winding up or other proceeding involving or
affecting the Company or any other Person other than such Guarantor;
(b) any irregularity, defect, unenforceability or invalidity in
respect of any indebtedness or other obligation of the Company or any
other Person other than such Guarantor under this Indenture, the Notes or
any other document or instrument;
(c) any failure of the Company or any other Person other than such
Guarantor, whether or not without fault on their part, to perform or
comply with any of the provisions of this Indenture or the Notes, or to
give notice thereof to a Guarantor;
(d) the taking or enforcing or exercising or the refusal or neglect
to take or enforce or exercise any right or remedy from or against the
Company or any other Person other than such Guarantor or their respective
assets or the release or discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person other than such Guarantor;
(f) any change in the time, manner or place of payment of, or in any
other term of, any of the Notes, or any other amendment, variation,
supplement, replacement or waiver of, or any consent to departure from,
any of the Notes or this Indenture (except with respect to the Guarantee
of such Guarantor), including, without limitation, any increase or
decrease in the principal amount of or premium, if any, or interest on any
of the Notes;
(g) any change in the ownership, control, name, objects, businesses,
assets, capital structure or constitution of the Company or a Guarantor;
(h) any merger or amalgamation of the Company or a Guarantor with
any Person or Persons;
(i) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of any
governmental authority or court amending, varying, reducing or otherwise
affecting, or purporting to amend, vary, reduce or otherwise affect, any
of the Obligations or the obligations of a Guarantor under its Guarantee;
and
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(j) any other circumstance, including release of any other Guarantor
pursuant to Section 12.04 (other than by complete, irrevocable payment or
release of such Guarantor pursuant to Section 12.04) that might otherwise
constitute a legal or equitable discharge or defense of the Company under
this Indenture or the Notes or of a Guarantor in respect of its Guarantee
hereunder.
SECTION 12.13. Waiver.
Without in any way limiting the provisions of Section 11.01 hereof,
each Guarantor hereby waives notice of acceptance hereof, notice of any
liability of any Guarantor hereunder, notice or proof of reliance by the Holders
upon the obligations of any Guarantor hereunder, and diligence, presentment,
demand for payment on the Company, protest, notice of dishonor or non-payment of
any of the Obligations, or other notice or formalities to the Company or any
Guarantor of any kind whatsoever.
SECTION 12.14. No Obligation To Take Action Against the Company.
Neither the Trustee nor any other Person shall have any obligation
to enforce or exhaust any rights or remedies or to take any other steps under
any security for the Obligations or against the Company or any other Person or
any Property of the Company or any other Person before the Trustee is entitled
to demand payment and performance by any or all Guarantors of their liabilities
and obligations under their Guarantees or under this Indenture.
SECTION 12.15. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Guarantor
hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases, discharges and other indulgences to the Company or any
other Person other than such Guarantor;
(b) take or abstain from taking security or collateral from the
Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or otherwise
deal with or do any act or thing in respect of (with or without
consideration) any and all collateral, mortgages or other security given
by the Company or any third party with respect to the obligations or
matters contemplated by this Indenture or the Notes;
<PAGE> 107
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(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or from
any security upon such part of the Obligations as the Holders may see fit
or change any such application in whole or in part from time to time as
the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to deal
with, the Company and all other Persons other than such Guarantor and any
security as the Holders or the Trustee may see fit.
SECTION 12.16. Default and Enforcement.
If any Guarantor fails to pay in accordance with Section 12.06
hereof, the Trustee may proceed in its name as trustee hereunder in the
enforcement of the Guarantee of any such Guarantor and such Guarantor's
obligations thereunder and hereunder by any remedy provided by law, whether by
legal proceedings or otherwise, and to recover from such Guarantor the
obligations.
SECTION 12.17. Amendment, Etc.
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
SECTION 12.18. Acknowledgment.
Each Guarantor hereby acknowledges communication of the terms of
this Indenture and the Notes and consents to and approves of the same.
SECTION 12.19. Costs and Expenses.
Each Guarantor shall pay on demand by the Trustee any and all costs,
fees and expenses (including, without limitation, legal fees) incurred by the
Trustee, its agents, advisors and counsel or any of the Holders in enforcing any
of their rights under any Guarantee.
SECTION 12.20. No Merger or Waiver; Cumulative Remedies.
No Guarantee shall operate by way of merger of any of the
obligations of a Guarantor under any other agreement, including, without
limitation, this Indenture. No failure to exercise and no delay in exercising,
on the part of the Trustee or the Holders, any right, remedy, power or privilege
hereunder or under the Indenture or the Notes, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder
<PAGE> 108
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or under this Indenture or the Notes preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges in the Guarantee and under this
Indenture, the Notes and any other document or instrument between a Guarantor
and/or the Company and the Trustee are cumulative and not exclusive of any
rights, remedies, powers and privilege provided by law.
SECTION 12.21. Survival of Obligations.
Without prejudice to the survival of any of the other obligations of
each Guarantor hereunder, the obligations of each Guarantor under Section 12.01
shall survive the payment in full of the obligations of the Company under this
Indenture and the Notes and shall be enforceable against such Guarantor without
regard to and without giving effect to any defense, right of offset or
counterclaim available to or which may be asserted by the Company or any
Guarantor.
SECTION 12.22. Guarantee in Addition to Other Obligations.
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Notes and any guarantees or security at any time held by or for the benefit of
any of them.
SECTION 12.23. Severability.
Any provision of this Article Twelve which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Twelve.
SECTION 12.24. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit of
each Guarantor and the Trustee and the other Holders and their respective
successors and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
<PAGE> 109
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ARTICLE THIRTEEN
SUBORDINATION OF GUARANTEE
SECTION 13.01. Guarantee Obligations Subordinated to Guarantor
Senior Debt.
Anything herein to the contrary notwithstanding, each of the
Guarantors, for itself and its successors, and each Holder, by his or her
acceptance of Guarantees, agrees that the payment of all Obligations owing to
the Holders in respect of its Guarantee (collectively, as to any Guarantor, its
"Guarantee Obligations") is subordinated, to the extent and in the manner
provided in this Article Thirteen, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Guarantor Senior Debt, of all Obligations on Guarantor Senior Debt of
such Guarantor, including without limitation, the Guarantors' obligations under
the Credit Agreement.
This Article Thirteen shall constitute a continuing offer to all
Persons who become holders of, or continue to hold, Guarantor Senior Debt, and
such provisions are made for the benefit of the holders of Guarantor Senior Debt
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
SECTION 13.02. Suspension of Guarantee Obligations When Guarantor
Senior Debt Is in Default.
(a) If any default occurs and is continuing in the payment when due,
whether at maturity, upon redemption, by declaration or otherwise, of any
principal or interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt of a
Guarantor or guaranteed by a Guarantor (which Senior Debt or guarantee, as the
case may be, constitutes Guarantor Senior Debt of such Guarantor), no payment of
any kind or character shall be made by, or on behalf of, the Company or any
other Person on its or their behalf with respect to any Obligations on the
Notes, or to acquire any of the Notes for cash or property or otherwise. In
addition, if any other event of default occurs and is continuing with respect to
any Guarantor Senior Debt, as such event of default is defined in the instrument
creating or evidencing such Guarantor Senior Debt, permitting the holders of
such Guarantor Senior Debt then outstanding to accelerate the maturity thereof
and if the Representative for the respective issue of Guarantor Senior Debt
gives a Default Notice of the event of default to the Trustee, then, unless and
until all events of default have been cured or waived or have ceased to exist or
the Trustee receives notice thereof from the Representative for the respective
issue of Guarantor Senior Debt terminating the Blockage Period, during
<PAGE> 110
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the 180 days after the delivery of such Default Notice, neither the Company nor
any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything therein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Guarantor Senior Debt shall be, or be made, the basis for the
commencement of a second Blockage Period by the Representative of such Guarantor
Senior Debt whether or not within a period of 360 consecutive days, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period, that in either case would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 13.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro
rata to such holders on the basis of the respective amount of Guarantor Senior
Debt held by such holders) or their respective Representatives, as their
respective interests may appear. The Trustee shall be entitled to rely on
information regarding amounts then due and owing on the Guarantor Senior Debt,
if any, received from the holders of Guarantor Senior Debt (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from the Company and only amounts included in the
information provided to the Trustee shall be paid to the holders of Guarantor
Senior Debt.
Nothing contained in this Article Thirteen shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Guarantor Senior Debt thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment of any kind or character
with respect to Obligations on the Notes.
<PAGE> 111
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SECTION 13.03. Guarantee Obligations Subordinated to Prior Payment
of All Guarantor Senior Debt on Dissolution,
Liquidation or Reorganization of Such Guarantor.
Upon any payment or distribution of assets of any Guarantor of any
kind or character, whether in cash, property or securities to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors or marshaling of assets of such Guarantor, whether voluntary or
involuntary, or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to any Guarantor or its property, whether
voluntary or involuntary, but excluding any liquidation or dissolution of a
Guarantor into the Company or into another Guarantor):
(a) the holders of all Guarantor Senior Debt of such Guarantor shall
first be entitled to receive payments in full in cash or Cash Equivalents,
or such payment duly provided for to the satisfaction of the holders of
Guarantor Senior Debt, of all amounts payable under Guarantor Senior Debt
before the Holders will be entitled to receive any payment or distribution
of any kind or character on account of the Guarantee of such Guarantor,
and until all Obligations with respect to the Guarantor Senior Debt are
paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Guarantor Senior Debt, any
distribution to which the Holders would be entitled shall be made to the
holders of Guarantor Senior Debt of such Guarantor;
(b) any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, property or securities, to which the
Holders or the Trustee on behalf of the Holders would be entitled except
for the provisions of this Article Thirteen shall be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution, directly to the holders of Guarantor Senior Debt of such
Guarantor or their representatives, ratably according to the respective
amounts of such Guarantor Senior Debt remaining unpaid held or represented
by each, until all such Guarantor Senior Debt remaining unpaid shall have
been paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Guarantor Senior Debt,
after giving effect to any concurrent payment or distribution to the
holders of such Guarantor Senior Debt;
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of such Guarantor of any kind or character, whether
such payment shall be in cash, property or securities, and such Guarantor
shall have made payment to the Trustee or directly to the Holders or any
Paying Agent in respect of payment of the Guarantees
<PAGE> 112
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before all Guarantor Senior Debt of such Guarantor is paid in full in cash
or Cash Equivalents, or such payment duly provided for to the satisfaction
of the holders of Guarantor Senior Debt, such payment or distribution
(subject to the provisions of Sections 13.06 and 13.07) shall be received,
segregated from other funds, and held in trust by the Trustee or such
Holder or Paying Agent for the benefit of, and shall immediately be paid
over by the Trustee (if the notice required by Section 13.06 has been
received by the Trustee) or by the Holder to, the holders of such
Guarantor Senior Debt or their representatives, ratably according to the
respective amounts of such Guarantor Senior Debt held or represented by
each, until all such Guarantor Senior Debt remaining unpaid shall have
been paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Guarantor Senior Debt,
after giving effect to any concurrent payment or distribution to the
holders of Guarantor Senior Debt.
Each Guarantor shall give prompt notice to the Trustee prior to any
dissolution, winding up, total or partial liquidation or total or partial
reorganization (including, without limitation, in bankruptcy, insolvency, or
receivership proceedings or upon any assignment for the benefit of creditors or
any other marshaling of such Guarantor's assets and liabilities).
SECTION 13.04. Holders of Guarantee Obligations To Be Subrogated to
Rights of Holders of Guarantor Senior Debt.
Subject to the payment in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of Guarantor Senior
Debt, of all Guarantor Senior Debt, the Holders of Guarantee Obligations of a
Guarantor shall be subrogated to the rights of the holders of Guarantor Senior
Debt of such Guarantor to receive payments or distributions of assets of such
Guarantor applicable to such Guarantor Senior Debt until all amounts owing on or
in respect of the Guarantee Obligations shall be paid in full in cash or Cash
Equivalents, and for the purpose of such subrogation no payments or
distributions to the holders of such Guarantor Senior Debt by or on behalf of
such Guarantor, or by or on behalf of the Holders by virtue of this Article
Thirteen, which otherwise would have been made to the Holders shall, as between
such Guarantor and the Holders, be deemed to be payment by such Guarantor to or
on account of such Guarantor Senior Debt, it being understood that the
provisions of this Article Thirteen are and are intended solely for the purpose
of defining the relative rights of the Holders, on the one hand, and the holders
of such Guarantor Senior Debt, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this
<PAGE> 113
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Article Thirteen shall have been applied, pursuant to the provisions of this
Article Thirteen, to the payment of all amounts payable under such Guarantor
Senior Debt, then the Holders shall be entitled to receive from the holders of
such Guarantor Senior Debt any such payments or distributions received by such
holders of such Guarantor Senior Debt in excess of the amount sufficient to pay
all amounts payable under or in respect of such Guarantor Senior Debt in full in
cash or Cash Equivalents, or such payment duly provided for to the satisfaction
of the holders of Guarantor Senior Debt.
Each Holder by purchasing or accepting a Note waives any and all
notice of the creation, modification, renewal, extension or accrual of any
Guarantor Senior Debt of the Guarantors and notice of or proof of reliance by
any holder or owner of Guarantor Senior Debt of the Guarantors upon this Article
Thirteen and the Guarantor Senior Debt of the Guarantors shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this
Article Thirteen, and all dealings between the Guarantors and the holders and
owners of the Guarantor Senior Debt of the Guarantors shall be deemed to have
been consummated in reliance upon this Article Thirteen.
SECTION 13.05. Obligations of the Guarantors Unconditional.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as between the
Guarantors and the Holders, the obligation of the Guarantors, which is absolute
and unconditional, to pay to the Holders all amounts due and payable under the
Guarantees as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors other than the holders of the Guarantor
Senior Debt, nor shall anything herein or therein prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Thirteen, of the holders of Guarantor Senior Debt in respect of cash, property
or securities of the Guarantors received upon the exercise of any such remedy.
Upon any payment or distribution of assets of any Guarantor referred to in this
Article Thirteen, the Trustee, subject to the provisions of Sections 7.01 and
7.02, and the Holders shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which any liquidation, dissolution,
winding up or reorganization proceedings are pending, or a certificate of the
receiver, trustee in bankruptcy, liquidating trustee or agent or other Person
making any payment or distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Guarantor Senior Debt and other Indebtedness of any
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent
<PAGE> 114
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thereto or to this Article Thirteen. Nothing in this Article Thirteen shall
apply to the claims of, or payments to, the Trustee under or pursuant to Section
7.07. The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Debt (or a trustee on behalf of, or other representative of,
such holder) to establish that such notice has been given by a holder of such
Guarantor Senior Debt or a trustee or representative on behalf of any such
holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Article Thirteen, the Trustee may request such Person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of Guarantor
Senior Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Thirteen, 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.
SECTION 13.06. Trustee Entitled To Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have received
notice thereof from the Company or any Guarantor or from one or more holders of
Guarantor Senior Debt or from any Representative therefor and, prior to the
receipt of any such notice, the Trustee, subject to the provisions of Sections
7.01 and 7.02, shall be entitled in all respects conclusively to assume that no
such fact exists.
SECTION 13.07. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Sections 8.01 and 8.02 shall
be for the sole benefit of Holders of the Notes and, to the extent allocated for
the payment of Notes, shall not be subject to the subordination provisions of
this Article Thirteen. Otherwise, any deposit of assets or securities by or on
behalf of a Guarantor with the Trustee or any Paying Agent (whether or not in
trust) for payment of the Guarantees shall be subject to the provisions of this
Article Thirteen; provided, however, that if prior to the second Business Day
preceding the date on which by the terms of this Indenture any such assets may
become distributable for any purpose (including, without limitation, the payment
of either principal of or interest on any Note) the Trustee or such Paying Agent
<PAGE> 115
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shall not have received with respect to such assets the notice provided for in
Section 13.06, then the Trustee or such Paying Agent shall have full power and
authority to receive such assets and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
received by it on or after such date. The foregoing shall not apply to the
Paying Agent if the Company or any Subsidiary or Affiliate of the Company is
acting as Paying Agent. Nothing contained in this Section 13.07 shall limit the
right of the holders of Guarantor Senior Debt to recover payments as
contemplated by this Article Thirteen from any Holder.
SECTION 13.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Guarantor Senior
Debt to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Guarantor
or by any act or failure to act, by any such holder, or by any non-compliance by
any Guarantor with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
(b) Without limiting the generality of subsection (a) of this
Section 13.08, the holders of Guarantor Senior Debt may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Notes, without incurring responsibility to the Holders of the Notes and
without impairing or releasing the subordination provided in this Article
Thirteen or the obligations hereunder of the Holders of the Notes to the holders
of Guarantor Senior Debt, do any one or more of the following: (1) change the
manner, place, terms or time of payment of, or renew or alter, Guarantor Senior
Debt or any instrument evidencing the same or any agreement under which
Guarantor Senior Debt is outstanding; (2) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Guarantor Senior
Debt; (3) release any Person liable in any manner for the collection or payment
of Guarantor Senior Debt; and (4) exercise or refrain from exercising any rights
against the Guarantors and any other Person.
SECTION 13.09. Holders Authorize Trustee To Effectuate Subordination
of Guarantee Obligations.
Each Holder of the Guarantee Obligations by his acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effect the subordination provisions
contained in this Article Thirteen, and appoints the Trustee his
attorney-in-fact for such purpose, including, in the event of any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of creditors
or marshaling of assets of any Guarantor tending towards liquidation or
reorganization of the
<PAGE> 116
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business and assets of any Guarantor, the immediate filing of a claim for the
unpaid balance under its or his Guarantee Obligations in the form required in
said proceedings and cause said claim to be approved. If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or claims,
then any of the holders of the Guarantor Senior Debt or their Representative is
hereby authorized to file an appropriate claim for and on behalf of the Holders
of said Guarantee Obligations. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
holder of Guarantee Obligations any plan of reorganization, arrangement,
adjustment or composition affecting the Guarantee Obligations or the rights of
any Holder thereof, or to authorize the Trustee or the holders of Guarantor
Senior Debt or their Representative to vote in respect of the claim of any
holder of Guarantee Obligations in any such proceeding.
SECTION 13.10. Right of Trustee To Hold Guarantor Senior Debt.
The Trustee shall be entitled to all of the rights set forth in this
Article Thirteen in respect of any Guarantor Senior Debt at any time held by it
to the same extent as any other holder of Guarantor Senior Debt, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
SECTION 13.11. No Suspension of Remedies.
The failure to make a payment in respect of the Guarantees by reason
of any provision of this Article Thirteen shall not be construed as preventing
the occurrence of a Default or an Event of Default under Section 6.01.
Nothing contained in this Article Thirteen shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Article Six or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Thirteen of the holders, from time to time, of Guarantor Senior
Debt.
SECTION 13.12. No Fiduciary Duty of Trustee to Holders of Guarantor
Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Debt, and it undertakes to perform or observe such
of its covenants and obligations as are specifically set forth in this Article
Thirteen, and no implied covenants or obligations with respect to the Guarantor
Senior Debt shall be read into this Indenture against the
<PAGE> 117
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Trustee. The Trustee shall not be liable to any such holders (other than for its
willful misconduct or gross negligence) if it shall pay over or deliver to the
holders of Guarantee Obligations or the Guarantors or any other Person, money or
assets in compliance with the terms of this Indenture. Nothing in this Section
13.12 shall affect the obligation of any Person other than the Trustee to hold
such payment for the benefit of, and to pay such payment over to, the holders of
Guarantor Senior Debt or their Representative.
<PAGE> 118
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
----------------------------------
Name: Charles D. Weil
Title: President/CFO
YOUNG AMERICA HOLDINGS, INC.
By: /s/ Charles D. Weil
----------------------------------
Name: Charles D. Weil
Title: President/CFO
MARINE MIDLAND BANK, as Trustee
By: /s/ Frank J. Godino
----------------------------------
Name: Frank J. Godino
Title: Vice President
<PAGE> 1
Exhibit 4.2
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of February 23, 1998
By and Among
YOUNG AMERICA CORPORATION
as Issuer
YOUNG AMERICA HOLDINGS, INC.
as Guarantor
and
BT ALEX. BROWN INCORPORATED
as Initial Purchaser
================================================================================
$80,000,000
11 5/8% SENIOR SUBORDINATED NOTES DUE 2006
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Definitions.................................................... 1
2. Exchange Offer................................................. 5
3. Shelf Registration.............................................
4. Additional Interest............................................ 10
5. Registration Procedures........................................ 12
6. Registration Expenses.......................................... 23
7. Indemnification................................................ 25
8. Rule 144 and 144A.............................................. 29
9. Underwritten Registrations..................................... 29
10. Miscellaneous.................................................. 30
(a) No Inconsistent Agreements............................... 30
(b) Adjustments Affecting Registrable Notes.................. 30
(c) Amendments and Waivers................................... 30
(d) Notices.................................................. 31
(e) Successors and Assigns................................... 32
(f) Counterparts............................................. 32
(g) Headings................................................. 32
(h) Governing Law............................................ 32
(i) Severability............................................. 33
(j) Securities Held by the Company or Its
Affiliates............................................ 33
(k) Third Party Beneficiaries................................ 33
(l) Entire Agreement......................................... 33
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
February 23, 1998 by and among Young America Corporation, a Minnesota
corporation (the "Company"), Young America Holdings, Inc. ("Holdings") and BT
Alex. Brown Incorporated (the "Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of February 18, 1998, by and among the Company, Holdings and
the Initial Purchaser (the "Purchase Agreement") that provides for the sale by
the Company to the Initial Purchaser of $80,000,000 aggregate principal amount
of the Company's 11 5/8% Senior Subordinated Notes due 2006, Series A (the
"Notes"). The Notes will be guaranteed (the "Guarantee") on a senior
subordinated basis by Holdings. In order to induce the Initial Purchaser to
enter into the Purchase Agreement, the Company and Holdings have agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchaser and its direct and indirect transferees and assigns. The
execution and delivery of this Agreement is a condition to the Initial
Purchaser's obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the first introductory paragraph hereto.
<PAGE> 4
-2-
Effectiveness Date: The date that is 135 days after the Issue Date.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Registration Statement: See Section 2(a) hereof.
Filing Date: Within 60 days after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of February 23, 1998 by & among
the Company, Holdings and Marine Midland Bank, as trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
Initial Purchaser: See the first introductory paragraph hereto.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to the
Initial Purchaser pursuant to the Purchase Agreement.
NASD: See Section 5(s) hereof.
Notes: See the second introductory paragraph hereto.
Participant: See Section 7(a) hereof.
<PAGE> 5
-3-
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and
at all times subsequent thereto, each Exchange Note as to which Section 2(c)(v)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(v) hereof is applicable, the Exchange Registration Statement) covering such
Note, Exchange Note or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note, Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is sold in compliance with Rule 144, (iii) such Note has
been exchanged for an Exchange Note or Exchange Notes pursuant to an Exchange
Offer and is en-
<PAGE> 6
-4-
titled to be resold without complying with the prospectus delivery requirements
of the Securities Act or (iv) such Note, Exchange Note or Private Exchange Note,
as the case may be, ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement and any
registration statement filed in connection with a Shelf Registration, filed with
the SEC pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
<PAGE> 7
-5-
Underwritten registration or underwritten offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
2. Exchange Offer
(a) The Company and Holdings shall file with the SEC no later than
the Filing Date an offer to exchange (the "Exchange Offer") any and all of the
Registrable Notes (other than the Private Exchange Notes, if any) for a like
aggregate principal amount of debt securities of the Company that are identical
in all material respects to the Notes (the "Exchange Notes") (and that are
entitled to the benefits of the Indenture or a trust indenture that is identical
in all material respects to the Indenture (other than such changes to the
Indenture or any such identical trust indenture as are necessary to comply with
any requirements of the SEC to effect or maintain the qualification thereof
under the TIA) and that, in either case, has been qualified under the TIA),
except that the Exchange Notes (other than Private Exchange Notes, if any) shall
have been registered pursuant to an effective Registration Statement under the
Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer shall be registered under the Securities Act on the appropriate form (the
"Exchange Registration Statement") and shall comply with all applicable tender
offer rules and regulations under the Exchange Act. The Company and Holdings
agree to use their respective best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act on or
before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to Holders; and (z) consummate the
Exchange Offer on or prior to the 160th day following the Issue Date. If after
such Exchange Registration Statement is declared effective by the SEC, the
Exchange Offer or the issuance of the Exchange Notes thereunder is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Exchange Registration Statement
shall be deemed not to have become effective for purposes of this Agreement.
Each Holder who participates in the Exchange Offer will be required to represent
(i)that any Exchange Notes received by it will be acquired in the ordinary
course of its business, (ii)that at the time of the commencement of the Exchange
Offer such Holder will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, (iii)that such Holder is not an affiliate of
the Company within the meaning of
<PAGE> 8
-6-
the Securities Act and is not acting on behalf of any persons or entities who
could not truthfully make the foregoing representations, (iv)if such Holder is
not a -broker-dealer, that it is not engaged in, and does not intend to engage
in, the distribution of Exchange Notes and (v)if such Holder is a broker-dealer
(a "Participating Broker-Dealer") that will receive Exchange Notes for its won
account in exchange for Notes that were acquired as a result of market-making or
other trading activities, that it will deliver a prospectus in connection with
any resale of such Exchange Notes. Upon consummation of the Exchange Offer in
accordance with this Section 2, the provisions of this Agreement shall continue
to apply, mutatis mutandis, solely with respect to Registrable Notes that are
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers,
and the Company shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes and other than in respect of any Exchange
Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the Exchange
Registration Statement.
(b) The Company and Holdings shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, that shall
contain a summary statement of the positions taken or policies made by the Staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Notes received by such Participating Broker-Dealer in
the Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Notes.
The Company and Holdings shall use their respective best efforts to
keep the Exchange Registration Statement effective and to amend and supplement
the Prospectus contained therein in order to permit such Prospectus to be
lawfully delivered by all Persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any
<PAGE> 9
-7-
resale of the Exchange Notes; provided, however, that such period shall not
exceed 30 days after the consummation of the Exchange Offer (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having, or that are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, the Company, upon the request of the Initial Purchaser
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
shall issue and deliver to the Initial Purchaser in exchange (the "Private
Exchange") for such Notes held by the Initial Purchaser a like principal amount
of debt securities of the Company that are identical in all material respects to
the Exchange Notes (the "Private Exchange Notes") and that are issued pursuant
to the same indenture as the Exchange Notes, except for the placement of a
restrictive legend on such Private Exchange Notes. The Private Exchange Notes
shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue (A)from the later of (i) the last interest payment date on which interest
was paid on the Notes surrendered in exchange therefor or (ii) if the Note is
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange and
as to which interest will be paid, the date of such interest payment date or (B)
if no interest has been paid on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Company and Holdings
shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
<PAGE> 10
-8-
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company and Holdings shall:
(1) accept for exchange all Notes properly tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that (1) the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture and (2) the Private Exchange Notes shall be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such indenture shall
provide that the Exchange Notes, the Private Exchange Notes and the Notes shall
vote and consent together on all matters as one class and that neither the
Exchange Notes, the Private Exchange Notes or the Notes will have the right to
vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company and Holdings are not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 160 days of the Issue Date, (iii) the holder of Private
Exchange Notes so requests at any time after the consummation of the Private
Exchange, (iv) the Holders of not less than a majority in aggregate principal
amount of the Registrable Notes determine that the interests of the Holders
would be materially adversely affected by consummation of the Exchange Offer or
(v) in the case of any Holder that participates in the Exchange Offer, such
Holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than due
solely to the status of such Holder as an affiliate of the Company within the
<PAGE> 11
-9-
meaning of the Securities Act), then the Company shall promptly deliver written
notice thereof (the "Shelf Notice") to the Trustee and in the case of clauses
(i), (ii) and (iv), all Holders, in the case of clause (iii), the Holders of the
Private Exchange Notes and in the case of clause (v), the affected Holder, and
shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company and Holdings shall as promptly
as reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Shelf Registration"). If the Company and Holdings
shall not have yet filed an Exchange Registration Statement, the Company and
Holdings shall use their respective best efforts to file with the SEC the Shelf
Registration on or prior to the Filing Date. The Shelf Registration shall be on
Form S-1 or another appropriate form permitting registration of such Registrable
Notes for resale by Holders in the manner or manners designated by them
(including, without limitation, one or more underwritten offerings). The Company
and Holdings shall not permit any securities other than the Registrable Notes to
be included in the Shelf Registration.
The Company and Holdings shall use their respective best efforts to
cause the Shelf Registration to be declared effective under the Securities Act
on or prior to the Effectiveness Date and to keep the Shelf Registration
continuously effective under the Securities Act until the date that is two years
from the Issue Date (the "Effectiveness Period"), or such shorter period ending
when all Registrable Notes covered by the Shelf Registration have been sold in
the manner set forth and as contemplated in the Shelf Registration.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company and Holdings shall use their respective best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof.
<PAGE> 12
-10-
(c) Supplements and Amendments. The Company and Holdings shall
promptly supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
(a) The Company, Holdings and the Initial Purchaser agree that the
Holders of Registrable Notes will suffer damages if the Company and Holdings
fail to fulfill their respective obligations under Section 2 or Section 3 hereof
and that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company and Holdings agree to pay, as liquidated
damages, additional interest on the Notes ("Additional Interest") under the
circumstances and to the extent set forth below (without duplication):
(i) if (A) neither the Exchange Registration Statement nor the Shelf
Registration has been filed on or prior to the Filing Date or (B)
notwithstanding that the Company has consummated or will consummate an
Exchange Offer, the Company is required to file a Shelf Registration
Statement and such Shelf Registration Statement is not filed on or prior
to the date required by the Exchange Registration Statement, then
commencing on the day after either such required filing date, Additional
Interest shall accrue on the Notes over and above the stated interest at a
rate of 0.50% per annum for the first 90 days immediately following the
Filing Date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Registration Statement nor the
Shelf Registration is declared effective by the SEC on or prior to the
Effectiveness Date or (B) notwithstanding that the Company has consummated
or will consummate an Exchange Offer, the Company is required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the SEC on or prior to the 60th day following the
date such Shelf Registration Statement was filed, then, commencing on the
day after either such filing date, Additional Interest shall be accrued on
the Notes included or that should have been included in such Registration
Statement over and above the
<PAGE> 13
-11-
stated interest at a rate of 0.50% per annum for the first 90 days
immediately following the Effectiveness Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; and
(iii) if either (A) the Company and Holdings have not exchanged
Exchange Notes for all Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 45th day after the Effectiveness
Date or (B) if applicable, the Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective at any time
during the Effectiveness Period for a period of 15 consecutive days
without being succeeded immediately by an additional Exchange Registration
Statement filed and declared effective, then Additional Interest shall be
accrued on the Notes (over and above any interest otherwise payable on the
Notes) at a rate of 0.50% per annum commencing on (x) the 46th day after
the Effectiveness Date, in the case of (A) above, or (y) the day the
Exchange Registration Statement ceases to be effective without being
declared effective within fifteen business days thereafter in the case of
(B) above, such Additional Interest rate increasing by an additional 0.50%
at the beginning of each such subsequent 90-day period (it being
understood and agreed that, notwithstanding any provision to the contrary,
so long as any Note that is the subject of a Shelf Notice is then covered
by an effective Shelf Registration Statement, no Additional Interest shall
accrue on such Note);
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate 1.0% per annum; and provided,
further, that (1) upon the filing of the Exchange Registration Statement or a
Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon
the effectiveness of the Exchange Registration Statement or the Shelf
Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the
exchange of Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Registration Statement that had ceased to remain effective (in the case of
(iii)(B) of this Section 4(a)), Additional Interest on the affected Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
(b) The Company and Holdings shall notify the Trustee within one
business day after each and every date on which
<PAGE> 14
-12-
an event occurs in respect of which Additional Interest is required to be paid
(an "Event Date"). Any amounts of Additional Interest due pursuant to (a)(i),
(a)(ii) or (a)(iii) of this Section 4 will be payable in cash semi-annually on
each February 15 and August 15 (to the holders of record on the February 1 and
August 1 immediately preceding such dates), commencing with the first such date
occurring after any such Additional Interest commences to accrue. The amount of
Additional Interest will be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Registrable Notes, multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
rate was applicable during such period (determined on the basis of a 360-day
year consisting of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed) and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company and Holdings shall effect such
registrations to permit the sale or exchange of the securities covered thereby
in accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company and Holdings hereunder, the Company and Holdings shall:
(a) Prepare and file with the SEC prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use their respective best efforts to cause
each such Registration Statement to become effective and remain effective
as provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3 hereof or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required to
be delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company and Holdings shall furnish to and afford
the Holders of the Registrable Notes covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may be,
their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of
any documents to be incorporated by reference therein and all exhibits
thereto)
<PAGE> 15
-13-
proposed to be filed (in each case at least five business days prior to
such filing). The Company and Holdings shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, or their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement,
as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the
Applicable Period, as the case may be; cause the related Prospectus to be
supplemented by any prospectus supplement required by applicable law, and
as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities
being sold by a Participating Broker-Dealer covered by any such
Prospectus; the Company and Holdings shall be deemed not to have used
their respective reasonable best efforts to keep a Registration Statement
effective during the Applicable Period if each of the Company and Holdings
voluntarily, knowingly and unreasonably takes any action that would result
in selling Holders of the Registrable Notes covered thereby or
Participating Broker-Dealers seeking to sell Exchange Notes not being able
to sell such Registrable Notes or such Exchange Notes during that period,
unless such action is required by applicable law or unless the Company and
Holdings comply with this Agreement, including without limitation, the
provisions of paragraph 5(k) hereof and the last paragraph of this Section
5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders of
Registrable Notes, or each such Par-
<PAGE> 16
-14-
ticipating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within two
business days) and confirm such notice in writing, (i) when a Prospectus
or any Prospectus supplement or post-effective amendment has been filed,
and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Company, one conformed copy of
such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of a Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii) if
at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Notes or resales of
Exchange Notes by Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement), contemplated by Section 5(n) hereof cease to be
true and correct in all material respects, (iv) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement
or any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or written threat of any proceeding for such purpose, (v) of
the happening of any event, the existence of any condition or any
information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respects or that requires the making of any changes in or amendments or
supplements to such Registration Statement, Prospectus or documents so
that, in the case of the Registration Statement, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made,
<PAGE> 17
-15-
not misleading and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use their respective reasonable best efforts to prevent the
issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus
or suspending the qualification (or exemption from qualification) of any
of the Registrable Notes or the Exchange Notes for sale in any
jurisdiction and, if any such order is issued, to use their reasonable
best efforts to obtain the withdrawal of any such order at the earliest
possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters, if any, such
Holders or counsel for any of them determine is reasonably necessary to be
included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after
the Company has received notification of the matters to be incorporated in
such prospectus supplement or post-effective amendment and (iii)
supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-Dealer
who so requests and to their respective counsel and each managing
underwriter, if any, at the sole expense of the Company, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
<PAGE> 18
-16-
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their respective counsel and the underwriters, if any, at
the sole expense of the Company, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each
amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to
the last paragraph of this Section 5, the Company and Holdings hereby
consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers, if any, in connection with the offering and
sale of the Registrable Notes covered by, or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or Exchange
Notes or any delivery of a Prospectus contained in the Exchange
Registration Statement by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, to use their best
efforts to register or qualify and to cooperate with the selling Holders
of Registrable Notes or each such Participating Broker-Dealer, as the case
may be, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Notes for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer or the managing underwriter or underwriters
reasonably request in writing; provided, however, that where Exchange
Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Company and
Holdings agree to cause their counsel to perform Blue Sky investigations
and file registrations and qualifications required to be filed pursuant to
this Section 5(h); keep each such registration or qualification (or
exemption therefrom) ef-
<PAGE> 19
-17-
fective during the period such Registration Statement is required to be
kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of
the Exchange Notes held by Participating Broker-Dealers or the Registrable
Notes covered by the applicable Registration Statement; provided, however,
that none of the Company or Holdings shall be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in any such jurisdiction where it is not then
so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use their respective best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Holders thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Notes, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company and Holdings will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi), hereof, as promptly
as practicable prepare and (subject to Section 5(a) hereof) file with the
SEC, at the
<PAGE> 20
-18-
Company's sole expense, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference,
or file any other required document so that, as thereafter delivered to
the purchasers of the Registrable Notes being sold thereunder or to the
purchasers of the Exchange Notes to whom such Prospectus will be delivered
by a Participating Broker-Dealer, any such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, the Company shall not be
required to amend or supplement a Registration Statement, any related
Prospectus or any document incorporated therein by reference, in the event
that, and for a period not to exceed an aggregate of 30 days in any
calendar year if, (i) an event occurs and is continuing as a result of
which the Shelf Registration would, in the Company's good faith judgment,
contain 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, and (ii) (a)
the Company determines in its good faith judgment that the disclosure of
such event at such time would have a Material Adverse Effect on the
business, operations or prospects of the Company or (b) the disclosure
otherwise relates to a pending material business transaction that has not
yet been publicly disclosed.
(l) Use their respective best efforts to cause the Registrable Notes
covered by a Registration Statement or the Exchange Notes, as the case may
be, to be rated with the appropriate rating agencies, if so requested by
the Holders of a majority in aggregate principal amount of Registrable
Notes covered by such Registration Statement or the Exchange Notes, as the
case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or Exchange Notes,
as the case may be.
<PAGE> 21
-19-
(n) In connection with any underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities
similar to the Notes and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to expedite
or facilitate the registration or the disposition of such Registrable
Notes and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the
business of the Company and its subsidiaries (including any acquired
business, properties or entity, if applicable) and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made
by issuers to underwriters in underwritten offerings of debt securities
similar to the Notes, and confirm the same in writing if and when
reasonably requested; (ii) obtain the written opinion of counsel to the
Company and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters,
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings of debt similar to the Notes
and such other matters as may be reasonably requested by the managing
underwriter or underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters from the independent certified
public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such
other matters as reasonably requested by the managing underwriter or
underwriters; and (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Registration
Statement and the managing underwriter or underwriters or agents) with
respect to all parties to be indemnified pur-
<PAGE> 22
-20-
suant to said Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for inspection
by any selling Holder of such Registrable Notes being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and
any attorney, accountant or other agent retained by any such selling
Holder or each such Participating Broker-Dealer, as the case may be, or
underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and
its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the respective officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such
Registration Statement. Records that the Company determines, in good
faith, to be confidential and any Records that it notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is, in the
opinion of counsel for any Inspector, necessary or advisable in connection
with any action, claim, suit or proceeding, directly or indirectly,
involving or potentially involving such Inspector and arising out of,
based upon, relating to or involving this Agreement or any transactions
contemplated hereby or arising hereunder or (iv) the information in such
Records has been made generally available to the public. Each selling
Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to agree that information obtained by it as
a result of such inspections shall be deemed confidential and shall not be
used by it as the basis for any market transactions in the securities
<PAGE> 23
-21-
of the Company unless and until such information is generally available to
the public. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to further agree that it
will, upon learning that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and allow the
Company to undertake appropriate action to prevent disclosure of the
Records deemed confidential at the Company's sole expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable
Notes; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use
its reasonable best efforts to cause such trustee to execute, all
documents as may be required to effect such changes and all other forms
and documents required to be filed with the SEC to enable such indenture
to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company, who may, at the Company's
election, be internal counsel to the Company, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit
<PAGE> 24
-22-
of all Holders of Registrable Notes participating in the Exchange Offer or
the Private Exchange, as the case may be, that the Exchange Notes or
Private Exchange Notes, as the case may be, and the related indenture
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with its respective terms,
subject to customary exceptions and qualifications.
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes
or the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(u) Use their respective reasonable best efforts to take all other
steps reasonably necessary or advisable to effect the registration of the
Registrable Notes covered by a Registration Statement contemplated hereby.
The Company and Holdings may require each seller of Registrable
Notes as to which any registration is being effected to furnish to the Company
and Holdings such information regarding such seller and the distribution of such
Registrable Notes as the Company and Holdings may, from time to time, reasonably
request. The Company and Holdings may exclude from such registration the
Registrable Notes of any seller who unreasonably fails to furnish such
information within a reasonable time after receiving such request and in such
event shall have no further obligation under this Agreement (including, without
limitation, obligations under Section 4 hereof) with respect to such seller or
any subsequent holder of such Registrable Notes. Each seller as to which any
Shelf Registration is being effected agrees to furnish promptly to the Company
and
<PAGE> 25
-23-
Holdings all information required to be disclosed in order to make the
information previously furnished to the Company and Holdings by such seller not
materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Company of the happening of any event of
the kind described in Sections 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company and Holdings shall be borne by the
Company and Holdings whether or not the Exchange Offer or a Shelf Registration
is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h)
<PAGE> 26
-24-
hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or sold by any Participating
Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) reasonable fees and disbursements of counsel for the Company and
reasonable fees and disbursements of special counsel for the sellers of
Registrable Notes (subject to the provisions of Section 6(b) hereof), (v) fees
and disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) rating agency fees, if any, and any fees associated with
making the Registrable Notes or Exchange Notes eligible for trading through the
Depository Trust Company, (vii) Securities Act liability insurance, if the
Company desires such insurance, (viii) fees and expenses of all other Persons
retained by the Company, (ix) internal expenses of the Company (including,
without limitation, all salaries and expenses of officers and employees of the
Company performing legal or accounting duties), (x) the expense of any annual
audit, (xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange, if applicable, and (xii)
the expenses relating to printing, word processing and distributing of all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary to comply with this Agreement.
(b) The Company and Holdings shall (i) reimburse the Holders of the
Registrable Notes being registered in a Shelf Registration for the reasonable
fees and disbursements of not more than one counsel chosen by the Holders of a
majority in aggregate principal amount of the Registrable Notes to be included
in such Registration Statement and (ii) reimburse out-of-pocket expenses (other
than legal expenses) of Holders of Registrable Notes incurred in connection with
the registration and sale of the Registrable Notes pursuant to a Shelf
Registration or in connection with the exchange of Registrable Notes pursuant to
the Exchange Offer. In addition, the Company and Holdings shall reimburse the
Initial Purchaser for the reasonable fees and expenses of one counsel in
connection with the
<PAGE> 27
-25-
Exchange Offer, which shall be Cahill Gordon & Reindel, and shall not be
required to pay any other legal expenses in connection therewith.
7. Indemnification
(a) Each of the Company and Holdings agrees to indemnify and hold
harmless each Holder of Registrable Notes offered pursuant to a Shelf
Registration Statement and each Participating Broker-Dealer selling Exchange
Notes during the Applicable Period, the officers and directors of each such
Person or its affiliates, and each other Person, if any, who controls any such
Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that neither of
the Company or Holdings will be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Participant furnished to the Company
in writing by or on behalf of such Participant expressly for use therein or (ii)
if such Participant sold to the person asserting the claim the Registrable Notes
or Exchange Notes that are the subject of such claim and such untrue statement
or omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material fact
that was the subject matter of the related proceeding and it is established by
the Company in the related proceeding that such Participant failed to deliver or
provide a copy of the Prospectus (as amended or supplemented) to such Person
with or prior to the confirmation of the
<PAGE> 28
-26-
sale of such Registrable Notes or Exchange Notes sold to such Person if required
by applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company and Holdings, the Company's directors and
officers, Holdings' directors and officers and each Person who controls the
Company and Holdings within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to each Participant, but only (i) with reference to information
relating to such Participant furnished to the Company in writing by or on behalf
of such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto or any preliminary prospectus or
(ii) with respect to any untrue statement or representation made by such
Participant in writing to the Company. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Registrable Notes or Exchange Notes giving rise to
such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability that it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In any such proceeding, any Indemnified Person shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
con-
<PAGE> 29
-27-
trary, (ii) the Indemnifying Person shall have failed within a reasonable period
of time to retain counsel reasonably satisfactory to the Indemnified Person or
(iii) the named parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that,
unless there exists a conflict among Indemnified Persons, the Indemnifying
Person shall not, in connection with any one such proceeding or separate but
substantially similar related proceeding in the same jurisdiction arising out of
the same general allegations, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed promptly as
they are incurred. Any such separate firm for the Participants and such control
Persons of Participants shall be designated in writing by Participants who sold
a majority in interest of Registrable Notes and Exchange Notes sold by all such
Participants and any such separate firm for the Company, its directors, its
officers and such control Persons of the Company shall be designated in writing
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent, but if settled
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for reasonable fees and expenses actually
incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement; provided, however, that the Indemnifying Person shall not be liable
for any settlement effected without its consent pursuant to this sentence if the
Indemnifying Person is contesting, in good faith, the request for reimbursement.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Person (such consent not to be unreasonably withheld), effect any
settlement or compromise of any pending or threatened proceeding in re-
<PAGE> 30
-28-
spect of which any Indemnified Person is or could have been a party, and
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable (other than by reason
of any exceptions provided therein) to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Person or Persons on the one hand and the Indemnified
Person or Persons on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified
<PAGE> 31
-29-
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability that the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. Rule 144 and 144A
The Company and Holdings covenant that they will file the reports
required to be filed by them under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time the Company and Holdings are not required to file such reports,
they will, upon the request of any Holder of Registrable Notes, make publicly
available annual reports and such information, documents and other reports of
the type specified in Sections 13 and 15(d) of the Exchange Act. The Company and
Holdings further covenant for so long as any Registrable Notes remain
outstanding, to make available to any Holder or beneficial owner of Registrable
Notes in connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and reasonably acceptable to the Company and
Holdings.
<PAGE> 32
-30-
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, and shall not, after the date of this Agreement, enter into any
agreement with respect to any of the Company's securities that is inconsistent
with the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered and
will not enter into any agreement with respect to any of its securities that
will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) 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, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate principal amount
of the then outstanding Registrable Notes. 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 of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold by such Holders
pursuant to such Registration Statement; provided, however, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
<PAGE> 33
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(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchaser as follows:
BT ALEX. BROWN INCORPORATED
130 Liberty Street
New York, NY 10006
Facsimile No.: (212) 250-7200
Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to the Company, at the address as follows:
YOUNG AMERICA CORPORATION
717 Faxon Road
Young America, MN 55397
Facsimile No.: (612) 467-1722
Attention: Chief Financial Officer
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Facsimile No.: (212) 728-5950
Attention: Frederick M. Bachman, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally
<PAGE> 34
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delivered; five business days after being deposited in the mail, postage
prepaid, if mailed; one business day after being timely delivered to a next-day
air courier; and when receipt is acknowledged by the addressee, if sent by
facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; provided, however, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a Holder unless and to the extent
such successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants
<PAGE> 35
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and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchaser on the
one hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
------------------------------
Name: Charles D. Weil
Title: President/CFO
YOUNG AMERICA HOLDINGS, INC.
By: /s/ Charles D. Weil
------------------------------
Name: Charles D. Weil
Title: Presdident/CFO
BT ALEX. BROWN INCORPORATED
By: /s/ William W. Archer
------------------------------
Name: William W. Archer
Title: Managing Director
<PAGE> 1
Exhibit 10.1
RECAPITALIZATION AGREEMENT
DATED AS OF NOVEMBER 25, 1997
BETWEEN
YOUNG AMERICA CORPORATION,
JAY F. ECKLUND,
JOHN F. ECKLUND 1995 IRREVOCABLE TRUST,
SHELDON MCKENSIE ECKLUND 1995 IRREVOCABLE TRUST,
JOHN F. ECKLUND 1997 IRREVOCABLE TRUST,
SHELDON McKENSIE ECKLUND 1997 IRREVOCABLE TRUST,
JAY F. ECKLUND 1997 IRREVOCABLE ANNUITY TRUST
AND
BT CAPITAL PARTNERS, INC.
<PAGE> 2
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT dated as of this 25th day of November,
1997 (the "Agreement"), between Young America Corporation, a Minnesota
corporation (the "Company"), the selling stockholders named herein
(collectively, the "Selling Stockholders"), and BT Capital Partners, Inc., a
Delaware corporation ("Investor").
WHEREAS, the Selling Stockholders own all of the issued and outstanding
shares of common stock, par value $1.00 per share ("Common Stock") of the
Company;
WHEREAS, upon the terms and conditions hereinafter set forth, the parties
desire to consummate the following transactions simultaneously on the Closing
Date (except as otherwise noted) as part of an integrated and contractually
interdependent plan (hereinafter, such transactions shall be referred to
collectively as the "Recapitalization") (capitalized terms shall have the
meaning given to them hereinafter in this Agreement):
1. Equity Financing. Investor, Ontario Teachers and Senior Management
shall complete the Equity Financing in accordance with the terms of (a) that
certain Stock Purchase Agreement dated as of the Closing Date between the
Company and Investor, (b) that certain Stock Purchase Agreement dated as of the
Closing Date between the Company and Ontario Teachers, and (c) those certain
separate Subscription Agreements dated as of the Closing Date between the
Company and each member of Senior Management (collectively, the "Company
Subscription Agreements").
2. Debt Financing. The Company shall complete the Bridge Financing.
3. Redemption of Stock. Each Selling Stockholder shall sell, assign,
transfer and deliver to the Company, and the Company shall purchase and redeem
from each Selling Stockholder, the Redeemed Stock, in the number of shares of
Common Stock and for the cash consideration set forth opposite each of the
Selling Stockholders' names on Schedule 2.4.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
<PAGE> 3
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. The following terms shall have the meanings set forth
below:
"Affiliate" shall mean a Person that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to (i) vote 50% or
more of the voting securities of such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Amended Articles of Incorporation" shall mean the Amendment and
Restatement of Articles of Incorporation of the Company, substantially identical
to Exhibit E.
"Antitrust Laws" shall mean all Applicable Laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or the restraint of trade including, without limitation, the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, and the
Federal Trade Commission Act, as amended.
"Applicable Laws " shall mean all federal, state, local and foreign
statutes, laws, ordinances, regulations, rules, permits, orders, judgments,
decrees, injunctions, and writs of any Governmental Entity having jurisdiction
over the parties, as may be in effect on or prior to the Closing.
"Closing Balance Sheet Principles" shall mean the accounting principles
and procedures set forth in Schedule 3.3(a).
"Closing Incentive Payments" shall mean the payment obligations of the
Company arising solely in connection with the Closing (but not including the
other payment obligations of the Company thereunder) under the agreements set
forth on Scheduleu8.12, in the amounts set forth thereon, net of all applicable
federal and state income, social security, medicare, payroll and other amounts
required to be withheld.
"Damages" shall mean any liabilities or Expenses, judgments, fines,
losses, claims, damages and amounts paid in settlement; provided, however,
"Damages" shall not include any special, incidental and punitive damages unless
such special, incidental or punitive damages are payable by the Aggrieved Party
to a third party who is not an Affiliate of the Aggrieved Party, exclusive of
the lender for the Bridge Financing and the subsequent financing thereof.
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<PAGE> 4
"Encumbrance" shall mean any lien, encumbrance, security interest, charge,
mortgage, option, pledge or restriction on transfer of any nature whatsoever.
"Environmental Claim" shall mean any claim, action, cause of action,
investigation or written notice by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from the presence or Release of any Hazardous Material at any location, whether
or not owned or operated by the Company.
"Environmental Laws" shall mean all Applicable Laws relating to pollution
or protection of human health or the environment or to Releases or threatened
Releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, transport, or handling of
Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Resource
Conservation and Recovery Act, the Clean Air Act and the Clean Water Act.
"Equipment" shall mean any and all machinery, equipment, tools, computers,
furniture and all other personal property (other than the supplies described in
Section 6.2(q)) owned or leased by the Company and used in the Company's
business and operations.
"Escrow Agreement" shall mean that certain Escrow Agreement between the
Selling Stockholders, the Company and the Escrow Agent dated as of the Closing
Date, substantially identical to Exhibit A attached hereto.
"Excess Cash" means $6,960,000.
"Expenses" shall mean all reasonable attorneys' fees and all other costs,
charges and expenses paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Indemnifiable Claim.
"GAAP" shall mean United States generally accepted accounting principles,
as in effect on the date or for the period with respect to which such principles
are applied, consistently applied.
"Governmental Entity" shall mean any government, executive official
thereof, governmental or regulatory authority, agency, bureau or commission,
including courts of competent jurisdiction, domestic or foreign.
-3-
<PAGE> 5
"Hazardous Material" shall mean all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss.300.5, or defined as such
by, or regulated as such under, any Environmental Law.
"Indemnifiable Claim" shall mean any threatened, pending or completed
claim, action, suit or proceeding, whether criminal, civil, administrative or
investigative based on or arising out of acts or omissions occurring (a) on or
prior to the Closing Date in the case of claims for indemnification brought by
Investor hereunder, or (b) after the Closing Date in the case of claims for
indemnification brought by the Selling Stockholders hereunder.
"Material Adverse Effect" shall mean any events, changes or effects which,
individually or in the aggregate, would reasonably be expected to have a
material adverse effect on the business, assets, prospects, financial condition
or results of operations of the Company taken as a whole with any events,
changes or effects which have an adverse effect on the expected earnings of the
Company measured in the context of the effect on the Company's enterprise value
and with materiality measured in relation to the Total Consideration, but in any
case excluding any events, changes or effects resulting from general economic
conditions.
"Noncompetition Agreement" shall mean that certain Noncompetition
Agreement dated as of the Closing Date between the Company and the Selling
Stockholders, substantially identical to Exhibit B attached hereto.
"Ontario Teachers" means Ontario Teachers' Pension Plan Board, a non-share
capital corporation organized under laws of the Province of Ontario.
"Permitted Encumbrances" means any Encumbrance (i) specifically disclosed
in Schedule 6.2(h), item (G), the Audited Financial Statements or the Unaudited
Financial Statements, (ii) liens for Taxes not yet due and payable, (iii)
mechanics', workman's, repairman's, warehouseman's, carriers' or other like
liens arising or incurred in the ordinary course of business, (iv) with respect
to real property (A) easements, quasi-easements, licenses, rights-of-way and
other similar restrictions, including, without limitation, any other agreements,
conditions or restrictions, in each case which are a matter of public record,
(B) any conditions that are shown by any survey which has been made available
for Investor's review prior to the date hereof, and (C) zoning, building, or
similar restrictions pursuant to Applicable Laws, and (v) other Encumbrances,
which, in each case, individually and in the aggregate, are not material in
amount, do not interfere with, and are not violated by the consummation of the
transactions contemplated by this Agreement and do not materially impair the
existing use or value of the property affected by such Encumbrances.
-4-
<PAGE> 6
"Person" shall mean an individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization,
government or any department or agency thereof or any other entity.
"Principal Stockholder" shall mean Jay F. Ecklund, an individual resident
of the State of Florida.
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement between the Company, the Principal Stockholder, Investor and
Ontario Teachers, a copy of which is attached hereto as Exhibit D.
"Release" shall mean any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration into the
environment (including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Materials through or into the air, soil,
surface water, groundwater or property.
"SBA Sideletter" shall mean that certain sideletter dated as of the
Closing Date, between Investor and the Company regarding matters related to the
status of Investor as a federally licensed small business investment company.
"Solvent" shall mean, with respect to any Person, that (a) the fair
saleable value of the property of such Person is, on the date of determination,
greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person as of such date, (b) as of such date,
such Person is able to pay all of its liabilities as such liabilities mature,
(c) such Person does not have unreasonably small capital for conducting the
business theretofore or proposed to be conducted by such Person and its
subsidiaries, and (d) such Person has not incurred debts beyond its ability to
pay as they mature. The amount of any contingent or unliquidated liability at
any time will be computed as the amount which, in light of all the facts and
circumstances existing at such time, can reasonably be expected to become an
actual or matured liability.
"Stockholders' Agreement" means that certain Stockholders' Agreement among
the Company, the Principal Stockholder, Investor, Ontario Teachers and Senior
Management, as it may be amended, supplemented or restated from time to time.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross receipts, sales, use, ad
valorem, transfer, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, property or other taxes,
fees, assessments or charges of any kind whatsoever, including, without
limitation, all interest and penalties thereon, and additions to tax or
additional amounts imposed by any Governmental Entity.
-5-
<PAGE> 7
"Transaction Documents" shall mean this Agreement, the Stockholders'
Agreement, the Registration Rights Agreement, the Noncompetition Agreement, the
Employment Agreement, the Escrow Agreement, the SBA Sideletter, the Company
Subscription Agreements, the Amended Articles of Incorporation and all other
documents and agreements executed in connection with the Closing.
"Transfer" shall mean any sale, transfer, offer for sale, exchange,
pledge, mortgage, assignment or other disposition or conveyance.
"Trust Stockholders" shall mean the John F. Ecklund 1995 Irrevocable
Trust, the Sheldon McKensie Ecklund 1995 Irrevocable Trust, the John F. Ecklund
1997 Irrevocable Trust, the Sheldon McKensie Ecklund 1997 Irrevocable Trust and
the Jay F. Ecklund 1997 Irrevocable Annuity Trust.
1.2 Other Defined Terms. The following terms shall have the meanings set
forth in the sections referred to below:
DEFINED TERM SECTION
-------------------------------------------------------
"AAA" 15.14(a)
"Aggrieved Party" 14.6(a)
"Agreement" Recitals
"Annual Excess Free Cash Flow" 3.1(b)
"Audited Financial Statements" 6.2(c)
"Bridge Financing" 12.6
"Investor" Recitals
"Closing" 5.1
"Closing Cash Payments" 3.2(b)
"Closing Date" 5.1
"Code" 6.2(g)
"COBRA" 6.2(l)
"Common Stock" Recitals
"Commitments" 6.2(h)
"Company" Recitals
"Company Basket" 14.5
"Company Business" 3.1(b)
"Company Subscription Agreements" Recitals
"Company's Plans" 6.2(l)
"Confidential Information" 9.1
"Confidentiality Agreement" 8.1
"Courts" 15.7
"Cumulative Excess Free Cash Flow" 3.1(b)
"Cumulative Targeted Excess
Free Cash Flow" 3.1(b)
-6-
<PAGE> 8
"Determination Date" 3.1(b)
"Earn-Out" 3.1(b)
"Earn-Out Period" 3.1(b)
"Earn-Out Recipients" 3.1(b)
"Earn-Out Statement" 3.1(b)
"Employment Agreement" 5.2(l)
"Equity Financing" 12.6
"ERISA" 6.2(l)
"Escrow Agent" 4.1
"Escrow Deposit" 4.1
"Estimated Closing Balance Sheet" 3.3(a)
"Estimated Closing Stockholders Equity" 3.3(a)
"Final Closing Adjustment" 3.4(d)
"Final Closing Balance Sheet" 3.4(c)
"Final Stockholder Equity" 3.4(a)
"Fiscal Year" 3.1(b)
"HIPAA" 6.2(l)
"HSR Act" 10.1
"Indemnifying Party" 14.6(a)
"Independent Accounting Firm" 3.4(c)
"Intellectual Property" 6.2(j)
"Legal Representatives" 15.13
"Life Insurance Policies" 8.2(d)
"November P&L" 3.4(a)
"Objection Notice" 3.1(b)
"Permits" 6.2(k)
"Phantom Stock Agreements" 3.3(z)(II)
"Preliminary Closing Balance Sheet" 3.4(a)
"Recapitalization" Recitals
"Recapitalization Financing" 12.6
"Redeemed Stock" 2.4
"Sale of the Business" 3.1(b)
"Selling Stockholders" Recitals
"Selling Stockholders' Basket" 4.3(a)
"Senior Management" 2.2
"Stipulation Agreement" 6.2(o)
"Tax Returns" 6.2(g)
"Total Consideration" 3.1
"Unaudited Financial Statements" 6.2(c)
-7-
<PAGE> 9
ARTICLE 2
RECAPITALIZATION TRANSACTION
Upon the terms and conditions hereinafter set forth, the parties desire to
consummate the Recapitalization, consisting of the following transactions,
simultaneously on the Closing Date (except as otherwise noted) as part of an
integrated and contractually interdependent plan:
2.1 [Left blank intentionally]
2.2 Equity Financing. Investor, Ontario Teachers and each member of the
senior management of the Company set forth on Schedule 2.2 ("Senior Management")
shall purchase from the Company additional shares of Common Stock in the number
of shares of Common Stock and for the cash consideration set forth opposite its,
his or her name on Schedule 2.2, payable on the Closing Date, in accordance with
the terms of the Company Subscription Agreements.
2.3 Debt Financing. The Company shall (a) execute and deliver that certain
Senior Credit Agreement dated as of the Closing Date between the Company and
Bankers Trust Company, as agent, and all other agreements and documents
necessary or desirable in connection with the Bridge Financing, and (b) take any
and all other commercially reasonable actions to consummate the Bridge
Financing.
2.4 Redemption of Shares. Each of the Trust Stockholders hereby agrees,
severally but not jointly, as to the number of shares of Redeemed Stock set
forth opposite such Trust Stockholder's name on Schedule 2.4, and the Principal
Stockholder hereby agrees jointly and severally as to all of the Redeemed Stock,
to sell, assign, transfer and deliver to the Company, and to cause the Company
to purchase, redeem and acquire from each of the Selling Stockholders, on the
Closing Date, all of such Selling Stockholder's right, title and interest in and
to the number of shares of the Company's Common Stock set forth opposite such
Selling Stockholder's name on Schedule 2.4 (hereinafter, all of such shares
shall be referred to collectively as the "Redeemed Stock"), free and clear of
all Encumbrances, other than restrictions on Transfer pursuant to the Securities
Act of 1933, as amended, and any applicable state securities laws (none of which
apply to the redemption of the Redeemed Stock pursuant to this Agreement). The
purchase price payable by the Company to each of the Selling Stockholders for
the Redeemed Stock and the manner of payment is set forth in Article 3.
2.5 Treatment of Recapitalization. The transactions contemplated by this
Article 2 are intended to qualify as a recapitalization of the Company for
financial accounting purposes and as a substantially disproportionate redemption
of stock under Section 302(b)(2) of the Code for federal and state income tax
purposes. The parties
-8-
<PAGE> 10
hereby agree to report the transaction for financial accounting and income tax
purposes in a manner consistent therewith.
ARTICLE 3
TOTAL CONSIDERATION; ADJUSTMENTS
3.1 Total Consideration. The total consideration payable by the Company
for the Redeemed Stock, as such amount shall be adjusted pursuant to Section 3.3
and Section 3.4 ("Total Consideration"), shall consist of the following:
(a) On the Closing Date, the Company shall make total payments in cash on
the Closing Date of $86,160,721 with the $6,000,000 Escrow Deposit paid in
accordance with Section 3.2(a) and the remaining $80,160,721 paid to each of the
Selling Stockholders in the amounts set forth opposite their names on
Scheduleu2.4.
(b) Within thirty (30) days of the Determination Date, the Company shall
pay, in cash, an earn-out ("Earn-Out") to each of the Persons listed on
Scheduleu3.1(b) ("Earn-Out Recipients") in proportion to their percentage
interest set forth thereon, determined as follows:
(i) The following terms used in this Section 3.1(b) shall have the
meanings set forth below:
(A) "Annual Excess Free Cash Flow" shall mean, with respect to the Company
Business for any Fiscal Year during the Earn-Out Period, an amount equal to the
gross revenues in the ordinary course of business (including slippage income and
postal savings) minus (i) the refund items, postage and freight, minus (ii) the
cost of revenues (but excluding, in all events, all depreciation and
amortization expense), minus (iii) the selling and general and administrative
expenses, minus (or plus) (iv) the other expenses (or income) (but excluding in
all events, all interest expense and income), and minus (v) the capital
expenditures of the Company incurred in good faith, all of which shall be
determined based on the books and records of the Company maintained in a manner
consistent with past accounting methods and practices and in accordance with
GAAP. Notwithstanding any provision herein to the contrary, Annual Excess Free
Cash Flow shall not include:
(w) any deduction or expense attributable to any stock option or other
non-cash bonus or non-cash benefit plan of the Company including, without
limitation, that certain stock option plan to be adopted by the Company after
the Closing (but shall include all such bonuses or benefits paid in cash),
(x) net receipts (or net losses) (after expenses and taxes applicable
thereto) resulting from the sale, conversion, condemnation or other disposition
of capital assets,
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<PAGE> 11
(y) federal or state income taxes, prior-year adjustments, adjustments
arising from major changes in accounting methods, fire, flood and extraordinary
gains or losses, and gains or losses on foreign exchange, or
(z) any management fees, service fees, overhead allocations, or other
similar arrangements payable by the Company Business to Investor or any of its
Affiliates, notwithstanding any provision herein to the contrary, the
calculation of Annual Excess Free Cash Flow shall include credit for the full
commercial value (as represented by standard sales prices) of any product or
service of the Company Business provided by the Company to Investor or any of
its Affiliates, or to the customers of Investor or any of its Affiliates at a
discount to induce the purchase of products or services of Investor or its
Affiliates.
(B) "Company Business" shall mean the business of providing the services
and/or products currently provided by the Company, or under research and/or
development by the Company as of the Closing Date, and any natural extensions
thereof, whether by the Company, Investor or any of their respective Affiliates;
in all events, Company Business shall not include any business acquired by the
Company after the date hereof.
(C) "Cumulative Excess Free Cash Flow" shall mean the sum of the Annual
Excess Free Cash Flow for each of the Fiscal Years during the Earn-Out Period
(except as provided in subsection (iv) below).
(D) "Earn-Out Period" shall mean the four Fiscal Year periods commencing
January 1, 1998 and ending December 31, 2001. "Fiscal Year" shall refer to the
fiscal year as maintained by the Company immediately preceding the Closing Date,
such period being January 1 through December 31.
(E) "Earn-Out Statement" shall mean a statement, certified as being true
and correct in all material respects by an officer of Investor and reviewed by
the Company's independent accountants, that shall identify the Annual Excess
Free Cash Flow for the applicable Fiscal Year, with reasonable detail and
accompanied by reasonable supporting documentation to demonstrate the basis for
calculating Annual Excess Free Cash Flow based upon the Company's audited
financial statements.
(ii) Except as provided in subsection (iv) below, the Earn-Out shall
equal twenty percent (20%) of the excess (if any) of (A) the Cumulative Excess
Free Cash Flow, over (B) Ninety-Three Million Dollars ($93,000,000); provided,
however, that the Earn-Out shall not, in any event, exceed Fifteen Million
Dollars ($15,000,000). The Earn-Out shall be paid to the Earn-Out Recipients
within thirty (30) days of the Determination Date proportionately based on their
percentage interest set forth on Schedule 3.1(b).
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<PAGE> 12
(iii) (A) Within ninety (90) days after the end of each Fiscal Year
during the Earn-Out Period, the Company shall prepare and deliver to the Selling
Stockholders (I) a copy of the Company's audited financial statement for such
Fiscal Year, together with the independent auditor's report thereon, and (II) an
Earn-Out Statement.
(B) The Earn-Out Statement shall be subject to review by the Selling
Stockholders or, at their option and expense, by an independent public
accounting firm of their choice. The Company shall permit the Selling
Stockholders and their representatives to have reasonable access during normal
business hours to the data and information on which the Earn-Out Statement was
prepared and to the Company's employees and/or representatives who assisted in
its preparation; provided that to gain access to the accountant's work papers,
the Selling Stockholders shall execute requisite indemnity agreements to the
accountants.
(C) The Selling Stockholders shall be deemed to have accepted an Earn-Out
Statement and the Annual Excess Free Cash Flow indicated therein unless, within
thirty (30) days after the date of delivery of the Earn-Out Statement, the
Selling Stockholders give written notice (the "Objection Notice") to the Company
of objection to any item thereon, which notice shall specify in reasonable
detail the basis for such objection. If the Selling Stockholders give an
Objection Notice, the Company and the Selling Stockholders shall attempt in good
faith to resolve the dispute as promptly as possible.
(D) If the Company and the Selling Stockholders have not been able to
agree upon a resolution of the dispute within thirty (30) days after the date of
the Objection Notice (which thirty (30) day period may be extended by written
agreement of the parties), such dispute shall be resolved fully, finally and
exclusively through use of an Independent Accounting Firm, in accordance with
the dispute resolution provisions of Section 3.4(c). The costs of arbitration
shall be apportioned between the Selling Stockholders and the Company as
determined by the arbitrator in such manner as the arbitrator deems reasonable
taking into account the circumstances of the case, the conduct of the parties
during the proceeding, and the result of the arbitration. Any arbitration
proceeding shall be concluded in a maximum of six (6) months from the date of
the Objection Notice. All negotiations pursuant to this Section shall be treated
as compromise and settlement negotiations for purposes of Rule 408 of the
Federal Rules of Evidence and comparable state Rules, and arbitration
proceedings under this section shall be treated as confidential information in
accordance with the provisions of the Confidentiality Agreement. Any arbitrator
shall be bound by an agreement containing confidentiality provisions at least as
restrictive as those contained in the Confidentiality Agreement. The procedures
of this Section are exclusive and shall be fully exhausted prior to the
initiation of any litigation. Either party may seek specific
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<PAGE> 13
enforcement of any arbitrator's decision under this Section. The other party's
only defense to such a request for specific enforcement shall be fraud by or on
the arbitrator.
(E) The "Determination Date" shall be the date on which the final Earn-Out
Statement following the expiration of the Earn-Out Period is mutually agreed to
by the Selling Stockholders and Investor.
(F) Notwithstanding any of the foregoing, any amount which is due and
payable and not in dispute shall immediately be paid to the Earn-Out Recipients
and nothing contained herein shall act to prevent the Earn-Out Recipients from
commencing litigation to compel payment of any due and payable amounts not in
dispute hereunder; provided, however, that the Company shall not be obligated to
pay any such amount to the extent the Company is then in default of a payment
obligation under any indebtedness for borrowed money ("Debt"), or such payment
would constitute a default under the Debt, but the Company shall pay the
Earn-Out Recipients interest at the default rate provided under the Debt from
the date such payment is due hereunder until such payment is made and the
Company shall make such payment as soon as is permitted under the Debt.
(iv) Notwithstanding any provision herein to the contrary, in the
event of a Sale of the Business during the Earn-Out Period, Cumulative Excess
Free Cash Flow and Cumulative Targeted Excess Free Cash Flow shall be calculated
as of the end of the month first preceding such sale (but excluding, in all
events, any expenses incurred in connection with such Sale of the Business) and
the Earn-Out shall equal twenty percent (20%) of the excess (if any) of (A) the
Cumulative Excess Free Cash Flow for the period ending on the date of the Sale
of the Business, over (B) the Cumulative Targeted Excess Free Cash Flow for such
period. For purposes of this subsection (iv), the following terms shall have the
following meanings:
(A) "Sale of the Business" shall mean a sale of all or substantially all
of the assets of the Company Business, a sale of more than fifty percent (50%)
of the outstanding capital stock of the Company to any person or group of
persons acting in concert (other than any Affiliate of the seller thereof), or a
reorganization of the Company wherein the holders of stock receive stock in any
other company, or a merger of Company with another company, in each case where
such holders of stock and such holders' Affiliates own, directly or indirectly
fifty percent (50%) or less of the outstanding capital stock of the Company or
the entity surviving such reorganization or merger.
(B) "Cumulative Targeted Excess Free Cash Flow" shall mean the sum of the
following amounts with respect to each of the following Fiscal Years:
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<PAGE> 14
<TABLE>
<CAPTION>
Fiscal Targeted Excess
Year Free Cash Flow
--------------------------------------
<S> <C>
1998 $20,525,000
1999 22,075,000
2000 25,200,000
2001 25,200,000
</TABLE>
with Targeted Excess Free Cash Flow for the Fiscal Year in which the Sale of the
Business occurs determined proportionately as of the end of the month first
preceding such sale.
(v) The Earn-Out is personal to each of the Earn-Out Recipients, in
proportion to their percentage interest set forth on Scheduleu3.1(b), and may
not be Transferred without the prior written consent of the Company and for any
reason other than by operation of law or by will or the laws of descent and
distribution. Any attempted Transfer of the Earn-Out right by any holder thereof
(other than as set forth in the preceding sentence) shall be null and void.
(vi) The Earn-Out shall represent only a right to receive cash from
the Company subject to the terms set forth herein, payable no later than thirty
(30) days after the Determination Date. The Earn-Out shall not possess any
attributes of Common Stock and shall not entitle the Selling Stockholders to any
rights of any kind other than as specifically set forth herein.
(c) On the Closing Date, the Company shall pay the liabilities of the
Company for transaction costs set forth on Schedule 3.1(c).
3.2 Manner of Payment. Subject to Section 3.4, the Total Consideration
shall be payable as follows:
(a) At Closing, the Company shall deliver the Escrow Deposit to the Escrow
Agent pursuant to Section 4.1.
(b) At Closing, the Company shall make the cash payment described in
Section 3.1(a), as the same may be adjusted pursuant to Section 3.3 (as so
adjusted, the "Closing Cash Payments"), less the Escrow Deposit, payable by wire
transfer in immediately available funds in accordance with written instructions
provided by the Selling Stockholders' Representative at least one (1) business
day before the Closing Date.
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<PAGE> 15
3.3 Pre-Closing Adjustment.
(a) Not later than two (2) nor earlier than five (5) business days prior
to the Closing Date, the Company shall prepare, in consultation with Investor
and in accordance with the Closing Balance Sheet Principles and otherwise in
conformity with GAAP, applied on a basis consistent with the Audited Financial
Statements, and deliver to Investor, an estimated balance sheet of the Company
as of the close of business on October 31, 1997 (the "Estimated Closing Balance
Sheet"), a copy of which is attached hereto as Schedule 3.3(b). In addition, the
Company shall prepare, in consultation with Investor, and deliver to Investor
not later than two (2) business days prior to the Closing Date, a report,
setting forth (i) its good faith determination of the total stockholders equity
as of the close of business on Octoberu31, 1997 (the "Estimated Closing
Stockholders Equity"), based upon the Estimated Closing Balance Sheet, and (ii)
its good faith determination of the amount of the Closing Cash Payments,
determined in accordance with clauses (b) and (c) below. Notwithstanding any
provision herein to the contrary:
(x)u the Estimated Closing Stockholders Equity and the Final Stockholder
Equity shall not include an accrued liability or other adjustment that relates
to:
(I) the Closing Incentive Payments (other than as provided in clause
(y)(III) below);
(II) any Minnesota Nonresident Shareholder State Tax Withholding;
(III) any deferred income tax liability associated with the book/tax
difference in slippage income (which was not reflected on the Company's interim
July 31, 1997 financial statements and will not be reflected on the Estimated
Closing Balance Sheet or the Final Closing Balance Sheet);
(IV) any cost, expense or other obligations of the Recapitalization (other
than those costs specifically provided herein as being borne by the Selling
Stockholders), and
(y) the Estimated Closing Stockholders Equity and the Final Stockholders
Equity shall include:
(I) a reduction of cash and equity resulting from the distribution made
pursuant to Sections 8.2(d)(i), 8.2(d)(ii) and 8.2(d)(iii).
(II) a reduction to zero (0) in the accrued compensation liability for the
phantom stockholders (after giving effect to the adjustments pursuant to Section
3.3(a)(y)(I)),
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<PAGE> 16
(III) an accrued liability for the bonuses and other liabilities set forth
on Scheduleu9.5, which are already reflected on the Estimated Closing Balance
Sheet,
(IV) an accrual for the employer's portion of the FICA and Medicare taxes
payable in connection with the Closing Incentive Payments, and
(V) an accrual liability for the Company's $101,450 severance obligation
to John F. Ecklund.
(z) the Final Stockholders Equity shall include (in addition to amounts
included on the Estimated Closing Balance Sheet):
(I) in the event the Company makes payments under the Company's 1997
Management Recognitition, Transition and Equity Bonus Plan which are less than
$2,650,000, an additional asset in an aggregate amount equal to such deficiency.
(II) an accrued liability for (i) the $500,000 due under paragraph 2 of
that certain letter agreement dated as of the Closing Date between the Company
and Charles D. Weil, (ii) any additional payment due to Mr.uWeil under paragraph
3 of such letter agreement and (iii) any additional payment due to Mr.
Stinchfield and Mr. Ferguson under their separate letter agreements dated as of
the Closing Date regarding their separate Phantom Stock Agreements dated
December 31, 1991 (collectively, the "Phantom Stock Agreements").
(b) The Closing Cash Payments shall be equal to the amounts set forth on
Schedule 2.4, plus the amount, if any, by which the Estimated Closing
Stockholders Equity exceeds Fifteen Million Eight Hundred Eighty-Eight Thousand
Four Hundred Seventy-Eight Dollars ($15,888,478) (or minus the amount, if any,
by which Fifteen Million Eight Hundred Eighty-Eight Thousand Four Hundred
Seventy-Eight Dollars ($15,888,478) exceeds the Estimated Closing Stockholders
Equity, as the case may be).
(c) Any adjustment in the Closing Cash Payments made by virtue of clause
(b) above shall be made in proportion to the percentage interest of Redeemed
Stock set forth on Schedule 2.4.
3.4 Post Closing Adjustments.
(a) As promptly as practicable after the Closing, the Company shall
prepare, in consultation with the Selling Stockholders and their representatives
and in accordance with the Closing Balance Sheet Principles and otherwise in
conformity with GAAP, applied on a basis consistent with the Audited Financial
Statements, and deliver to the Selling Stockholders, (A) a balance sheet of the
Company as of the close of business on October 31, 1997 (the "Preliminary
Closing Balance Sheet") and its
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<PAGE> 17
calculation of the total stockholders equity as of the close of business on
October 31, 1997 ("Final Stockholder Equity"), substantially in the form of
Schedule 3.4(a)(i), and (B) the monthly profit and loss statement of the Company
for the period ending on November 30, 1997 ("November P&L"), with a calculation
of the profit (or loss) for the period from November 1, 1997 to and including
the Closing Date equal to the profit or loss for the period ending on November
30, 1997 times a fraction in which the number of business days in November prior
to and including the Closing Date is the numerator, and twenty (20) is the
denominator; provided, however, that any extraordinary event occurring during
November shall be allocated fully and completely to the period in which any such
extraordinary event occurred (and correspondingly to the Selling Stockholders if
occurring on or before the Closing Date, or to the Buyer if occurring after the
Closing Date) and will not be subject to proration under this Section 3.4(a)
(without limiting the generality of the foregoing, any expenses incurred by the
Company in connection with the Recapitalization following the Closing (including
those set forth in Section 15.2(a)) which are not specifically provided herein
as being borne by the Selling Stockholders shall be allocated to the period
after the Closing Date), and (ii) the Company shall cause Arthur Andersen LLP to
examine the Preliminary Closing Balance Sheet and the calculation of Final
Stockholder Equity and deliver its report, substantially in the form of Schedule
3.4(a)(ii) to the Selling Stockholders as soon after the Closing Date as
possible, but in no event later than ninety (90) days after the Closing Date.
The costs and expenses of preparing the Preliminary Closing Balance Sheet and
the examination thereof and the report thereon by Arthur Andersen LLP shall be
borne by the Company, and the costs and expenses of reviewing the Preliminary
Closing Balance Sheet incurred by McGladrey & Pullen, LLP shall be borne by the
Selling Stockholders.
(b) The Selling Stockholders shall have thirty (30) days following
delivery of the Preliminary Closing Balance Sheet and the November P&L during
which to notify the Company of any dispute of any item contained therein, which
notice shall set forth in reasonable detail the basis for such dispute and shall
be accompanied by a certificate of the Selling Stockholders' independent auditor
that they concur with each of the positions taken by the Selling Stockholders in
such notice that the Preliminary Closing Balance Sheet or the November P&L, as
the case may be, was not prepared in accordance with the Closing Balance Sheet
Principles, and otherwise in accordance with GAAP, applied on a basis consistent
with the Audited Financial Statements. During such 30-day period, and during the
pendency of any dispute regarding the Preliminary Closing Balance Sheet or the
November P&L, the Company shall grant the Selling Stockholders and their
representatives reasonable access to the books and records of the Company and
the accounting personnel of the Company. If the Selling Stockholders fail to
notify the Company of any dispute within such 30-day period, the Preliminary
Closing Balance Sheet or the November P&L, as the case may be, shall be the
Final Closing Balance Sheet and the final November P&L, and shall be final and
binding on the parties. In the event that the Selling Stockholders shall so
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<PAGE> 18
notify the Company of any dispute, the Selling Stockholders and Investor shall
cooperate in good faith to resolve such dispute as promptly as possible.
(c) If Investor and Selling Stockholders are unable to resolve any such
dispute within fifteen (15) days (or such longer period as the Company and the
Selling Stockholders shall mutually agree in writing) of the Selling
Stockholders' delivery of such notice, such dispute shall be resolved by a
mutually agreeable nationally recognized, independent accounting firm
("Independent Accounting Firm"), and such determination shall be final and
binding on the parties. If the Selling Stockholders and the Company cannot
mutually agree on the identity of the Independent Accounting Firm, then the
Selling Stockholders and the Company shall each submit to the other party's
independent auditor the name of a national accounting firm (other than
McGladreyu& Pullen, LLP and Arthur Andersen & Co.), and the Independent
Accounting Firm shall be selected by lot from those two firms by the independent
auditors of the two parties. (If no national accounting firm shall be willing to
serve as the Independent Accounting Firm, then an arbitrator shall be selected
to serve as such, such selection to be according to the above procedures.) Any
expenses relating to the engagement of the Independent Accounting Firm shall be
shared equally by the Company and the Selling Stockholders. The Independent
Accounting Firm shall be instructed to use every reasonable effort to perform
its services within fifteen (15) days of submission of the Preliminary Closing
Balance Sheet or the November P&L to it and, in any case, as promptly as
practicable after such submission. The Final Closing Balance Sheet and the
calculation of Final Stockholder Equity, or the November P&L, shall then be
prepared by the Company and the Selling Stockholders based on the determination
of the Independent Accounting Firm. The Final Closing Balance Sheet shall be the
Preliminary Closing Balance Sheet deemed to be final pursuant to clause (b)
above or as finally determined by the Independent Accounting Firm pursuant to
this clause (c).
(d) The Total Consideration shall be increased (or decreased) by (i)uthe
amount by which the Final Stockholders Equity exceeds (or is less than) the
Estimated Stockholders Equity, and (ii)uthe prorated portion of November, 1997
profit (or loss) determined in accordance with Section 3.4(a) (such amount, the
"Final Closing Adjustment"). The Company or the Selling Stockholders, as the
case may be, shall, within ten (10) days after the final determination pursuant
to Section 3.4(c) or 3.4(d), make payment to the other by wire transfer in
immediately available funds of the Final Closing Adjustment, together with
interest thereon at the reference rate per annum quoted from time to time by
Norwest Bank, Minnesota from the Closing Date to the date of payment.
ARTICLE 4
ESCROW
4.1 Escrow. The Company shall deposit in escrow with Norwest Bank,
Minnesota (the "Escrow Agent") Six Million Dollars ($6,000,000) cash ("Escrow
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<PAGE> 19
Deposit") to be held and disbursed by the Escrow Agent in accordance with the
terms and provisions of the Escrow Agreement.
ARTICLE 5
CLOSING
5.1 Closing Date. The closing of the Recapitalization (the "Closing")
shall take place at the office of Dorsey & Whitney LLP, Pillsbury Center South,
220 South Sixth Street, Minneapolis, MN 55402 (or at such other place as the
parties may mutually agree) at 10:00 o'clock a.m., local time, as soon as
practicable after the satisfaction of the conditions set forth in Articles 11
and 12 (or such other time and date by mutual agreement of the parties) (the
"Closing Date").
5.2 Documents To Be Delivered by Selling Stockholders. At the Closing, the
Selling Stockholders will deliver or cause to be delivered to Investor (unless
otherwise indicated):
(a) to the Company, stock certificates for the Redeemed Stock, free and
clear of Encumbrances other than restrictions on Transfer pursuant to the
Securities Act of 1933, as amended, and any applicable state securities laws
(none of which apply to the redemption of the Redeemed Stock), which
certificates shall be duly endorsed to the Company or accompanied by duly
executed stock powers in form reasonably satisfactory to the Company;
(b) a certificate of the Selling Stockholders, in form reasonably
satisfactory to Investor, certifying (i)uthat all representations and warranties
by the Selling Stockholders contained in the Agreement are true and correct in
all respects at and as of the Closing Date as though such representations and
warranties were made at and as of the Closing Date (unless limited by their term
to a prior date), other than breaches of such representations and warranties
which would not reasonably be expected to result in a Material Adverse Effect;
provided, however, the aforementioned shall be determined without regard to any
materiality qualifications set forth in the representations and warranties, (ii)
that the Selling Stockholders have performed and complied with, in all material
respects, all covenants, obligations and agreements to be performed and complied
with by the Selling Stockholders at or before the Closing, and (iii) that the
conditions precedent set forth in Article 11 have been satisfied or waived;
(c) resignations (effective as of the Closing Date) of (i) the members of
the board of directors of the Company and (ii) the officers of the Company as
directed by Investor;
(d) the stock books, stock ledgers and minute books of the Company;
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<PAGE> 20
(e) an executed copy of each of the Transaction Documents to which any
Selling Stockholder is a party;
(f) a copy of the Articles of Incorporation of the Company, certified by
the Secretary of State of Minnesota, and a Certificate of Good Standing from the
Secretary of State of Minnesota evidencing the good standing of the Company,
each dated within ten (10) days of the Closing Date;
(g) a copy of each of (i) the text of the resolutions adopted by the Board
of Directors and Stockholders of the Company authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents and the
consummation of all of the transactions contemplated by this Agreement and the
other Transaction Documents, and (ii) the bylaws of the Company, without giving
effect to the amendment thereto to be caused by Investor in connection with the
Closing; along with certificates executed on behalf of the Company by its
corporate secretary certifying to Investor that such copies are true, correct
and complete copies of such resolutions and bylaws, respectively, and that such
resolutions and bylaws were duly adopted and have not been amended or rescinded,
and indicating the incumbency of all officers of the Company executing any of
the Transaction Documents;
(h) a certificate of the Trust Stockholders, in form reasonably
satisfactory to Investor, certifying that any necessary actions have been taken
by the Trust Stockholders to authorize the execution, delivery and performance
of this Agreement and the other Transaction Documents of which the Trust
Stockholders are a party;
(i) evidence reasonably satisfactory to Investor that the Shareholder
Agreement dated September 21, 1987 between the Selling Stockholders has been
terminated;
(j) a customary legal opinion of counsel for the Company and the Selling
Stockholders, dated as of the Closing Date, in form identical to Exhibit 5.2(j);
(k) a title insurance policy issued for the Company's Young America,
Minnesota facility;
(l) employment and noncompetition agreement with Charles D. Weil, in form
identical to Exhibit 5.2(l) ("Employment Agreement");
(m) evidence reasonably satisfactory to Investor indicating the approval
by the Selling Stockholders of the Closing Incentive Payments under Code Section
280G(b)(5)(B); and
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<PAGE> 21
(n) evidence reasonably satisfactory to Investor that (i)uCharles D. Weil
has released the Company from all obligations under that certain Employment
Agreement dated Januaryu1, 1997, (ii)uDavid Ferguson and Frederick H.
Stinchfield have released the Company from all obligations under the Phantom
Stock Agreements, and (iii) Bruce Clark has released the Company from all
obligations under that certain Sale of the Company Incentive Agreement
(undated);
(o) a FIRPTA certificate; and
(p) such other documents, in form and substance reasonably satisfactory to
Investor, as may be reasonably necessary to effect the Closing.
5.3 Documents To Be Delivered by Investor. Unless otherwise indicated, at
the Closing, Investor will deliver or cause to be delivered to the Selling
Stockholders:
(a) the Company shall deliver the Closing Cash Payments to be paid to the
Selling Stockholders in accordance with Section 3.2(b) and the Escrow Deposit to
be made with the Escrow Agent in accordance with Section 4.1;
(b) a certificate of Investor, in form reasonably satisfactory to the
Selling Stockholders, certifying (i)uthat all representations and warranties by
Investor contained in this Agreement shall be true and correct in all respects
at and as of the Closing Date of the Agreement, as though such representations
and warranties were made at and as of the Closing Date (unless limited by their
term to a prior date), other than breaches of such representations and
warranties which would not reasonably be expected to prevent consummation of the
transactions contemplated by this Agreement, (ii)uthat Investor has performed
and complied with, in all material respects, all of the covenants, obligations
and agreements to be performed and complied with by such parties at or before
the Closing, and (iii)uthat the conditions precedent set forth in Articleu12
have been satisfied or waived;
(c) an executed copy of each of the Transaction Documents to which
Investor is a party;
(d) certificate executed on behalf of Investor by its corporate secretary
certifying to the Selling Stockholders as to the incumbency of the officers of
Investor executing any of the Transaction Documents.
(e) Certificate of Good Standing of Investor dated no earlier than ten
(10) days prior to the Closing Date;
(f) evidence reasonably satisfactory to the Selling Stockholders that the
Equity Financing has been completed in accordance with Section 2.2; and
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<PAGE> 22
(g) such other documents, in form and substance reasonably satisfactory to
the Selling Stockholders, as may be reasonably necessary to effect the Closing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations by Each of the Selling Stockholders. The Selling
Stockholders, jointly and severally, hereby represent and warrant to Investor
that:
(a) Authority. The Selling Stockholders have all requisite authority and
power to execute and deliver this Agreement and the other Transaction Documents
to which they are a party and to consummate the transaction contemplated hereby
and thereby. With respect to any Selling Stockholder which is a trust, such
Selling Stockholder has taken all necessary trust action to authorize the
execution and delivery of this Agreement and the other Transaction Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby and no other trust action is necessary in connection therewith. This
Agreement and such other Transaction Documents have been or will be duly and
validly executed and delivered by the Selling Stockholders and, assuming this
Agreement and such other Transaction Documents have been duly authorized,
executed and delivered by each of the other parties hereto, this Agreement and
such other Transaction Documents constitute a valid and binding agreement of the
Selling Stockholders, enforceable against the Selling Stockholders in accordance
with its terms, except as such enforceability may be limited or affected by (i)
bankruptcy, insolvency, reorganization, moratorium, liquidation, arrangement,
fraudulent transfer, fraudulent conveyance and other similar laws (including,
without limitation, court decisions) now or hereafter in effect and affecting
the rights and remedies of creditors generally or providing for the relief of
debtors, (ii) the refusal of a particular court to grant equitable remedies,
including, without limitation, specific performance and injunctive relief, and
(iii) general principles of equity (regardless of whether such remedies are
sought in a proceeding in equity or at law).
(b) Ownership of Redeemed Stock. The Selling Stockholders own,
beneficially and of record, the Redeemed Stock set forth opposite their names on
Scheduleu2.4, free and clear of all Encumbrances other than restrictions on
Transfer pursuant to applicable securities laws, and have, subject to compliance
with such securities laws, full power and legal right to sell, assign, transfer
and deliver the same to the Company. The delivery of the Redeemed Stock pursuant
to the provisions of this Agreement will transfer to the Company good and valid
title to the Redeemed Stock, free and clear of all Encumbrances, other than any
Encumbrances created by the Company after the Closing.
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<PAGE> 23
(c) No Violation; No Consent. The execution and delivery of this Agreement
and the other Transaction Documents to which they are a party by the Selling
Stockholders and the Company does not, and the performance of this Agreement and
other Transaction Documents to which they are a party by the Selling
Stockholders or the Company will not, (i) to the extent that a Selling
Stockholder is a trust, violate any provision of the trust agreement under which
such trust was created, (ii) conflict with or violate any Applicable Laws, (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the Company's
rights or alter the rights or obligations of any other person under, or give to
any other person any right of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any of the
properties or assets of the Company pursuant to, any contract, agreement or
arrangement of any kind to which the Company is a party or by which the Company
or any of its properties are bound or affected. The execution, delivery and
performance by the Selling Stockholders and the Company of this Agreement and
the other Transaction Documents to which they are a party will not require any
notice to, filing with, or the consent, approval or authorization of any Person
or Governmental Entity, except as contemplated in Section 10.1(b); provided that
the Selling Stockholders make no representation or warranty under this Section
6.1(c) with respect to the transactions contemplated by the Company Subscription
Agreement between the Company and Senior Management or the Company Subscription
Agreement between the Company and Ontario Teachers.
6.2 Representations by the Principal Stockholder. The Principal
Stockholder hereby represents and warrants to Investor that:
(a) Corporate Organization. The Company is a corporation validly existing
and in good standing under the laws of Minnesota. The Company has the corporate
power and authority to carry on its business as now being conducted, to own and
operate the properties and assets now owned and being operated by it and to
enter into and perform this Agreement and the other Transaction Documents. The
Selling Stockholders have delivered or caused to be delivered to Investor
complete and correct copies of the Company's articles of incorporation and
bylaws as in effect on the date hereof (without giving effect to the amendment
thereof caused by Investor in connection with the Closing). The Company is duly
qualified or licensed to do business as a foreign corporation in each of the
jurisdictions set forth in Schedule 6.2(a). Except as set forth on Schedule
6.2(a), the Company is not required to be qualified or licensed to do business
as a foreign corporation in any other jurisdiction, except such jurisdictions,
if any, in which the failure to be so qualified or licensed would not reasonably
be expected to result in a Material Adverse Effect. Schedule 6.2(a) sets forth a
true and complete list of the names and titles of the directors and executive
officers of the Company. Since January 1, 1990, the Company has not owned any
interest in any corporation, partnership, limited liability company, joint
venture, trust or other entity.
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<PAGE> 24
(b) Capitalization; Stock Ownership. Without giving effect to the
amendment to the Company's articles of incorporation in connection with the
Closing, the authorized capital stock of the Company consists of twenty thousand
(20,000) shares of Common Stock, of which one thousand nine hundred twenty
(1,920) shares are issued and outstanding. Any outstanding Common Stock which is
not Redeemed Stock is owned by the Persons and in the amounts set forth in
Schedule 2.4. Except for the Redeemed Stock and the retained stock set forth in
Schedule 2.4, there is no other outstanding Common Stock of the Company. All of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. Except for this Agreement,
neither the Selling Stockholders nor the Company are a party to or bound by any
contract, agreement or arrangement to issue, sell or otherwise dispose of or
redeem, purchase or otherwise acquire any capital stock or any other security of
the Company or any other security exercisable or exchangeable for or convertible
into any capital stock or any other security of the Company, and there is no
outstanding option, warrant or other right to subscribe for or purchase, or
contract, agreement or arrangement with respect to, any capital stock or any
other security of the Company or any other security exercisable or exchangeable
for or convertible into any capital stock or any other security of the Company.
(c) Financial Statements.
(i) Schedule 6.2(c)(i) contains true and complete copies of the
audited balance sheets of the Company as of December 31, 1994, 1995 and 1996 and
related statements of income, retained earnings and cash flows for the fiscal
year ended on those dates, together with the notes thereto and the report
thereon of McGladrey & Pullen, LLP (collectively, the "Audited Financial
Statements"). Except as set forth in the notes thereto, the Audited Financial
Statements were prepared from the books and records of the Company and present
fairly, in all material respects, the financial position of the Company as of
the respective dates of said balance sheets and the results of its operations
and its cash flows for the respective periods then ended in conformity with
GAAP.
(ii) The Company has also made available to Investor an unaudited
balance sheet of the Company as of Octoberu31, 1997 and the related statement of
income and cash flows for the period then ended (the "Unaudited Financial
Statements"). The Unaudited Financial Statements were prepared from the books
and records of the Company and present fairly, in all material respects, the
financial position of the Company as of the date thereof and the results of its
operations for the period indicated in conformity with GAAP applied on a basis
consistent with the Audited Financial Statements (subject to the normal year-end
adjustments set forth on Schedule 6.2(c)(ii) and the absence of footnotes).
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(d) No Undisclosed Liabilities. The Company has no liabilities, except
liabilities (i) in the aggregate adequately set forth in the Audited Financial
Statements, (ii) incurred in the ordinary course of business after December 31,
1996 and reflected in the Final Closing Balance Sheet, or (iii) set forth on
Schedule 6.2(d).
(e) Absence of Certain Changes. Except as set forth on Schedule 6.2(e),
since December 31, 1996, the Company, taken as a whole, has conducted business
in the ordinary course consistent with past practices and there has not occurred
(i) any Material Adverse Effect or (ii) any sale, disposition or creation of an
Encumbrance upon any assets of the Company (other than (A) the sale of any asset
with a book value of less than $100,000 and creations of Encumbrances in the
ordinary course of business of less than $100,000 and (B) dispositions of any
obsolete or worthless asset with a book value of less than $100,000.)
(f) Properties and Assets.
(i) Except as set forth on Schedule 6.2(f)(i), the Company has good
and marketable title to, or a valid and binding leasehold or licensed interest
in, all of the properties and assets of the Company (including all Intellectual
Property), free and clear of all Encumbrances (except Permitted Encumbrances).
(ii) All Equipment reflected in the Financial Statements is in good
operating condition and repair and there is no extraordinary wear and tear to
such property.
(iii) Schedule 6.2(f)(iii) sets forth a list of all owned real
property, leased real property and leased personal property. None of the owned
real property is subject to any lease. The Company has made available to
Investor or its representatives, copies of all leases for such leased property.
Except as set forth on Schedule 6.2(f)(iii), all such leases are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(g) Tax Matters.
(i) Except as set forth on Schedule 6.2(g), each of the Company and
the Company's Plans has: (A) properly and timely filed, or has had properly and
timely filed on its behalf, or will properly and timely file all federal, state,
local and foreign tax returns, reports, statements and other similar filings
("Tax Returns") required to be filed by the Company with the appropriate
Governmental Entity in all jurisdictions in which such Tax Returns are required
to be filed for all periods ending on or before the Closing Date, and has timely
paid all Taxes shown thereon to be due; (B) timely and properly paid, or has had
paid on its behalf, or will timely and properly
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<PAGE> 26
pay, all Taxes due and payable on or prior to the Closing Date; and (C) complied
with all applicable laws, rules and regulations relating to the withholding of
Taxes and the payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended ("Code")), and timely and properly withheld from individual employee
wages and paid over to the proper Governmental Entities all amounts required to
be so withheld and paid over under all applicable laws; provided, however, that
the Principal Stockholder makes no representation or warranty with respect to
the payment to the proper Governmental Entity of the payroll withholding Taxes
required in connection with the Closing Incentive Payments.
(ii) The Company has made available to Investor true, correct and
complete copies of all Tax Returns made to all Governmental Entities with
respect to Taxes during the calendar years 1992 through 1996 and for any interim
period in 1997 ending prior to the Closing Date.
(iii) No Governmental Entity is now asserting or, to the best
knowledge of the Principal Stockholder, threatened to assert against the Company
any deficiency or claim for additional Taxes.
(iv) Except as set forth on Schedule 6.2(g), there has been no Tax
Audit or other administrative proceeding or court proceeding with regarding to
any Taxes or Tax Returns, nor is any such Tax Audit or other proceeding pending
or, to the best knowledge of the Principal Stockholder, threatened with regard
to any such Tax Audit or other proceeding.
(v) The Company (A) is not, and has not made an election to be,
treated as a "consenting corporation" under Section 341(f) of the Code and (B)
is not, and has not been, a "personal holding company" within the meaning of
Section 542 of the Code.
(vi) No claim has been made by any taxing authority in a
jurisdiction in which the Company does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction.
(vii) The Company has continuously been a "small business
corporation" (within the meaning of Section 1361 of the Code) for all taxable
years beginning January 1, 1987 and ending on the Closing Date, and has duly
elected under Section 1362(a) of the Code to be taxed as an "S corporation" (and
has been so treated) for Federal income tax purposes. No corresponding election
is required under the tax laws of the state of Minnesota for each of such
taxable years. The Company has not received any correspondence from any Taxing
Authority questioning its ability to be taxed as an S corporation (or the
corresponding provision under state and local law).
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<PAGE> 27
(viii) The Company has not incurred any liability to make or
possibly make any payment either alone or in conjunction with any other payments
that shall be non-deductible under, or would otherwise constitute a "parachute
payment" within the meaning of Section 280G of the Code (or any corresponding
provision of state or local law).
(ix) The Company will not incur any corporate-level Tax liability
pursuant to Section 1374 of the Code, or other applicable law, with respect to
the transactions contemplated herein.
(x) The accrued Taxes payable set forth on the Final Closing Balance
Sheet shall be adequate to cover all liabilities of the Company for Taxes with
respect to all periods (or portions thereof) ending on or prior to the Closing
Date.
(h) Contracts. Except as set forth on Schedule 6.2(h) and delivered to or
made available to Investor or its counsel, there are no (a) notes, bonds,
mortgages, indentures, material leases, or material Permits, or (b) other
contracts, agreements or other instruments or obligations or any amendments,
supplements or restatements of any of the foregoing: to which the Company is a
party or by which it or any of its properties or assets are bound ((a) and (b),
collectively, "Commitments") that (i) relate to real property, (ii) restrict the
Company from competing in any line of business, (iii) except for this Agreement,
relate to any proposal to acquire the Company or all or substantially all of its
assets or properties, or (iv) are otherwise material to the business, financial
condition or results of operations of the Company, taken as a whole; provided,
however, that except for any contracts involving indebtedness for borrowed
money, the Company is not obligated to disclose in Schedule 6.2(h) or deliver or
make available to Investor or its counsel any written contract where the annual
financial payment obligation of either party is less than $250,000 or where the
contract may be terminated without penalty on thirty (30) days or less written
notice. The Company is not and, to the knowledge of the Principal Stockholder
and the Company, no other party is, in violation of or in default under (nor
does there exist any condition which upon the passage of time or the giving of
notice or both would reasonably be expected to cause such a violation of or
default under) any material provision of any material Commitment. Each
Commitment constitutes a valid and binding obligation on the Company and, to the
knowledge of the Principal Stockholder and the Company, each other party
thereto, enforceable against such other party in accordance with its terms.
(i) Litigation. Except as set forth in Schedule 6.2(i), there is no suit,
action, proceeding or investigation, either at law or in equity, or before any
Governmental Entity now pending or, to the knowledge of the Principal
Stockholder and the Company, threatened against the Company, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company.
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<PAGE> 28
(j) Intellectual Property. Schedule 6.2(j) sets forth a list of all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, and licenses obtained by the Company, that are material
to the business of the Company, taken as a whole, as such business is now being
conducted. The assets referred to in the preceding sentence, together with all
such assets not required to be listed thereon due to the materiality
qualification, and all processes, plans, ideas, concepts, technical information,
data, research records, proprietary computer software, promotional literature,
customer and supplier lists and similar data and information and all other
confidential or proprietary or technical and business information shall be
referred to collectively as the "Intellectual Property". There are no actions or
proceedings pending or, to the knowledge of Principal Stockholder, threatened,
challenging the rights of the Company to use the Intellectual Property. To the
knowledge of the Principal Stockholder and the Company,uno person or entity is
infringing the Intellectual Property. The Company is not infringing any rights
of any third party under any patent, trademark, trade name, service mark or
copyright, and the Company either has all right, title and interest in, or a
valid and binding license to use, all Intellectual Property.
(k) Compliance with Laws; Permits. Except for matters relating to Taxes
which are addressed solely in Section 6.2(g), for matters relating to
Environmental Laws which are addressed solely in Section 6.2(n), and for matters
set forth in Schedule 6.2(k), the Company is in compliance, in all material
respects, with all Applicable Laws relating to it or its properties, assets,
operations and businesses including, without limitation, the Fair Labor
Standards Act and the Minnesota Uniform Disposition of Unit Unclaimed Property
Act. To the knowledge of the Principal Stockholder and the Company, there is no
proposed or threatened change in Applicable Law that reasonably could be
expected to have a Material Adverse Effect. The Company holds all permits,
licenses, easements, variances, exemptions, consents, certificates, orders and
approvals from Governmental Entities which are material to the business of the
Company, taken as a whole, as such business is now being conducted
(collectively, the "Permits"). The Company is in compliance with the terms of
the Permits applicable to it.
(l) Employee Matters. Schedule 6.2(l) sets forth all management,
employment and other contracts providing for the employment or retention of
employees with annual compensation in excess of $100,000. The Company is not a
party to or bound by any collective bargaining agreement. Schedule 6.2(l) lists
all pension and employee benefit plans, profit sharing plans, bonus, deferred
compensation, supplemental executive retirement plans, excess benefit plans,
phantom stock, stock options, stock appreciation or other forms of incentive or
other compensation plans or arrangements including, without limitation, all
"employee pension benefit plans" as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all welfare,
severance, vacation and other employee fringe benefit plans including, without
limitation, all "employee
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<PAGE> 29
welfare benefit plans" as defined in Section 3(1) of ERISA, as amended,
maintained by the Company relating to the employees or former employees of the
Company (collectively, the "Company's Plans"). The Company has made available to
Investor copies of each of the Company's Plans as in effect on the date hereof.
The Company's Plans have been maintained, in all material respects, in
accordance with their respective terms and conditions and Applicable Laws. All
contributions to the Company's Plans that have been required to be made in
accordance with Section 302 of ERISA or Section 412 of the Code have been made.
No non-exempt "prohibited transaction" (as defined in Section 4975 of the Code
or Section 406 of ERISA) has occurred which could subject the Company to a Tax.
At no time during the five-year period preceding the Closing Date has the
Company been required to contribute to any "multi-employer plan" (as defined in
Section 4001(a)(3) of ERISA) for the benefit of the employees of the Company.
Each of the Company's Plans which is intended to be "qualified" within the
meaning of Section 401(a) of the Code is the subject of a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified. The Company has made available to Investor copies of the most recent
Internal Revenue Service determination letters with respect to each such plan.
Neither the Company nor any Affiliate is or ever has been obligated to
contribute to any "defined benefit plan" (within the meaning of Section 3(35) of
ERISA). Each Company Plan which is subject to the requirements of the
Consolidated Omnibus Budget Reconciliation of 1985 ("COBRA") and the Health
Insurance Portability and Accountability Act ("HIPAA") has been maintained, in
all material respects, in compliance with COBRA and HIPAA, including all notice
requirements, and no tax payable on account of Section 4980B or any other
section of the Code has been or is expected to be incurred. All reporting and
disclosure obligations imposed under ERISA and the Code have been satisfied in
all material respects with respect to each Company Plan.
(m) Insurance. The Company maintains insurance policies which are in
amount and character, including with respect to the perils or hazards covered
thereby, substantially similar to that carried by entities engaged in similar
businesses. Schedule 6.2(m) sets forth a summary of the insurance policies
maintained by the Company from January 1, 1995 to the Closing Date.
(n) Environmental Matters.
(i) The Company is in substantial compliance with all Environmental
Laws with respect to its properties, assets, operations and business.
(ii) The Company has obtained and adhered, in all material respects,
to all necessary Permits and other approvals, necessary to store, dispose of and
otherwise handle Hazardous Material and has reported, to the extent required by
Environmental Laws, all past and present sites owned and operated by the Company
where Hazardous Material has been treated, stored or disposed of.
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<PAGE> 30
(iii) No Hazardous Material has been Released at or on any of the
property owned, leased or operated by the Company or any of its predecessors.
(iv) The Company has not received any written notice, claim or
request for information relating to any on-site or off-site locations to which
the Company has transported Hazardous Material or arranged for the
transportation of Hazardous Material, alleging that the Company is or reasonably
may be expected to be liable for any clean-up cost, remedial work, damage to
natural resources or personal injury.
(v) There is no Environmental Claim pending or threatened against
the Company which would have a Material Adverse Effect.
(vi) The real property owned by the Company does not contain any
underground storage tanks.
The representations and warranties contained in this Section 6.2(n) are the
exclusive representations and warranties of the Principal Stockholder with
respect to compliance with and liability under Environmental Laws.
(o) Labor Matters. The Company is not and, within the past five years, has
not been, a party to any collective bargaining or other labor union contracts.
As of the date of this Agreement, there is no material labor dispute, grievance,
strike or work stoppage pending, or to the knowledge of the Principal
Stockholder, threatened against the Company. The Company has made available to
Investor that certain Stipulation Agreement ("Stipulation Agreement") between
the Company and the Department of Labor dated August 9, 1996, which is attached
to Schedule 6.2(o) of the Disclosure Schedule. The Company is in compliance, in
all material respects, with the Stipulation Agreement, and there is no suit,
action, proceeding or further investigation pending or, to the knowledge of the
Principal Stockholder, threatened against the Company by the Department of
Labor.
(p) Accounts Receivable. All accounts receivable reflected on the
Unaudited Financial Statements, and all such receivables from third parties
arising after the date thereof, constitute bona fide receivables from third
parties resulting from the sale of goods and services in the ordinary course of
business.
(q) Supplies. The packaging supplies of the Company are undamaged, not
obsolete and consist of items of a quality and quantity readily useable in the
ordinary course of business. The value at which such supplies are carried on the
Company's financial statements is in accordance with GAAP.
(r) Customers. Schedule 6.2(r) sets forth a list of the fifteen largest
customers of the Company during the fiscal year ended December 31, 1996 and
during
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the nine month period ended Septemberu30, 1997. Except as set forth in Schedule
6.2(r), as of the date hereof, (a) none of the customers listed in Schedule
6.2(r) has given the Company written notice or, to the knowledge of the Company,
oral notice of its intention to terminate or materially reduce its business
relationship with the Company, it being understood that the Principal
Stockholder gives no assurance that any such termination, material reduction or
decrease will not occur, and (b) neither the Principal Stockholder nor the
Company has any reason to believe that any of such customers intend to terminate
or materially reduce its business relationship with the Company or take any such
action.
(s) Related Party Transactions. Schedule 6.2(s) sets forth (i) a list of
all officers and employees of the Company as of the date hereof and the
aggregate salary, bonus and other cash compensation paid to each such person in
the most recently completed fiscal year and (ii) a list of all directors,
officers and employees of the Company as of the date hereof and the aggregate
salary, bonus and other cash compensation paid to each such person from the
beginning of the current fiscal year to November 7, 1997. Except for any bonuses
or distributions contemplated to be made pursuant to this Agreement or the
Transaction Documents, the Company has not made, nor will make, any
distributions to directors, officers or employees, other than ordinary
compensation in the ordinary course of business, between November 7, 1997 and
the Closing Date. Except as set forth on Schedule 6.2(s), there are no
agreements or arrangements between the Company, on the one hand, and any of its
directors, officers, employees or consultants, on the other hand. No affiliate,
director, officer, employee or consultant of the Company owns any interest in
any material asset or property (real or personal, tangible or intangible),
business or contract used or intended for use or otherwise relating to the
business currently conducted or proposed to be conducted by the Company.
Schedule 6.2(s) sets forth the cash or cash equivalents, assets and properties,
if any, contributed or loaned by the Selling Stockholders into the Company from
January 1, 1995 to the Closing Date; provided, contributions made by the Selling
Stockholders in repayment of advances, loans and the like made to the Selling
Stockholders will not be included. As of the Closing Date, none of the Selling
Stockholders have any loans outstanding with the Company.
(t) Brokers. Except as set forth on Schedule 6.2(t), no third party shall
be entitled to receive any brokerage commissions, finder's fees, fees for
financial advisory services 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 Selling Stockholders or the Company, other
than the fees and expenses related to the HSR Act which are addressed in Section
15.2. The Selling Stockholders shall remain liable, and neither the Company nor
Investor shall incur any liability for, any fees, commissions or similar
compensation that may be or become due pursuant to the scheduled matters in
Schedule 6.2(t).
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<PAGE> 32
(u) Post-October 31 Actions. Since October 31, 1997, neither the Selling
Stockholders nor the Company have taken any action that would constitute a
breach of the representations and warranties under Article 6 or the covenants
under Section 8.2.
(v) No Other Representations or Warranties. Except for the representations
and warranties contained in this Agreement or any other Transaction Document,
none of the Selling Stockholders nor any other Person makes any other express or
implied representation or warranty on behalf of the Selling Stockholders or
otherwise in respect of the Company or the Redeemed Stock that could give rise
to a claim for indemnification hereunder.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF INVESTOR AND COMPANY
7.1 Investor's Representations. Investor represents and warrants to each
of the Selling Stockholders as follows:
(a) Corporate Organization. Investor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to carry on its business as now being
conducted by it and to carry out the transactions contemplated by this
Agreement.
(b) Authority. The execution and delivery of this Agreement, the purchase
of the newly issued shares of Common Stock pursuant to the Equity Financing and
the consummation of the other transactions provided for hereby have been duly
and validly authorized by all necessary corporate action of Investor. This
Agreement has been duly and validly executed and delivered by Investor and,
assuming the due authorization, execution and delivery by the Selling
Stockholders and the Company, constitutes a legal, valid and binding obligation
of Investor enforceable against Investor in accordance with its terms, except as
such enforceability may be limited or affected by (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, arrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including, without limitation,
court decisions) now or hereafter in effect and affecting the rights and
remedies of creditors generally or providing for the relief of debtors, (ii) the
refusal of a particular court to grant equitable remedies, including, without
limitation, specific performance and injunctive relief, and (iii) general
principles of equity (regardless of whether such remedies are sought in a
proceeding in equity or at law).
(c) No Violation; No Consent. The execution and delivery of this Agreement
by Investor does not, and the performance of this Agreement by Investor will
not, (i) violate or conflict with any provision of the certificate of
incorporation or bylaws of Investor, (ii) conflict with or violate any
Applicable Law or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both
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<PAGE> 33
would become a default) under any provision of any contract or agreement of any
kind to which Investor is a party or by which Investor or any of its properties
are bound or affected. The execution, delivery and performance by Investor of
this Agreement and the other Transaction Documents will not require any notice
to, filing with, or the consent, approval or authorization of any Person or
Governmental Entity, except for such consents, approvals or authorizations a
failure of which to obtain or make, individually or in the aggregate would not
materially impair or delay the consummation of the transactions contemplated by
this Agreement.
(d) Litigation. There is no suit, action, proceeding or investigation,
either at law or in equity, or before any Governmental Entity now pending or, to
the knowledge of Investor, threatened against Investor, nor is there any
material judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Investor, that would, individually or in the
aggregate, materially impair the ability of Investor to effect the Closing.
(e) Brokers. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Investor.
(f) Available Funds. As of the Closing Date, Investor will have sufficient
funds available to complete the portion of the Equity Financing relating to
Investor and Ontario Teachers. As of the Closing Date, assuming consummation of
the Bridge Financing, the Company will have sufficient funds available to
satisfy its obligation to pay the Total Consideration, fund the cash payment of
the Closing Incentive Payments and related withholding taxes immediately after
the Closing pursuant to Section 2.5 and pay all expenses incurred by Investor in
connection with the transactions contemplated hereby.
(g) No Other Representations or Warranties. Except for the representations
and warranties contained in this Article 7, neither Investor nor any other
person makes any other express or implied representation or warranty on behalf
of Investor.
7.2 Company's Representation. The Company represents and warrants to each
of the Selling Stockholders that at and immediately following the Closing
(including the completion of the Recapitalization Financing), the Company will
be Solvent after giving effect to the redemption of the Redeemed Stock, the
Recapitalization Financing and any other transactions contemplated hereby on
such date or which would be otherwise taken into account in determining whether
the redemption of the Redeemed Stock or any of the other transactions
contemplated hereby were a fraudulent transfer or impermissible distribution
under Applicable Law.
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ARTICLE 8
COVENANTS OF SELLING STOCKHOLDERS
8.1 Access to Information and Documents. Prior to the Closing, the Selling
Stockholders will cause the Company to give to Investor and its respective
prospective lenders, and their respective agents and representatives (including,
but not limited to, accountants, lawyers, environmental consultants and
appraisers) access during normal working hours to any and all of the properties,
assets, books, records and other documents of the Company and the Company's
advisors and management as Investor may reasonably request, and the Company will
furnish to Investor such information and copies of such documents and records
pertaining to the Company as Investor shall reasonably request. All such
information and access shall be subject to the terms and conditions of the
letter agreement dated June 17, 1997 between Investor and the Company (the
"Confidentiality Agreement"). In connection with such access, Investor shall,
and shall cause its agents and representatives to, use all commercially
reasonable efforts to minimize any disruption of the Company. The Selling
Stockholders agree to cause the Company to perform under this Section 8.1 as may
be necessary.
8.2 Conduct of Business Pending Closing. From the date hereof until the
Closing, except with the prior written consent of Investor or as otherwise
contemplated by this Agreement, the Selling Stockholders will cause the Company
to:
(a) Use all commercially reasonable efforts to maintain itself at all
times as a corporate entity validly existing under the laws of the State of
Minnesota;
(b) Continue its practice of paying payables and collecting receivables
consistent with past practice;
(c) Use all commercially reasonable efforts to carry on its business and
operations consistent with past practice and will not permit the Company to
engage in any activity or transaction or make any commitment to purchase or
spend money other than in the ordinary course of its business;
(d) Not declare, authorize or pay any distribution or dividend to the
Selling Stockholders (other than (i) the distribution of Excess Cash prior to
the Closing Date, (ii)uthe related distribution, not to exceed $300,000, payable
to Messrs. Stinchfield and Ferguson pursuant to the Phantom Stock Agreements in
connection with the Excess Cash distribution referred to in clauseu(i) above,
and (iii) a distribution of the Company's right, title and interest in and to
those certain life insurance policies issued by Phoenix Home Life Mutual, policy
numbers 2585327 and 2243189, and that certain life insurance policy issued by
NALAC, policy number L-1204466, with the Principal Stockholder as the insured
party for each specified policy (collectively the "Life
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Insurance Policies")) and will not redeem, purchase or otherwise acquire, or
agree to redeem, purchase or otherwise acquire, any shares of its stock;
(e) Not materially increase any compensation, commission, bonus or
employee benefit to any director, officer, employee or independent contractor as
such;
(f) Use all commercially reasonable efforts to continue to carry all of
its existing insurance;
(g) Not sell, transfer or otherwise dispose of or pledge or otherwise
encumber, or obligate itself to sell, transfer or otherwise dispose of or pledge
or otherwise encumber, any material portion of its properties or assets;
(h) Not amend its articles of incorporation or bylaws (except as
contemplated by Investor);
(i) (i) file any Tax Returns and elections with respect to any liabilities
for Taxes of the Company or other matters relating to Taxes of the Company which
pursuant to Applicable Laws must be filed prior to the Closing Date; (ii)
promptly upon filing provide copies of any such Tax Returns or elections to
Investor; and (iii) not amend any Tax Return filed prior to the date hereof
without the prior consent of Investor, which consent shall not be unreasonably
withheld or delayed. The Company shall bear all of the expenses associated with
filing the Tax Returns described in this Section 8.2(i) and any Tax liability of
the Company in connection with such Tax Returns shall be accrued as a liability
on the Final Closing Balance Sheet;
(j) Not issue or sell, or authorize or propose the issuance or sale of,
additional shares of capital stock of any class (including Common Stock), or
securities convertible into or exchangeable for any such shares, or any rights,
warrants or options to acquire any such shares or other convertible securities
(other than pursuant to the Company Subscription Agreements);
(k) Not incur any debt, except in the ordinary course of business
consistent with past practice;
(l) Not enter into other material Commitments, or amend, supplement or
restate existing material Commitments; and
(m) Not agree to take any of the actions set forth in Sections 8.2(c)
through 8.2(e), 8.2(g), and 8.2(j) through 8.2(l), or agree not to take any of
the actions set forth in Sections 8.2(a), 8.2(b), 8.2(f), and 8.2(h) through
8.2(k).
8.3 Consents and Approvals. The Selling Stockholders and the Company,
respectively, shall use all commercially reasonable efforts to obtain prior to
the Closing all consents, authorizations and approvals of any Person required to
be
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obtained by the Selling Stockholders or the Company in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions provided for hereby.
8.4 Resignation of Officers and Directors. Prior to or at the Closing, the
Selling Stockholders will cause each officer and director of the Company (other
than those set forth on Schedule 8.4) to resign as an officer or director of the
Company effective at the Closing.
8.5 Conditions. The Selling Stockholders shall take, and shall cause the
Company to take, all commercially reasonable actions necessary or desirable to
cause the conditions set forth in Article 12 to be satisfied and to consummate
the transactions contemplated herein as soon as reasonably possible after the
satisfaction thereof (but in any event within three business days of such date).
8.6 No Negotiations. The Selling Stockholders shall not, and shall cause
the Company not to, directly or indirectly, through any officer, director, agent
or otherwise, solicit, initiate or encourage submission of any proposal or offer
from any person or entity (including any of its or their officers or employees)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion of the
assets of, or any equity interest in, the Company or other similar transaction
or business combination involving the Company, or participate in any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person or entity to
do or seek any of the foregoing. The Selling Stockholders shall, and shall cause
the Company to, promptly notify Investor if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made and shall
promptly provide Investor with such information regarding such proposal, offer,
inquiry or contact as Investor may request.
8.7 Environmental Matters.
(a) The Selling Stockholders shall cause the Company to allow Investor and
its representatives and agents access to the real property owned, leased or
operated by the Company as of the date hereof and all maintenance records,
licenses, permits, reports, certificates, correspondence with Governmental
Entities or other items relating to the construction, operation and
environmental condition of such real property or the business of the Company, as
such documentation may be kept in the ordinary course of business for the
purpose of reviewing and making photocopies of the same. The Selling
Stockholders shall furthermore cause the Company to make available for the
purpose of interviews with Investor and its representatives and agents such
employees and its representatives of the Company as may have knowledge useful in
environmental matters.
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(b) Investor or, after the Closing, the Company shall pay the expense of
performing any Phase I environmental audit and any Phase II environmental
testing (including, without limitation, soil borings, soil samples and ground
water samples), and preparing any written report in connection therewith.
8.8 Tax Matters.
(a) The Selling Stockholders shall prepare for filing the short period Tax
Return for the Company for the period from January 1, 1997 to and including the
day before the Closing Date and provide a copy of such return to the Company at
least 20 days before filing. The Company and the Selling Shareholders shall
review such return and shall attempt in good faith to resolve any disputes. If
the Company and the Selling Shareholders are unable to resolve such dispute
within ten (10) days, such issues shall be referred to the Independent
Accounting Firm for final determination. Pursuant to Section 9.7, the Company
shall provide reasonable access to the relevant portions of the Company's books
and records and personnel as may be required by the Selling Stockholders for the
purpose of preparing such Tax Returns.
(b) Investor acknowledges that the Company will claim all deductions
attributable to the payment of the Company's obligations with respect to the
Closing Incentive Payments shall be claimed for all Tax purposes on the short
period Tax Return of the Company ending on the day before the Closing Date;
provided, however, that in the event Investor provides written notice of its
objection to any such claimed deductions where the Closing Incentive Payment was
not delivered prior to the Closing Date, the Company shall not be required to
claim such deductions in such Tax Return unless the Selling Stockholders provide
the Company with (i) a reasoned opinion of counsel (which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel) providing, in
effect, that such deductions are properly claimed in such short period Tax
Return and (ii) an agreement to indemnify the Company in connection with such
deductions, reasonably satisfactory to the Company.
(c) After the Closing, but on or before the due date of the short period
return referred to in clause (a) above, the Selling Stockholders that are not
residents of the State of Minnesota shall deliver to the Company a copy of
Minnesota Form MW-4NR, Minnesota Withholding Exemption Certificate.
8.9 Recapitalization Accounting; Cooperation. The Selling Stockholders
agree to cooperate and take commercially reasonable action to ensure that the
transaction contemplated by this Agreement will be treated as a recapitalization
for financial accounting purposes.
8.10 Amended Articles of Incorporation and Bylaws. On the Closing Date,
the Selling Stockholders agree to cause the Company (a) to file the amended
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Articles of Incorporation, and (b) to adopt the amended Bylaws, each in the form
submitted by Investor.
8.11 [Left Blank Intentionally]
8.12 Closing Incentive Payments. At least one (1) day prior to the Closing
Date, the Company shall pay the Closing Incentive Payments in the amounts and to
the individuals set forth on Scheduleu8.12, other than the portion of the
Closing Incentive Payments that relates to the Company's 1997 Management
Recognition, Transition and Equity Bonus Plan, which shall be paid by the
Company in accordance with the terms and conditions of such Plan.
ARTICLE 9
COVENANTS OF INVESTOR
Investor covenants and agrees with the Selling Stockholders as follows:
9.1 Confidentiality. Investor shall, and shall use all commercially
reasonable efforts to cause its Affiliates, associates, employees, agents and
representatives to, (i) hold in strict confidence and not disclose to any person
any and all documents and information containing proprietary information or
trade secrets of the Selling Stockholders or the Company furnished to, obtained
by or learned by Investor in connection with this Agreement and the transactions
contemplated hereby ("Confidential Information") and (ii) refrain from using any
such Confidential Information for any personal advantage, except that Investor
shall be free to disclose and use all or any of such Confidential Information
which can be shown to have been (a) already in the possession of Investor
without restrictions of confidentiality at the time of disclosure to Investor;
(b) a matter of public knowledge other than as a result of any action or
omission by or on behalf of Investor; (c) published other than as a result of
any action or omission by or on behalf of Investor in any publication for public
distribution or filed as public information with any governmental authority; or
(d) lawfully obtained by Investor from a third person without restrictions of
confidentiality. The covenants of Investor contained in this Section 9.1 (i)
shall survive any termination of this Agreement prior to Closing, (ii) shall
survive the Closing with respect to Confidential Information of the Selling
Stockholders and (iii) shall terminate at the Closing with respect to
Confidential Information of the Company.
9.2 Consents and Approvals. Investor shall use all commercially reasonable
efforts to obtain prior to the Closing all consents, authorizations and
approvals of any Person required to be obtained by Investor in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions provided for hereby.
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9.3 No Unreasonable Interference. Prior to the Closing, Investor will not,
directly or indirectly, solicit the employees or customers of the Company.
9.4 Release of Directors. Prior to the Closing, the Company shall release,
effective as of the Closing, each director who shall have resigned as a director
of the Company pursuant to Section 8.4 from all liabilities and obligations as a
director, pursuant to a release in form identical to Exhibit 9.4 attached
hereto.
9.5 Tax Matters. Investor shall file, or cause to be filed, all Tax
Returns of the Company (a) for Tax periods which begin before the Closing Date
and end after the Closing Date, and (b) for Tax periods which begin after the
Closing Date. After the Closing Date, Investor may, to the extent permitted by
Applicable Laws, amend, modify or otherwise change any Tax Return of the Company
for any Tax period; provided, however, that except with respect to any
amendment, modification or other change required by Applicable Law, the
Principal Stockholder shall have the right to approve any amended, modified or
otherwise changed Tax Return of the Company for a Tax period ending on or before
the Closing Date or any change in tax accounting methods affecting any such
Return where an increase in the taxable income of the Company is reported on
such amended Tax Return, which approval may be withheld or granted by the
Principal Stockholder in his sole and absolute discretion. Investor shall cause
the Company to pay the accrued liabilities set forth on Schedule 9.5 within
seventy-four (74) days of the Closing Date to the extent such accrued
liabilities are included on the Final Closing Balance Sheet.
9.6 Conditions. Investor shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Article 11 to be
satisfied.
9.7 Books and Records. For a reasonable period of time after the Closing
Date (which for any tax-related matters shall mean at least seven (7) years
after the Closing Date), Investor will allow the Selling Stockholders and their
agents reasonable access to the relevant portions of the Company's books and
records and the Company's personnel for legitimate business reasons, such as the
preparation of tax returns or the defense of litigation. Without limiting the
generality of the foregoing, in connection with the short period Tax Return of
the Company that the Selling Stockholders will cause to be prepared, the Company
shall make available to the Selling Stockholders or their representatives the
working profit and loss statement prepared in connection with the Final Closing
Balance Sheets and all adjusting entries related thereto. Copies of such books
and records may be made in accordance with this section, at the cost of the
Selling Stockholders. The Selling Stockholders will not use and will hold in
confidence all confidential information identified as such by, and obtained
from, Investor and any of its officers, agents, representatives or employees;
provided, however, that information which (a) was in the public domain, (b) was
in fact known to the Selling Stockholders prior to disclosure by Investor or its
officers, agents, representatives or employees, or (c) becomes known to the
Selling Stockholders from or
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through a third party who has the legal right to disclose such information,
shall not be deemed to be confidential information.
9.8 WARN Act. After the Closing Date, all obligations to the employees or
former employees of the Company under the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Sections 2101, et seq., shall be the sole obligation
of the Company.
9.9 Recapitalization Accounting; Cooperation. Investor agrees to cooperate
and take commercially reasonable action to ensure that the transaction
contemplated by this Agreement will be treated as a recapitalization for
financial accounting purposes.
9.10 Financing. Investor agrees to use all commercially reasonable efforts
to obtain the Recapitalization Financing.
9.11 Payment of Liabilities. For a period of 180 days after the Closing
Date, the Company shall pay the liabilities and obligations of the Company
reflected on the Final Closing Balance Sheet in a manner not materially
inconsistent with the Company's past practices.
ARTICLE 10
GOVERNMENTAL CONSENTS
10.1 Consents and Approvals. Each of the parties hereto shall use
commercially reasonable efforts to (i) effect all necessary registrations,
filings, notifications and submissions of information required under Applicable
Laws to any Governmental Entity including, but not limited to, filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder (the "HSR Act"), (ii) obtain as promptly as
practicable all consents, authorizations, approvals and waivers required in
connection with the consummation of the transactions contemplated by this
Agreement under any Applicable Laws from any Governmental Entity, and (iii)
furnish to the other parties such necessary information and reasonable
assistance as such other parties may reasonably request in connection with the
foregoing.
ARTICLE 11
CONDITIONS TO SELLING STOCKHOLDERS' OBLIGATIONS
The obligations of the Selling Stockholders to cause the redemption of the
Redeemed Stock and otherwise consummate the Recapitalization is subject to the
fulfillment, or written waiver by the Selling Stockholders, prior to or at the
Closing of the following conditions:
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11.1 Investor Performance. All representations and warranties by Investor
contained in this Agreement shall be true and correct in all respects at and as
of the execution date of this Agreement and as of the Closing Date, as though
such representations and warranties were made at and as of the Closing Date
(unless limited by their term to a prior date), other than breaches of such
representations and warranties which would not reasonably be expected to have a
Material Adverse Effect. Investor shall have performed and complied with, in all
material respects, all covenants, obligations and agreements of this Agreement
to be performed and complied with by Investor at or before the Closing.
11.2 Consents and Approvals . The Selling Stockholders, the Company and
Investor shall have obtained all material consents, authorizations and approvals
under all statutes, laws, ordinances, regulations, rules, judgments, decrees and
orders of any Governmental Entity required to be obtained by the Selling
Stockholders or Investor, as the case may be, in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (including, without limitation, expiration or
termination of the waiting period applicable to the consummation of the
redemption of the Redeemed Stock under the HSR Act).
11.3 No Litigation. There shall not be threatened, instituted or pending
any action or proceeding before any Governmental Entity, (a)uchallenging or
seeking to make illegal, or to delay or otherwise directly or indirectly
restrain or prohibit, the consummation of the transactions contemplated hereby
or seeking to obtain material damages in connection with such transactions,
(b)useeking to prohibit direct or indirect ownership or operation by Investor of
all or a material portion of the business or assets of the Company, or to compel
Investor or any of its Affiliates or the Company to dispose of or to hold
separately all or a material portion of the business or assets of Investor and
its Affiliates or of the Company, as a result of the transactions contemplated
hereby, or (c)useeking to invalidate or render unenforceable any material
provision of this Agreement or any of the other Transaction Documents.
11.4 Consummation of Recapitalization. All of the conditions to closing in
favor of the Selling Stockholders or the Company set forth in the other
Transaction Documents shall have been satisfied or waived by the Selling
Stockholders or the Company, and Investor and its Affiliates shall have
performed in all material respects all of the covenants and agreements required
to be performed and complied with by them on or prior to the Closing Date under
the other Transaction Documents.
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ARTICLE 12
CONDITIONS TO OBLIGATIONS OF INVESTOR
The obligation of Investor to consummate the Recapitalization is subject
to the fulfillment, or written waiver by Investor, prior to or at the Closing of
the following conditions:
12.1 The Selling Stockholders' Performance. All representations and
warranties by the Selling Stockholders and the Principal Stockholder contained
in this Agreement shall be true and correct in all respects at and as of the
execution date of this Agreement and as of the Closing Date, as though such
representations and warranties were made at and as of the Closing Date (unless
limited by their term to a prior date), other than breaches of such
representations and warranties which would not reasonably be expected to have a
Material Adverse Effect. The Selling Stockholders shall have performed and
complied with, in all material respects, all covenants, obligations and
agreements of this Agreement to be performed and complied with by the Selling
Stockholders at or before the Closing.
12.2 Consents and Approvals. The Selling Stockholders, the Company and
Investor shall have obtained all consents, authorizations and approvals under
all statutes, laws, ordinances, regulations, rules, judgments, decrees and
orders of any Governmental Entity or of any other person required to be obtained
by the Selling Stockholders or Investor, as the case may be, in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby (including, without limitation,
expiration or termination of the waiting period applicable to the consummation
of the redemption of the Redeemed Stock under the HSR Act).
12.3 No Litigation. There shall not be threatened, instituted or pending
any action or proceeding before any Governmental Entity, (a)uchallenging or
seeking to make illegal, or to delay or otherwise directly or indirectly
restrain or prohibit, the consummation of the transactions contemplated hereby
or seeking to obtain material damages in connection with such transactions,
(b)useeking to prohibit direct or indirect ownership or operation by Investor of
all or a material portion of the business or assets of the Company, or to compel
Investor or any of its Affiliates or the Company to dispose of or to hold
separately all or a material portion of the business or assets of Investor and
its Affiliates or of the Company, as a result of the transactions contemplated
hereby, or (c)useeking to invalidate or render unenforceable any material
provision of this Agreement or any of the other Transaction Documents.
12.4 No Material Adverse Effect. There shall not have occurred, since the
date of this Agreement, any event, change or circumstance constituting a
Material Adverse Effect.
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12.5 Delivery of Documents. Investor shall have received from the Selling
Stockholders the documents described in Sections 5.2(a) through 5.2(n).
12.6 Financing Contingency. Investor shall have obtained or arranged for
(a) at least $38.8 million of equity financing in the Company from Investor,
Ontario Teachers and Senior Management pursuant to the Company Subscription
Agreements to partially finance the payment of the Total Consideration ("Equity
Financing"), (b) bridge financing of $80 million from Bankers Trust Company
pursuant to the terms of that certain Senior Credit Agreement dated as of the
Closing Date to finance the payment of the balance of the Total Consideration
and transaction fees and expenses ("Bridge Financing") (the Equity Financing and
the Bridge Financing shall be referred to collectively as the "Recapitalization
Financing").
12.7 Due Diligence. Investor shall have completed a due diligence
investigation of the business, affairs, assets, liabilities, historical
financial results, operations and prospects of the Company, and Investor shall
not have learned any information as a result of such investigation which in the
reasonable opinion of Investor is likely to have a Material Adverse Effect
(which material adverse information shall not include, but shall be in addition
to, any information disclosed prior to the execution and delivery of this
Agreement, including information set forth in detail in the Confidential
Memorandum prepared by Goldsmith, Agio, Helms and Company on behalf of the
Selling Stockholders, and information contained in this Agreement, including the
schedules hereto). This condition shall be deemed satisfied in full unless
Investor delivers written notice to the Selling Stockholders of the receipt of
such material adverse information in reasonable detail. In the event Investor
delivers to the Selling Stockholders such notice, this condition shall be deemed
satisfied in full if, within ten days of receiving such notice, the Selling
Stockholders shall have cured or prevented, to the reasonable satisfaction of
Investor, any such Material Adverse Effect or the underlying causes likely to
have such effect.
12.8 Consummation of Recapitalization. All of the conditions to closing in
favor of Investor set forth in the other Transaction Documents shall have been
satisfied or waived by Investor, and the Selling Stockholders, the Company and
their respective Affiliates shall have performed in all material respects all of
the covenants and agreements required to be performed and complied with by them
under the other Transaction Documents and the Recapitalization Documents.
ARTICLE 13
TERMINATION
13.1 Termination. Subject to Section 13.1(c), this Agreement may be
terminated at any time prior to the Closing as follows:
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(a) Either Investor or the Selling Stockholders may, without liability to
the other party, terminate this Agreement by notice to the other parties:
(i) if the Closing shall not have occurred on or before December 15,
1997;
(ii) subject to Section 10.1, if any court of competent jurisdiction
shall have issued a preliminary injunction which restrains or enjoins any of the
transactions contemplated hereby; provided, however, that no such termination
shall be permitted by either party unless it shall have complied with Section
10.1(b);
(iii) if any of the conditions precedent to the performance of such
party's obligations at the Closing shall not have been fulfilled; provided,
however, that the other party shall be allowed ten (10) days within which to
satisfy any such unfulfilled conditions precedent (other than the Selling
Stockholder's failure to deliver the Redeemed Stock in accordance with Section
5.2(a) or the Company's obligation to deliver the Closing Cash Payments in
accordance with Section 5.3(a), respectively, for which no grace period is
available).
(b) Investor and the Principal Stockholder may terminate this Agreement by
their mutual written consent.
(c) Notwithstanding any provision in this Article 13 to the contrary, a
party whose breach has prevented the Closing shall not have the right to
terminate this Agreement without the written consent of Investor in the case of
such breach by any Selling Stockholder, or the Company and the Selling
Stockholders in the case of such a breach by Investor.
13.2 Effect of Termination. If this Agreement is terminated, this
Agreement (except for Section 9.1, this Section 13.2 and Section 15.2 which
shall survive such termination), shall no longer be of any force or effect and
there shall be no liability on the part of any party or any of its directors,
officers, shareholders or agents except, in the case of termination because of a
default or breach resulting from the willful fault of another party, the
aggrieved party or parties may recover from the defaulting party the amount of
expenses incurred by such aggrieved party or parties in connection with this
Agreement and the transactions contemplated hereby which the aggrieved party or
parties would otherwise have to bear pursuant to Section 15.2. If this Agreement
shall be terminated, each party will (i) redeliver all documents, work papers
and other materials of any other party relating to this Agreement or the
transactions contemplated hereby, whether obtained before or after the execution
of this Agreement, to the party furnishing the same, and (ii) destroy all
documents, work papers and other materials developed by its accountants, agents
and employees in connection with the transactions contemplated hereby which
embody any proprietary information or trade secrets furnished by any party
hereto or deliver such documents, work papers and
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other materials to the party furnishing such proprietary information or trade
secrets or excise such proprietary information or trade secrets therefrom and
all information received by any party hereto with respect to the business of any
other party or any of its subsidiaries (other than information which is a matter
of public knowledge or which has heretofore been or is hereafter published in
any publication for public distribution or filed as public information with any
governmental authority) shall not at any time be used for any personal advantage
or disclosed by such party to any third person to the detriment of the party
furnishing such information.
ARTICLE 14
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
14.1 Survival of Representations and Warranties. All representations and
warranties contained in Article 6 (with respect to the Selling Stockholders) and
in Article 7 (with respect to Investor and the Company), and the indemnification
obligation of the parties with respect thereto, and all other indemnification
obligations of the parties hereunder, shall survive the Closing until May 21,
1999; provided, however, that (a) the representations and warranties set forth
in Sectionsu6.2(g) and 6.2(l) shall survive the Closing until thirty (30) days
after the expiration of the applicable statute of limitations, and (b) the
representations and warranties set forth in Sections 6.1(a), 6.1(b) and 6.2(a)
shall survive the Closing indefinitely.
14.2 The Selling Stockholders' Indemnification Obligations. Subject to the
terms and conditions of this Article 14 and the express limitations of Section
14.3, the Selling Stockholders agree to indemnify and hold the Company harmless
against any and all Damages resulting from or relating to:
(a) any breach of any representation or warranty of the Selling
Stockholders contained in this Agreement; provided that (i) any claim by
Investor for indemnification under this paragraph (a) must be made within the
survival period for said breach as provided for in Section 14.1 and no later,
and (ii) the Principal Stockholder shall be the sole Selling Stockholder liable
for any indemnification obligations resulting from or relating to any breach of
any representation or warranty of the Principal Stockholder contained in Section
6.2 of this Agreement; provided, the Principal Stockholder shall be jointly and
severally liable for the representations and warranties under Section 6.1, and
each Trust Stockholder shall be severally liable for their own representations
and warranties under Section 6.1;
(b) any breach of any covenant of the Selling Stockholders contained in
this Agreement;
(c) any liability or obligation of the Company specifically excluded from
the calculation of Estimated Closing Stockholders Equity and Final Stockholders
Equity pursuant to Section 3.3(a);
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and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification. The parties recognize that in order to structure the
transactions contemplated hereby as a recapitalization, Investor and certain
other investors (other than the Selling Stockholders) are acquiring less than
100% of the capital stock of the Company. The parties also recognize that a
breach of a representation, warranty or covenant of the Selling Stockholders may
not result in actual "Damages" suffered by the Company but would result in
actual "Damages" by a purchaser of 100% of the shares of capital stock of the
Company. Notwithstanding anything to the contrary contained herein or in any
Transaction Document, for purposes of the indemnification obligations under
Section 14.2, Damages suffered, sustained or incurred by the Company shall be
deemed to include those that would have been sustained by a purchaser of 100% of
the shares of capital stock of the Company for the sum of $129,200,000.
14.3 Limitations on the Selling Stockholders' Indemnification Obligations.
(a) The Selling Stockholders shall have no obligation to provide
indemnification pursuant to Section 14.2 except to the extent that the aggregate
amount of indemnification to which the Company, but for this Section 14.3,
otherwise shall have become entitled hereunder shall exceed $750,000 (the
"Selling Stockholders' Basket"), in which event the Selling Stockholders shall
be obligated, subject to the next succeeding sentence, to provide
indemnification only with respect to all amounts in excess of the Selling
Stockholders' Basket. Notwithstanding any language in this Section 14.3 to the
contrary, the Selling Stockholders' indemnification obligation for Damages (i)
pursuant to Section 14.2(b) or Section 14.2(c) or (ii) pursuant to Section
14.2(a), with respect to a breach of any representation or warranty contained in
Sections 6.1(a), 6.1(b), 6.2(a) or 6.2(u), shall not be subject to or limited by
the Selling Stockholders' Basket and instead shall be payable in full to the
Company, subject to the other limitations provided for in this Section 14.3.
(b) Subject to the exceptions described in this clause (b),
notwithstanding any other provision contained in this Agreement or the other
Transaction Documents to the contrary, in no event shall the Selling
Stockholders have any liability for indemnification pursuant to Section 14.2(a),
the other terms of this Agreement or the other Transaction Documents in an
aggregate amount in excess of Ten Million Dollars ($10,000,000); provided,
however, that the only exceptions to such liability limitation shall be any
claim for indemnification made by the Company with respect to (i) a breach of
the representations or warranties contained in Section 6.1(a), Section 6.1(b),
Sectionu6.2(a), Section 6.2(g)(vii), or Section 6.2(u)), and (ii) any action or
proceeding brought on the basis of fraud.
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(c) Notwithstanding anything contained in this Agreement to the contrary,
the Selling Stockholders shall have no liability for indemnification hereunder
with respect to any claim for indemnification (i) for bad debts and service
credits to the extent of the reserves therefor in the Final Closing Balance
Sheet, (ii) arising solely from a change by the Company in accounting principles
after the Closing, or (iii) arising from a change in law or regulation after the
Closing Date (including Taxes and Environmental Laws) having a retroactive
effect, it being agreed that if a retroactive tax law change results in a refund
to Selling Stockholders, they shall reimburse the Company for the amount of such
refund. Any indemnification to which the Company, but for the immediately
preceding sentence, otherwise shall have become entitled hereunder, shall not be
taken into account in calculating the Selling Stockholders' Basket.
(d) Notwithstanding any other provision herein to the contrary, (i)uthe
indemnification obligation of each Trust Stockholder to the Company hereunder
shall be determined on a several basis and shall be limited (A) with respect to
any individual Indemnifiable Claim, solely to each Trust Stockholder's
proportionate share of any Damage resulting from or relating to such Claim,
determined in accordance with the percentage interest of each Trust Stockholder
as set forth on Schedule 2.4, and (B) in the aggregate to each Trust
Stockholder's share of the Total Consideration (including the Earn-Out) payable
under this Agreement, and (ii)uthe indemnification obligation of the Principal
Stockholder shall be joint and several.
14.4 The Company's Indemnification Obligations. Subject to the terms and
conditions of this Article 14, the Company agrees to indemnify and hold the
Selling Stockholders harmless against any and all Damages, except as expressly
limited by the terms of Section 14.5, resulting from or relating to:
(a) any breach of representation or warranty of Investor contained in this
Agreement or of the Company contained in Section 7.2 of the Agreement; provided
that any claim by the Selling Stockholders for indemnification under this
paragraph (a) must be made no later than May 21, 1999;
(b) any breach of any covenant of Investor, or the Company that requires
action by the Company after the Closing, contained in this Agreement;
and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification.
14.5 Limitations on Indemnification Obligations of the Company. The
Company shall have no obligation to provide indemnification pursuant to Section
14.4 except to the extent that the aggregate amount of indemnification to which
the Selling Stockholders, but for this Section 14.5, otherwise shall have become
entitled hereunder shall exceed $750,000 (the "Company Basket"), in which event
the Company shall be
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<PAGE> 48
obligated, subject to the next succeeding sentence, to provide indemnification
only with respect to all amounts in excess of the Company Basket.
Notwithstanding anything contained in this Agreement to the contrary, in no
event shall the Company have any liability for indemnification pursuant to
Section 14.4 in an aggregate amount in excess of Ten Million Dollars
($10,000,000); provided, however, that the foregoing liability limitation shall
not apply to a breach of the Company's representations and warranties set forth
in Section 7.2. Notwithstanding any language in this Section 14.5 to the
contrary, indemnification for Damages resulting from or relating to the breach
of a covenant provided for in Section 14.4(b) shall not be subject to this
Section 14.5 for the purpose of calculating the Company Basket and instead shall
be payable in full to the Selling Stockholders, subject to the overall
limitation for all Damages provided for in this Section 14.5.
14.6 Procedure for Indemnification Claims. The respective indemnification
obligations of the Selling Stockholders and the Company pursuant to Sections
14.2 and 14.4 shall be conditioned upon compliance by the Selling Stockholders
and the Company with the following procedures for indemnification claims based
upon or arising out of any claim, action or proceeding by any person not a party
to this Agreement, provided, that except for compliance with the submission of a
claim within the survival period as provided for in Section 14.1 (which
requirement shall be absolute and unqualified), the failure of an Aggrieved
Party to comply with the procedural requirements of this Section 14.6 shall
result in the extinguishment of such Aggrieved Party's indemnification claim
only if and to the extent that the failure to comply results in prejudice to the
Indemnifying Party.
(a) If at any time a claim shall be made or threatened, or an action or
proceeding shall be commenced or threatened, against a party hereto (the
"Aggrieved Party") which could reasonably result in liability of the other party
(the "Indemnifying Party") under its indemnification obligations hereunder, the
Aggrieved Party shall give to the Indemnifying Party prompt notice of such
claim, action or proceeding. Such notice shall state the basis for the claim,
action or proceeding and provide a reasonable estimate of the amount thereof (to
the extent such amount is determinable at the time when such notice is given)
and shall permit the Indemnifying Party to assume the defense of any such claim,
action or proceeding (including any action or proceeding resulting from any such
claim).
(b) The Indemnifying Party may assume control of such a claim only if the
Indemnifying Party acknowledges unconditionally that it is liable to pay
indemnification hereunder for such a claim. The Aggrieved Party may participate,
at its expense, in the defense of such claim, action or proceeding provided that
the Indemnifying Party shall direct and control the defense of such claim,
action or proceeding. The Aggrieved Party agrees to cooperate and make available
to the Indemnified Party all books and records and such officers, employees and
agents of the Aggrieved Party as are reasonably necessary and useful in
connection with the defense.
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<PAGE> 49
The Indemnifying Party shall not, in the defense of such claim, action or
proceeding, consent to the entry of any judgment or award, or enter into any
settlement, except in either event with the prior consent of the Aggrieved
Party, which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Aggrieved Party of a release from all liability
in respect of such claim, action or proceeding.
(c) If the Indemnifying Party does not assume the defense of any such
claim within thirty (30) days of its tender, action or proceeding, the Aggrieved
Party may defend against such claim, action or proceeding in such manner as it
may deem appropriate. The Indemnifying Party agrees to cooperate and make
available to the Aggrieved Party all books and records and such officers,
employees and agents of the Indemnifying Party as are reasonably necessary and
useful in connection with the defense.
(d) In the event an Aggrieved Party or Indemnifying Party shall cooperate
in the defense or make available books, records, officers, employees or agents,
as required by the terms of paragraphs (b) and (c), respectively, of this
Section 14.6 the party to which such cooperation is provided shall pay the
out-of-pocket costs and expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
employees and agents reasonably incurred in connection with providing such
cooperation, but shall not be responsible to reimburse the party providing such
cooperation for such party's time or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers and employees in connection therewith.
14.7 Other Indemnification Provisions.
(a) The indemnification obligations of the Selling Stockholders and the
Company under this Section 14 shall constitute the sole and exclusive remedies
of Investor, the Company and the Selling Stockholders, respectively, with
respect to the matters described in Sections 14.2 and 14.4, respectively;
provided, however, that no party's remedies shall be so limited with respect to
any action or proceeding brought on the basis of fraud. Notwithstanding any
language to the contrary in this Section 14.7(a), a party shall not be precluded
from seeking specific performance of this Agreement to the extent such relief is
available under governing law.
(b) All amounts paid by the Indemnifying Party under this Article 14 shall
be treated as adjustments to the Total Consideration for all tax purposes.
(c) The amount of any indemnification to be paid under this Article 14
shall be computed after giving effect to any tax benefits actually realized by
the Aggrieved Party and any insurance proceeds actually received by the
Aggrieved Party,
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<PAGE> 50
after taking into account the tax consequences of the receipt of any indemnity
payment hereunder.
(d) Notwithstanding any provision herein to the contrary, to the extent
the Company shall become entitled to any indemnification pursuant to this
Article 14, the Company first must seek such indemnification from the Escrow
Deposit, until such time as the funds in the Escrow Deposit are exhausted.
(e) Notwithstanding any provision herein to the contrary, the Indemnifying
Party's obligation to indemnify the Aggrieved Party in connection with a breach
of any representation or warranty, and the amount of Damage to be indemnified,
shall be determined without regard to any materiality qualification set forth in
such representation or warranty.
ARTICLE 15
MISCELLANEOUS
15.1 Assurance of Further Action. Subject to the terms and conditions of
this Agreement, from time to time prior to or after the Closing, each of the
parties hereto agrees to use commercially reasonable efforts to take or cause to
be taking all action, to do or cause to be done, and to assist and cooperate
with the other party hereto in doing, all things necessary, proper or advisable
under Applicable Laws to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement, including,
but not limited to, (a) the satisfaction of the conditions precedent to the
obligations of any of the parties hereto; (b) the defending of any lawsuits or
other legal proceedings, whether judicial or administrative, challenging this
Agreement or the performance of the obligations hereunder or thereunder; and (c)
the execution and delivery of such instruments, and the taking of such other
actions as the other party hereto may reasonably require in order to carry out
the intent of this Agreement.
15.2 Expenses. Whether or not the Closing is consummated, except as
otherwise set forth in this Agreement, all fees and expenses incurred in
connection with the negotiation, preparation, execution and performance of this
Agreement (including without limitation fees and expenses of legal counsel,
accountants and other professionals) shall be paid by the party incurring such
expense. Without limiting the generality of the foregoing (a) Investor or, after
the Closing, the Company, shall bear all of the fees and expenses payable in
connection with the Recapitalization Financing including, without limitation,
the origination and other fees and expenses payable in connection with the
Bridge Financing, and (b) the Selling Stockholders shall bear all their own
expenses and all expenses of the Company in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, all brokers
commissions, fees and expenses and all attorneys fees and expenses incurred
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<PAGE> 51
by the Selling Stockholders or the Company in connection with this Agreement and
the transactions contemplated hereby (other than the Recapitalization
Financing).
15.3 Waiver. The parties hereto may by written agreement (i) extend the
time for or waive or modify the performance of any of the obligations or other
acts of the parties hereto or (ii) waive any inaccuracies in the representations
and warranties contained in this Agreement or in any document delivered pursuant
to this Agreement.
15.4 Notices. All notices, requests or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed first class certified mail postage prepaid addressed as follows: if to
the Principal Stockholder, to Jay F. Ecklund, Pier 66 Resort & Marina, 2301
Southeast 17th Street, Ft. Lauderdale, FL 33316, Attn: Starlight F-124 (with a
copy to Michael J. McDonnell, Esq., Dorsey & Whitney LLP, Pillsbury Center
South, 220 South Sixth Street, Minneapolis, MN 55402); if to the Trust
Stockholders, to Charles M. Thompson, Esq., P.O. Box 777, Pierre, South Dakota
57501, with a copy to Dorsey & Whitney, LLP, Attn: William J. Berens, Esq.,
Trustee, Pillsbury Center South, 220 South Sixth Street, Minneapolis, MN 55402;
if to Investor, to BT Capital Partners, Inc., Attn: Robert Marakovits, 130
Liberty Street, New York, NY 10006 (with a copy to O'Sullivan, Graev & Karabell,
LLP, Attn: John M. Scott, Esq., 30 Rockefeller Plaza, 41st Floor, New York, NY
10112); or to such other address as may have been furnished in writing to the
party giving the notice by the party to whom notice is to be given.
15.5 Entire Agreement. This Agreement embodies the entire agreement among
the parties and there have been and are no agreements, representations or
warranties, oral or written among the parties other than those set forth or
provided for in this Agreement. This Agreement may not be modified or changed,
in whole or in part, except by a supplemental agreement signed by each of the
parties.
15.6 Rights Under this Agreement; Nonassignability. This Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assignable by any party without the
prior written consent of the other parties; provided, however, that Investor may
assign all or any part of its rights under this Agreement and delegate all or
any part of its obligations under this Agreement to one or more corporations all
or substantially all of the capital stock or equity interests of which are owned
by Investor or an Affiliate of Investor, in which event all of the rights and
powers of Investor, and remedies available to it hereunder shall extend to and
be enforceable by each such corporation. Any such assignment and delegation
shall not release Investor from its obligations hereunder and Investor
guarantees to the Selling Stockholders the performance by any such assignee
corporation of its obligations hereunder and under the agreement of such
corporation referred to in the penultimate sentence of this Section 15.6. In the
event of any such assignment and delegation, the terms "Investor" and "party" as
used in this Agreement shall be deemed to refer to each such corporation where
reference is made to actions to
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<PAGE> 52
be taken pursuant to this Agreement and the transactions contemplated hereby and
shall be deemed to include both Investor and each such corporation where
appropriate. As a condition of the Closing, each such corporation shall execute
and deliver to the Selling Stockholders an agreement, in form and substance
satisfactory to the Selling Stockholders and its counsel, to be bound by the
terms of this Agreement, and irrevocably authorizing Investor to act for it in
all matters pertaining to this Agreement, and representing and warranting to the
Selling Stockholders as to the same matters, with appropriate modifications, set
forth in Section 7. The Selling Stockholders shall be required to deal, and give
notices to, and shall be fully protected in dealing only with, and giving
notices only to, Investor with respect to all matters pertaining to this
Agreement.
Nothing contained in this Agreement is intended to confer upon any person,
other than the parties to this Agreement and their respective permitted
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
15.7 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in the State of New York and
shall be construed without regard to (i) any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York and (ii) any presumption or other rule requiring the
construction of an agreement against the party causing it to be drafted. Any
legal action in a proceeding brought in accordance with the terms of Section
15.14 (including for enforcement of any arbitration award) shall be brought in
either Hennepin County, Minnesota, in the Courts of the State of Minnesota or of
the United States District Court for the District of Minnesota, or in New York,
New York, in the Courts of the State of New York or of the United States
District Court for the Southern District of New York (the aforementioned courts
shall be referred to collectively as the "Courts"), and, by execution and
delivery of this Agreement, the parties hereby accept for themselves and in
respect of their property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid Courts. The parties irrevocably consent to the
service of process out of any of the aforementioned Courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the parties at their addresses referenced in Section 15.4.
The parties hereby irrevocably waive any objection which they may now or
hereafter have to laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement or any of the other
Transaction Documents, brought in the Courts referred to above and hereby
further irrevocably waive and agree, to the extent permitted by Applicable Laws,
not to plead or claim in any such Court that any such action or proceeding
brought in any such Court has been brought in an inconvenient forum.
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<PAGE> 53
15.8 Publicity. Without consultation with the other party, no party to
this Agreement shall issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated
hereby, except for such press releases or other statements as the disclosing
party may reasonably determine are required by applicable law, including,
without limitation, a press release to be made by the Selling Stockholders in
connection with the execution of this Agreement.
15.9 Headings; References to Sections, Exhibits and Schedules. The
headings of the Sections, paragraphs and subparagraphs of this Agreement are
solely for convenience and reference and shall not limit or otherwise affect the
meaning of any of the terms or provisions of this Agreement. The references
herein to Sections, Exhibits and Schedules, unless otherwise indicated, are
references to sections of and exhibits and schedules to this Agreement.
15.10 Knowledge. When applied to any party to this Agreement, the term
"knowledge" and any derivatives thereof shall refer only to the actual knowledge
of the party (if a natural person), or in the case of the Selling Stockholders
and the Company, the persons set forth on Schedule 15.10 of the Disclosure
Schedule, after review of his or her official personnel files, and no
information known by any other employee, or any attorney, accountant or other
representative, of such party shall be imputed to such party.
15.11 [Left blank intentionally].
15.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but which together constitute
one and the same instrument.
15.13 Trustee's Liability. The parties hereto acknowledge and agree that
neither a Trustee of a Trust Stockholder nor any legal representative, heir,
successor or assignee (his "Legal Representatives") of such Trustee, shall have
any individual or personal liability for any liabilities or obligations under
this Agreement solely by reason of his acting as a trustee thereunder
(including, without limitation, for any breach of any representation, warranty,
covenant or agreement of any of the Trust Stockholder or any other part under
this Agreement), nor shall resort be had to the property of any such Trustee or
his Legal Representatives for the satisfaction of any such liability or
obligation. Each trustee of a Trust Stockholder shall execute this Agreement and
any other Transaction Documents on behalf of any and all trusts created or to be
created under the trust agreement pursuant to which such Trust Stockholder was
formed.
15.14 Dispute Resolution. The parties acknowledge and agree that they
shall cooperate in good faith to resolve promptly any disputes arising under or
related to this Agreement and the Transaction Documents. In the event the
parties are unable
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<PAGE> 54
to resolve any such dispute on an amicable basis, the parties agree that in some
situations arbitration can be a quick, effective and relatively inexpensive
method of dispute resolution. With these principles in mind, the parties agree
to the following:
(a) Disputes involving a claim or claims that, in total, seek less than
One Million Dollars ($1,000,000) in relief and do or does not involve a claim
for equitable relief, will be adjudicated exclusively through use of the
arbitration services provided by the American Arbitration Association ("AAA"),
using the AAA's Commercial Rules. Any such arbitration may be venued in
Minneapolis, Minnesota or New York, New York, at the discretion of the party
initiating such an arbitration. The parties further agree that any award granted
by the arbitrator shall not exceed One Million Dollars ($1,000,000), exclusive
of interest (if any). The parties agree that any attempt by the arbitrator to
exercise power other than as provided for herein, or to issue an award that
violates this Section 15.14(a), shall be null, void and unenforceable in any
forum.
(c) The parties agree that any dispute involving claims seeking monetary
relief exceeding One Million Dollars ($1,000,000), or any claims seeking any
form of equitable relief, in whole or in part, shall be adjudicated exclusively
in a court of competent jurisdiction pursuant to Section 15.7 and shall not be
subject to arbitration.
15.15 Action By Selling Stockholders. Each of the Selling Stockholders
hereby agrees that the Selling Stockholders, as a group, shall deal with the
Company, Investor and all other third parties in connection with all matters
arising under this Agreement and the other Transaction Documents in accordance
with the decision of the Selling Stockholder or Selling Stockholders who hold a
majority of the percentage interests of the Redeemed Stock set forth on Schedule
2.4 ("Majority Stockholder(s)"). Such Majority Stockholder(s) shall have the
power to act on behalf of all of the Selling Stockholders for all purposes,
including administering the post-closing adjustments, the indemnification
procedures and the Escrow Agreement, and the Company, Investor and such third
parties, respectively, shall be entitled to rely upon, and shall be fully
protected in relying upon, the power and authority of the Majority
Stockholder(s) to act on behalf of the Selling Stockholders.
15.16 Third Party Beneficiary. The Earn-Out Recipients are each intended
third party beneficiaries of this Agreement solely for purposes of
Sectionu3.1(b). Except as set forth in the preceding sentence, there are no
other third party beneficiaries of this Agreement.
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<PAGE> 55
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BT CAPITAL PARTNERS, INC.
By /s/ [ILLEGIBLE]
-------------------------------
Its Partner
----------------------------
---------------------------------
Jay F. Ecklund
JOHN F. ECKLUND 1995
IRREVOCABLE TRUST
By
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
By
-------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
<PAGE> 56
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BT CAPITAL PARTNERS, INC.
By
-------------------------------
-------------------------------
Its Partner
----------------------------
/s/ Jay F. Ecklund
---------------------------------
Jay F. Ecklund
JOHN F. ECKLUND 1995
IRREVOCABLE TRUST
By /s/ William J. Berens
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
By /s/ Charles M. Thompson
-------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
SHELDON MCKENSIE ECKLUND
1995 IRREVOCABLE TRUST
By /s/ William J. Berens
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
By /s/ Charles M. Thompson
-------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
<PAGE> 57
JOHN F. ECKLUND 1997
IRREVOCABLE TRUST
By /s/ William J. Berens
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
By /s/ Charles M. Thompson
-------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
SHELDON MCKENSIE ECKLUND
1997 IRREVOCABLE TRUST
By /s/ William J. Berens
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
By /s/ Charles M. Thompson
-------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
JAY F. ECKLUND 1997
IRREVOCABLE ANNUITY TRUST
By /s/ William J. Berens
-------------------------------
William J. Berens, as Trustee of
the Trust and not individually
<PAGE> 58
YOUNG AMERICA CORPORATION
By /s/ Charles D. Weil
-------------------------------
-------------------------------
Its President/CEO
----------------------------
<PAGE> 1
Exhibit 10.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") dated November 25, 1997 by and
among Young America Corporation, a Minnesota corporation (the "Company"), Jay F.
Ecklund, an individual resident of Florida, the John F. Ecklund 1995 Irrevocable
Trust, the Sheldon McKensie Ecklund 1995 Irrevocable Trust, the John F. Ecklund
1997 Irrevocable Trust, the Sheldon McKensie Ecklund 1997 Irrevocable Trust, and
the Jay F. Ecklund 1997 Irrevocable Annuity Trust (collectively, "Selling
Stockholders") and Norwest Bank Minnesota, National Association, a national
banking association principally located in Minneapolis, Minnesota ("Escrow
Agent").
RECITALS
WHEREAS, the Selling Stockholders have agreed to redeem certain of their
shares of the Company pursuant to the terms of that certain Recapitalization
Agreement dated November 25, 1997 (the "Recapitalization Agreement"); and
WHEREAS, Article 14 of the Recapitalization Agreement provides that the
Selling Shareholders will indemnify the Company, subject to the limitations
contained therein, against any and all Damages (as that term is defined in the
Recapitalization Agreement) of the Company resulting from a breach of any
representation, warranty or covenant made by the Selling Stockholders in the
Recapitalization Agreement; and
WHEREAS, pursuant to Section 4.1 of the Recapitalization Agreement, the
Company shall deposit Six Million Dollars ($6,000,000) into the escrow created
by this Escrow Agreement, which, together with any interest accrued in
accordance with the provisions of Section 6, shall be referred to as the "Escrow
Funds" and shall be a fund against which claims for indemnification by the
Company pursuant to Article 14 of the Recapitalization Agreement shall first be
made; and
WHEREAS, this Escrow Agreement, together with the Recapitalization
Agreement, shall govern the terms upon which the Escrow Agent may distribute the
Escrow Funds to the Company and the Selling Stockholders.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth above and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
<PAGE> 2
1. Appointment of Escrow Agent. The Escrow Agent is hereby appointed
escrow agent in accordance with the instructions set forth herein. The Escrow
Agent hereby acknowledges receipt of the Six Million Dollar ($6,000,000) escrow
deposit referred to above.
2. Claim Certificates. The Company, from time to time on or prior to May
21, 1999, may make a claim to some or all of the Escrow Funds (a "Claim") by
delivering to the Escrow Agent a certificate (a "Claim Certificate") signed by
the president or a vice president of the Company stating:
(a) That the Company is entitled to be indemnified under Article 14
of the Recapitalization Agreement;
(b) The reasons therefor, set forth in reasonable detail;
(c) The amount of the Claim by the Company, provided that where the
amount of the Claim is not a liquidated sum, the amount of the Claim shall be
the amount reasonably estimated by the Company; and
(d) That the Company has delivered a copy of such Claim Certificate
to the Selling Stockholders and their legal counsel and the date on which such
copy was delivered.
Whenever a Claim Certificate is delivered to the Escrow Agent, the Escrow Agent
shall thereupon promptly deliver a copy to each of the Selling Stockholders and
their legal counsel.
3. Disputed Claims. The Selling Stockholders, through the Sellers
Stockholders' Representative, may dispute any Claim in whole or in part
(hereinafter a "Disputed Claim"), by delivering to the Escrow Agent a notice (an
"Objection Notice") within twenty (20) days of receipt of the Claim Certificate
stating:
(a) That the Selling Stockholders dispute or object to such Claim;
(b) The reasons for such objection or dispute, set forth in
reasonable detail;
(c) That the Selling Stockholders have delivered a copy of the
Objection Notice to the Company and its legal counsel and the date on which such
copy was delivered; and
(d) The portion of the Claim set forth in the Claim Certificate, if
any, to which there is no dispute or objection, including the dollar amount of
such portion of the Claim (hereinafter, an "Undisputed Claim").
<PAGE> 3
Whenever there shall be delivered to the Escrow Agent an Objection Notice, the
Escrow Agent shall thereupon promptly deliver a copy to the Company and its
legal counsel.
4. Payment of Claims.
(a) If Escrow Agent receives from the Selling Stockholders'
Representative an Objection Notice which consents or agrees to all or part of a
Claim, the Escrow Agent shall thereupon promptly pay to the Company from the
Escrow Funds an amount equal to the aggregate amount of such Claim as specified
in such notice from the Selling Stockholders' Representative.
(b) If the Escrow Funds are not sufficient to pay in full any
amounts payable to the Company under the preceding Section 4.1, the Escrow Agent
shall pay to the Company such amount from the Escrow Funds as is available and
this escrow shall terminate.
5. Distribution of Escrow Funds. Escrow Agent shall not make any
distribution of Escrow Funds with respect to any Claim made by the Company
hereunder until:
(a) it receives the written consent or agreement from the Selling
Stockholders' Representative with respect to such distribution; or
(b) there is a Final Decision with respect to a Disputed Claim.
"Final Decision" means a final decision, order, judgment or decree of an
arbitrator or court (in accordance with Section 15.14 of the Recapitalization
Agreement) having jurisdiction which is either not subject to appeal or as to
which notice of appeal has not been timely filed or served.
6. Investment of Escrow Funds. The Escrow Funds shall be credited by
Escrow Agent and recorded in an escrow account. Escrow Agent shall be permitted,
and is hereby authorized to deposit, transfer, hold and invest all funds
received in this escrow, including principal and interest, in any one or more of
the investments set forth in Exhibit A during the period of this escrow in
accordance with such instructions and directions as may from time to time be
provided to the Escrow Agent in writing and signed by the Selling Stockholders'
Representative. In the event no instructions are given to Escrow Agent by the
Selling Stockholders' Representative as provided in the preceding sentence,
Escrow Agent shall hold and invest all funds received in this escrow, including
principal and interest, in the Norwest Advantage U.S. Government Funds, as such
investment fund may be renamed from time to time. Any interest received by
Escrow Agent with respect to the Escrow Funds, including reinvested interest,
shall become part of the Escrow Funds; provided, however, that such interest
shall be for the sole and exclusive benefit of the Company to the extent that
such
<PAGE> 4
interest is earned or accrued with respect to any amount which
(a) represents an Undisputed Claim under the provisions hereof (calculated from
the date specified in the applicable Claim Certificate as the date on which the
claim set forth therein arose) or (b) represents a Claim by the Company
sustained by a Final Decision (calculated from the date specified in such Final
Decision).
7. Security Interests in Escrow Fund. It is the intent of the Company and
the Selling Stockholders that each of their respective interests in the Escrow
Fund is merely a contingent right to payment from the Escrow Fund, and that
neither a voluntary or involuntary case under any applicable bankruptcy,
insolvency or similar law nor the appointment of a receiver, trustee, custodian
or similar official in respect of the Company or any Selling Stockholder (any of
which is referred to herein as a "Bankruptcy Event") shall increase its
respective interest in the Escrow Fund or affect, modify, convert or otherwise
change the contingent nature of its respective right to payment from the Escrow
Fund in accordance with the terms of this Escrow Agreement. Accordingly, in
order to assure the foregoing result even if it is determined by a court of
competent jurisdiction (whether or not in connection with a Bankruptcy Event)
that the Company or any Selling Stockholder has an interest in the Escrow Fund
that is greater than a contingent right of payment from the Escrow Fund payable
only in accordance with the provisions of Sections 4 and 5 hereof, the parties
agree as follows:
(a) The Company hereby grants (effective as of the date hereof) the
Selling Stockholders a first priority security interest in, and hereby pledges
and assigns to the Selling Stockholders, all of its right, title and interest in
the Escrow Fund to secure the Selling Stockholders' rights and the Company's
obligations hereunder. The Escrow Agent hereby agrees to act as bailee and
possessory agent on behalf of the Selling Stockholders in respect of the Selling
Stockholders' security interest in the Company's rights to the Escrow Fund. The
Escrow Agent shall, upon receipt of indemnification satisfactory to it from the
Selling Stockholders for its fees and expenses incurred in connection with
taking such actions, take all actions as may be reasonably requested in writing
of it by the Selling Stockholders' Representative to further perfect or maintain
the security interest created by the Company hereunder in the Escrow Fund. Such
security interest shall automatically be released with respect to any funds
properly distributed from the Escrow Fund pursuant to the terms of this
Agreement; and
(b) each Selling Stockholder hereby grants (effective as of the date
hereof) the Company a first priority security interest in, and hereby pledges
and assigns to the Company, all of his, or its right, title and interest in the
Escrow Fund to secure the Company's rights in such Selling Stockholder's
obligations hereunder. The Escrow Agent hereby agrees to act as bailee and
possessory agent on behalf of the Company in respect of the Company's security
interest in such Selling Stockholder's rights to the Escrow Fund. The Escrow
Agent shall, upon receipt of indemnification satisfactory to it from the Company
for its fees and expenses incurred in connection with taking such
<PAGE> 5
actions, take all actions as may be reasonably requested in writing of it by the
Company to further perfect or maintain the security interest created by such
Selling Stockholder hereunder in the Escrow Fund. Such security interest shall
automatically be released with respect to any funds properly distributed from
the Escrow Fund pursuant to the terms of this Agreement.
The parties hereto agree and acknowledge that the establishment and maintenance
of the Escrow Fund hereunder is intended to constitute possession of the Escrow
Fund for the purposes of perfecting the security interests therein created by
this Section 7.
8. Notices. All notices (including Objection Notices), certificates
(including Claim Certificates), payment, and distributions required or permitted
to be given or delivered hereunder shall be deemed to have been properly given
or delivered to the following addresses, if delivered in person, or, if mailed,
on the second business day following the date when mailed by registered or
certified mail, postage prepaid and addressed as follows:
If to Company: Young America Corporation
c/o BT Capital Partners, Inc.
Attn: Robert Marakovits
130 Liberty Street
New York, NY 10006
(212) 250-8085
With a copy to: O'Sullivan, Graev & Karabell, LLP
Attn: John M. Scott, Esq.
30 Rockefeller Plaza, 41st Floor
New York, NY 10112
(212) 408-2485
If to Selling Jay F. Ecklund
Stockholders: Pier 66 Resort & Marina
2301 Southeast 17th Street
Ft. Lauderdale, FL 33316
Attn: Starlight B-32
(305) 767-8998
John F. Ecklund 1995 Irrevocable Trust
c/o Dorsey & Whitney LLP
Attn: William J. Berens, Esq., Trustee
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2621
<PAGE> 6
Sheldon McKensie Ecklund 1995 Irrevocable Trust
c/o Dorsey & Whitney LLP
Attn: William J. Berens, Esq., Trustee
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2621
John F. Ecklund 1997 Irrevocable Trust
c/o Dorsey & Whitney LLP
Attn: William J. Berens, Esq., Trustee
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2621
Sheldon McKensie Ecklund 1997 Irrevocable Trust
c/o Dorsey & Whitney LLP
Attn: William J. Berens, Esq., Trustee
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2621
Jay F. Ecklund 1997 Irrevocable Annuity Trust
c/o Dorsey & Whitney LLP
Attn: William J. Berens, Esq., Trustee
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2621
With a copy to: Dorsey & Whitney LLP
Attn: Michael J. McDonnell, Esq.
220 South Sixth Street
Minneapolis, MN 55402
(612) 340-2808
If to Escrow Agent: Norwest Bank Minnesota, N.A.
Corporate Trust Department
Attn: Michelle Healy
Sixth Street & Marquette Avenue
Minneapolis, Minnesota 55479-0069
(612) 667-2245
or to such other address as a party shall designate by written notice to all
other parties to this Escrow Agreement.
<PAGE> 7
9. Reliance. Escrow Agent may act upon any instrument or other writing
believed by it in good faith to be genuine and to be signed or presented by the
proper person or persons and shall not be liable in connection with the
performance by it of its duties pursuant to the provisions hereof, except for
its own willful default or gross negligence. The Company and the Selling
Stockholders shall, jointly and severally, indemnify and save harmless the
Escrow Agent for all losses, costs, and expenses which may be incurred by it
without negligence or bad faith on the part of the Escrow Agent, arising out of
or in connection with its entering into this Escrow Agreement and carrying out
its duties hereunder.
10. Termination of Escrow. Unless earlier terminated pursuant to Section
4.2, on May 24, 1999, all of the Escrow Funds held by the Escrow Agent pursuant
to the terms of this Escrow Agreement, less an amount equal to one-hundred fifty
percent (150%) of the Disputed Claims amount, shall be paid by Escrow Agent to
the Selling Stockholders; provided, said payment shall be made on a prorated
basis directly to the following or their respective heirs, personal
representatives, successors or assigns, as the case may be:
<TABLE>
<CAPTION>
Percentage Amount
-----------------
<S> <C>
Jay F. Ecklund: 68.089%
John F. Ecklund 1995 Irrevocable Trust: 3.773%
Sheldon McKensie Ecklund 1995 Irrevocable Trust: 3.773%
John F. Ecklund 1997 Irrevocable Trust: 0.461%
Sheldon McKensie Ecklund 1997 Irrevocable Trust: 0.461%
Jay F. Ecklund 1997 Irrevocable Annuity Trust: 3.941%
Charles D. Weil: 15%
Frederick H. Stinchfield: 2.375%
David Ferguson: 2.125%
</TABLE>
Upon settlement of all Disputed Claims, this escrow shall terminate, and all
remaining Escrow Funds held by the Escrow Agent shall be paid by the Escrow
Agent on a prorated basis directly to the aforementioned or their respective
heirs, personal representatives, successors or assigns, as the case may be, in
accordance with such settlement. For the purposes of this Section 10, the
address for payments, if any, to be made to Charles D. Weil, Frederick H.
Stinchfield and David Ferguson shall be care of the Company.
11. Fees and Expenses. The Escrow Agent shall be entitled to compensation
for its services as stated in the fee schedule attached hereto as Exhibit A,
which compensation shall be paid one-half by the Selling Stockholders and
one-half by the Company. The fee agreed upon for the services rendered hereunder
is intended as full compensation for the Escrow Agent's services as contemplated
by this Escrow Agreement; provided, however, that in the event that the
conditions for the disbursement of funds under this Escrow Agreement are not
fulfilled, or the Escrow
<PAGE> 8
Agent renders any material service not contemplated in this Escrow Agreement or
there is any assignment of interest in the subject matter of this Escrow
Agreement, or any material modification hereof, or if any material controversy
arises hereunder, or the Escrow Agent is made a party to any litigation
pertaining to this Escrow Agreement, or the subject matter hereof, then the
Escrow Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs and expenses, including reasonable attorneys' fees,
occasioned by any delay, controversy, litigation or event, and the same shall be
recoverable one-half from the Selling Stockholders and one-half from the
Company.
12. Indemnification of Escrow Agent. The Company and the Selling
Stockholders both jointly and severally hereby indemnify and holds harmless the
Escrow Agent from and against, any and all loss, liability, cost, damage and
expense, including, without limitation, reasonable counsel fees, which the
Escrow Agent may suffer or incur by reason of any action, claim or proceeding
brought against the Escrow Agent arising out of or relating in any way to this
Escrow Agreement or any transaction to which this Escrow Agreement relates
unless such action, claim or proceeding is the result of the willful misconduct
or gross negligence of the Escrow Agent. The Escrow Agent may consult counsel in
respect of any question arising under this Escrow Agreement and the Escrow Agent
shall not be liable for any action taken or omitted in good faith upon advice of
such counsel.
13. Acceptance of Appointment . Norwest Bank Minnesota, National
Association hereby agrees to act as the Escrow Agent under this Escrow
Agreement. The Escrow Agent shall have no duty to enforce any provision hereof
requiring performance by any other party hereunder.
14. Counterparts. This Escrow Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
15. Resignation. The Escrow Agent may resign upon 30-days advance written
notice to the parties. If a successor escrow agent is not appointed by the
mutual agreement of the Company and the Selling Stockholders within the 30-day
period following such notice, the Escrow Agent may petition any court of
competent jurisdiction to name a successor escrow agent. Notwithstanding any
language to the contrary, until such time as a successor escrow agent is
appointed by mutual agreement of the Company and the Selling Stockholders or
named by a court of competent jurisdiction pursuant to this Section 14, the
Escrow Agent shall continue to serve as escrow agent under this Escrow
Agreement.
16. Governing Law. This Escrow Agreement shall be construed, performed,
and enforced in accordance with, and governed by, the internal laws of the State
of New York, without giving effect to the principles of conflict of laws
thereof. Each party hereby consents to the personal jurisdiction and venue of
any (a) Minnesota state court
<PAGE> 9
or United States District Court of Minnesota venued in Hennepin County,
Minnesota, or (b) New York state court or United States District Court for the
Southern District of New York venued in Manhattan.
17. Amendments. This Escrow Agreement may be amended to modified, and any
of the terms, covenants, representations, warranties, or conditions hereof may
be waived, only by a written instrument executed by the parties, or in the case
of a waiver, by the party waiving compliance. Any waiver by any party of any
condition, or of the breach of any provision, term, covenant, representation, or
warranty contained in this Escrow Agreement, in any one or more instances, shall
not be deemed to be nor construed as further or continuing waiver of any such
conditions, or of the breach of any other provision, term, covenant,
representation, or warranty of this Escrow Agreement.
18. Section Headings. The section headings in this Escrow Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Escrow Agreement.
19. Tax Reporting. For federal and state income tax purposes, all interest
earned on the Escrow Funds shall be considered the currently reportable income
of the party who receives the distribution with respect thereto. In the case
such interest shall be considered currently reportable income of the Selling
Stockholders, said interest amounts shall be allocated pro rata to those persons
and trusts and in those amounts as described in Section 10. The Escrow Agent
annually shall file all information returns with the Internal Revenue Service
and other governmental authorities documenting such interest income. The tax
identification numbers of the parties are as follows:
The Company: Tax ID 41-0983697
BT Capital Partners: Tax ID 13-2725387
Jay F. Ecklund: SSN ###-##-####
Sheldon M. Ecklund 1995 Irrevocable Trust: Tax ID # 41-6399468
John F. Ecklund 1995 Irrevocable Trust: Tax ID # 41-6399467
Sheldon M. Ecklund 1997 Irrevocable Trust: Tax ID # 41-6432727
John F. Ecklund 1997 Irrevocable Trust: Tax ID # 41-6432726
Jay F Ecklund 1997 Irrevocable Annuity Trust: Tax ID # 41-6432728
Charles D. Weil: SSN ###-##-####
<PAGE> 10
Frederick H. Stinchfield: SSN ###-##-####
David Ferguson: SSN ###-##-####
20. Severability. In the event that any part of this Escrow Agreement is
declared by any court or other judicial or administrative body to be null, void,
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Escrow Agreement shall remain
in full force and effect.
21. Action By Selling Stockholders. Each of the Selling Stockholders
hereby agrees that the Selling Stockholders, as a group, shall deal with the
Company and all other third parties in connection with all matters arising under
this Escrow Agreement in accordance with the decision of the Selling Stockholder
or Selling Stockholders who hold a majority of the percentage interests of the
Redeemed Stock set forth on Schedule 2.4 of the Recapitalization Agreement
("Majority Stockholder(s)"). Such Majority Stockholder(s) shall be designated
the "Selling Stockholders' Representative" under this Escrow Agreement and shall
have the power to act on behalf of all of the Selling Stockholders for all
purposes under this Escrow Agreement, including its indemnification procedures,
and the Company and such third parties, respectively, shall be entitled to rely
upon, and shall be fully protected in relying upon, the power and authority of
the Selling Stockholders' Representative to act on behalf of the Selling
Stockholders.
22. Third Party Beneficiaries. Charles D. Weil, Frederick H. Stinchfield
and David Ferguson are intended third party beneficiaries of this Agreement for
the purposes of Sections 10 and 19.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be signed the day and year first above written.
BT CAPITAL PARTNERS, INC.
By
----------------------------
----------------------------
Its
----------------------------
YOUNG AMERICA CORPORATION
By /s/ Charles D. Weil
----------------------------
----------------------------
Its President
----------------------------
/s/ Jay F. Ecklund
------------------------------
JAY F. ECKLUND
JOHN F. ECKLUND 1995
IRREVOCABLE TRUST
By /s/ William J. Berens
----------------------------
William J. Berens, as Trustee of the
Trust and not individually
By /s/ Charles M. Thompson
----------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
<PAGE> 12
SHELDON MCKENSIE ECKLUND
1995 IRREVOCABLE TRUST
By /s/ William J. Berens
----------------------------
William J. Berens, as Trustee of the
Trust and not individually
By /s/ Charles M. Thompson
----------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
JOHN F. ECKLUND 1997
IRREVOCABLE TRUST
By /s/ William J. Berens
----------------------------
William J. Berens, as Trustee of the
Trust and not individually
By /s/ Charles M. Thompson
----------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
SHELDON MCKENSIE ECKLUND
1997 IRREVOCABLE TRUST
By /s/ William J. Berens
----------------------------
William J. Berens, as Trustee of the
Trust and not individually
By /s/ Charles M. Thompson
----------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
<PAGE> 13
JAY F. ECKLUND 1997
IRREVOCABLE ANNUITY TRUST
By /s/ William J. Berens
----------------------------
William J. Berens, as Trustee of the
Trust and not individually
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Curtis D. Schwegman
----------------------------
CURTIS D. SCHWEGMAN
----------------------------
Its Assistant Vice President
----------------------------
<PAGE> 1
Exhibit 10.3
PUT OPTION AGREEMENT
THIS PUT OPTION AGREEMENT ("Agreement") is made and entered into as
of this 25th day of November, 1997 by and between Young America Corporation, a
Minnesota corporation (the "Company") and Jay F. Ecklund, an individual resident
of the State of Florida.
WHEREAS, the Company and Ecklund are parties to that certain
Recapitalization Agreement (the "Recapitalization Agreement") of even date
herewith between Jay F. Ecklund, the John F. Ecklund 1995 Irrevocable Trust, the
Sheldon McKensie Ecklund 1995 Irrevocable Trust, the John F. Ecklund 1997
Irrevocable Trust, the Sheldon McKensie Ecklund 1997 Irrevocable Trust, the Jay
F. Ecklund 1997 Irrevocable Annuity Trust, and BT Capital Partners, Inc.; and
WHEREAS, the Company and Ecklund are parties to that certain
Stockholders' Agreement of even date herewith relating to the 134,400 shares of
the Class A common stock in the Company owned by Ecklund (the "Shares"); and
WHEREAS, the Company and Ecklund have agreed that Ecklund shall have
the right to cause the Company to redeem all or a portion of the Shares at such
time and under such circumstances as are set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Grant of Put Option. At any time after the fifth anniversary of
date of this Agreement, Ecklund shall have the right, subject to the prior
exercise by other stockholders of their rights pursuant to Section 6 of the
Stockholders' Agreement of even date herewith between the Company, Ecklund and
certain other persons named therein ("Stockholders' Agreement") exercisable by
written notice delivered to the Company (a "Put Notice") to cause the Company,
subject to state law, to redeem all or any portion of the Shares (the "Put
Shares"). The specific number of Shares that shall constitute the Put Shares
shall be at the sole discretion of Ecklund, and the Company shall be obligated
to redeem the number of Shares specified in the Put Notice; provided, however,
that the Company shall not be obligated to redeem the Put Shares if the Company
is then in default of a payment obligation under any indebtedness for borrowed
money ("Debt") or if such redemption would result in a default under the Debt,
it being acknowledged that the Company shall redeem the Put Shares to the
maximum extent permitted under the Debt and as soon as possible thereunder.
2. Manner of Exercise. The Put Notice shall state (a) the number of
Shares Ecklund proposes to cause the Company to redeem, and (b) the proposed
date of the Put Option closing ("Put Option Closing Date"), which date must be
at least sixty
<PAGE> 2
(60) days after the date the Put Option Notice is given to the Company ("Put
Option Notice Date").
3. Redemption Price. For a thirty (30) day period after the Put
Option Notice Date, the Company and Ecklund shall negotiate in good faith to
determine the redemption price of the Put Shares, which shall equal the Fair
Market Value (as hereinafter defined) of such Shares. During such period, the
Company shall permit Ecklund and his representatives to have reasonable access
during normal business hours to the Company's accounting records, including data
and information on which the Company's financial statements, balance sheets and
cash flows are based, and to the Company's employees and/or representative. In
the event the Company and Ecklund are unable to agree upon the Fair Market Value
of the Put Shares within such period, either party shall have the right to
retain an independent, nationally recognized appraisal firm agreeable to both
parties ("Appraisal Firm") to determine the Fair Market Value of the Put Shares
as of the Put Option Notice Date. In the event the parties fail to agree upon an
appraisal firm within ninety (90) days of the Put Option Notice Date, either
party shall have the right to bring an action at law to have an independent,
nationally recognized appraisal firm appointed by the court. The Appraisal Firm
shall complete its appraisal and deliver a written report thereof, detailing the
determinations made pursuant to this Agreement, to each of Ecklund and the
Company as soon as practicable. The parties hereto acknowledge and agree that
such appraisal shall be binding on the parties hereto and shall conclusively
determine the Fair Market Value of the Put Shares. Seventy-five percent (75%) of
the costs and expenses of such appraisal shall be borne by the party whose
proposed appraisal submitted to the Appraisal Firm was further from the final
appraisal made by such Appraisal Firm and 25% of such costs and expenses shall
be borne by the other party. For the purposes of this Agreement, "Fair Market
Value" shall mean the amount at which the Put Shares would change hands between
a willing buyer and a willing seller, each having reasonable knowledge of all
relevant facts and neither being under any compulsion to act, without regard to
any discount for lack of marketability or minority interest associated with the
Put Shares.
4. Payment Terms. The Fair Market Value of the Put Shares shall be
paid by the Company to Ecklund in cash on the earlier of (i) fifteen (15) days
after the parties reach agreement regarding the Fair Market Value, or (ii) three
(3) days after delivery of the Appraisal Firm's report regarding the Fair Market
Value of the Put Shares. The closing of any redemption and sale contemplated by
this Agreement shall take place at the principal office of the Company, or such
other place as may be mutually agreed upon by the parties. At the closing,
Ecklund shall execute and deliver to the Company the share certificates
evidencing the Put Shares, duly endorsed for transfer to Company or accompanied
by stock powers duly endorsed in blank.
5. Notices. All notices, requests or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed first class certified mail postage prepaid addressed as follows: if to
Ecklund,, to Jay F. Ecklund, Pier 66 Resort & Marina, 2301 Southeast 17th
Street, Ft. Lauderdale, FL 33316,
<PAGE> 3
Attn: Starlight F-124 (with a copy to Michael J. McDonnell, Esq., Dorsey &
Whitney LLP, Pillsbury Center South, 220 South Sixth Street, Minneapolis, MN
55402); if to the Company, to Young America Corporation, c/o BT Capital
Partners, Inc., Attn: Robert Marakovits, 130 Liberty Street, New York, NY 10006
(with a copy to O'Sullivan, Graev & Karabell, LLP, Attn: John M. Scott, Esq., 30
Rockefeller Plaza, 41st Floor, New York, NY 10112); or to such other address as
may have been furnished in writing to the party giving the notice by the party
to whom notice is to be given.
6. Waiver. The parties hereto may by written agreement (i) extend
the time for or waive or modify the performance of any of the obligations or
other acts of the parties hereto or (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement.
7. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in the State of New York and shall be construed without
regard to (i) any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York and
(ii) any presumption or other rule requiring the construction of an agreement
against the party causing it to be drafted.
8. Assignment. In the event Ecklund transfers all or any portion of
the Shares to any Affiliate (or such term as defined in the Stockholders'
Agreement), Ecklund's rights hereunder shall be assigned to any such Affiliate.
9. Termination. This Agreement shall terminate upon a Qualified
Public Offering (as defined in the Stockholders' Agreement); in which event
Ecklund shall be granted by the Company on terms and subject to limitations
consistent with those set forth in the Registration Rights Agreement entered
into by the Company on the date hereof, one demand registration right and
unlimited piggyback registration rights.
YOUNG AMERICA CORPORATION
By /s/ Charles D. Weil
-----------------------------
Its President
--------------------------
/s/ Jay F. Ecklund
--------------------------------
Jay F. Ecklund
3
<PAGE> 1
Exhibit 10.4
- --------------------------------------------------------------------------------
YOUNG AMERICA CORPORATION
-----------------------------
STOCK PURCHASE AGREEMENT
-----------------------------
Dated as of November 25, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
STOCK PURCHASE AGREEMENT
dated as of November 25, 1997, between
YOUNG AMERICA CORPORATION, a Minnesota
corporation (the "Company"), and BT
CAPITAL PARTNERS, INC. (the "Investor").
The parties are entering into this Agreement to provide for the Company's
issuance and sale of shares of its capital stock to the Investor and to set
forth certain other agreements between them.
ACCORDINGLY, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
AUTHORIZATION, ISSUANCE AND SALE OF SHARES; CLOSING AND
DELIVERIES AT CLOSING.
1.1. Authorization.
The Company has authorized the issuance and sale to the Investor, upon the
terms and subject to the conditions set forth in this Agreement, of 1,029,445
shares (the "Shares") consisting of 586,561 shares of Class A Stock, $1.00 par
value, of the Company (the "Class A Common Stock"), and 442,884 shares of Class
B Common Stock, $1.00 par value of the Company (the "Class B Common Stock") (the
Class A Common Stock, the Class B Common Stock and the Class C Stock, $1.00 par
value, of the Company are sometimes collectively referred to herein as the
"Common Stock"). The powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations,
and restrictions, of each class of Common Stock are set forth in the Amendment
and Restatement of the Articles of Incorporation of the Company (the "Restated
Articles") attached hereto as Exhibit A. A copy of the Company's by-laws as in
effect on the date hereof (the "By-laws") is attached hereto as Exhibit B.
1.2. Issuance and Sale of Shares.
At the Closing (defined below), subject to the terms and conditions hereof
and in reliance upon the representations and warranties and agreements contained
herein, the Company will issue and sell to the Investor, and the Investor will
purchase from the Company, that number of shares of Class A Common Stock and
Class B Common Stock set forth opposite the name of the
<PAGE> 3
Investor under columns (A) and (B) on Schedule I at a price of approximately
$21.764 per Share.
1.3. Closing.
The closing of the transactions contemplated hereby (the "Closing") will
take place simultaneously with the execution and delivery of this Agreement. The
Closing shall take place at the offices of Dorsey & Whitney, Pillsbury Center
South, 220 South 6th Street, Minneapolis, Minnesota.
1.4. Deliveries at the Closing.
At the Closing:
(a) the Company shall deliver to the Investor appropriate stock
certificates representing the shares of Class A Common Stock and the shares of
Class B Common Stock, as applicable, being acquired by the Investor;
(b) the Investor shall make a wire transfer to an account designated by
the Company of an amount equal to the aggregate purchase price for the Shares
being purchased by the Investor as set forth opposite the name of the Investor
under column (C) on Schedule I.
(c) there shall be delivered to the Company and the Investor the
respective certificates and other documents required to be delivered to them
under Article IV and Article V hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor as follows:
2.1. Authorization; Enforceability.
The Company has full power and authority to execute and deliver this
Agreement and the Related Agreements to which it is a party. The execution and
delivery by the Company of this Agreement and the Related Agreements and the
performance of the obligations of the Company contained herein and therein have
been duly authorized by all requisite corporate action of the Company, and this
Agreement, and the Related Agreements to which the Company is a party,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar Laws now or hereafter in effect
-2-
<PAGE> 4
relating to creditors' rights and subject to general principles of equity.
"Related Agreements" has the meaning given to such term in the Stockholders'
Agreement dated the date hereof among the Company, the Investor, and the other
parties named therein (the "Stockholders' Agreement"), a copy of which is
attached hereto as Exhibit C. "Laws" means all United States federal, state and
local laws, rules, regulations, statutes, ordinances, and all orders, judgments,
injunctions, decrees and writs of any court, administrative agency or other
governmental body.
2.2. No Conflict.
(a) The execution and delivery by the Company of this Agreement and the
Related Agreements to which it is a party, its consummation of the transactions
contemplated hereby and thereby, and its compliance with the provisions hereof
and thereof, will not (a) violate or conflict with the Restated Articles or the
By-laws of the Company, (b) violate, conflict with, or give rise to any right of
termination, cancellation, or acceleration under any agreement, lease, security,
license, permit, or instrument to which the Company or any subsidiary of the
Company is a party, or to which they or any of their assets are subject, (c)
result in the imposition of any Encumbrance on any asset of the Company or any
subsidiary, other than the restrictions set forth in the Stockholders'
Agreement, or (d) violate or conflict with any Laws. "Encumbrance" means any
security interest, mortgage, lien, pledge, charge, easement, reservation,
restriction, or similar right of any third party.
2.3. No Consent or Approval Required.
No consent, approval or authorization of, or declaration to or filing
with, any Person is required to be made or obtained by the Company or any
subsidiary for the valid authorization, execution and delivery by the Company of
this Agreement or for the consummation of the transactions contemplated by this
Agreement and the Related Agreements or for the valid authorization, issuance
and delivery of the Shares. As used herein, "Person" shall be construed broadly
and shall include an individual, a partnership, a corporation, an association, a
joint stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision hereof or as disclosed on Schedule 2.5(c).
2.4. Offering Exemption.
Based on the truth and accuracy of the investment representations made by
the Investor in this Agreement and on the representations made in a similar
stock purchase agreement dated the date hereof between the Company and Ontario
Teachers' Pension Plan Board, the offering, sale, and issuance of the Shares are
exempt from registration under the Securities Act of 1933, as
-3-
<PAGE> 5
amended ("Securities Act") and the rules and regulations promulgated thereunder
and qualification under applicable state securities and "blue sky" Laws. The
Company has made or will make all requisite filings and has taken or will take
all action necessary to comply with such state securities or "blue sky" Laws in
connection with the offering, sale and issuance of the Shares.
2.5. Capitalization.
(a) The authorized capital stock of the Company consists of 6,000,000
shares of Common Stock, of which 3,000,000 shares are designated Class A Common
Stock, 1,500,000 shares are designated Class B Common Stock and 1,500,000 shares
are designated Class C Common Stock. Immediately after the Closing, (i)
1,304,389 shares of Class A Common Stock will be issued and outstanding, (ii)
442,884 shares of Class B Common Stock will be issued and outstanding, (iii)
172,727 shares of Class C Common Stock will be issued and outstanding, (iv)
338,824 shares of Class C Common Stock will be reserved for future issuance to
executive employees of the Company pursuant to an option plan to be approved by
the Board of Directors of the Company, which option plan will have terms
substantially similar to those set forth in the term sheet attached hereto as
Exhibit D and (v) 615,611 shares of Class A Common Stock will be reserved for
future issuance upon conversion of the Class B Common Stock and the Class C
Common Stock. Immediately after the Closing, all such issued and outstanding
shares of capital stock of the Company will be duly authorized and validly
issued and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof. All shares of Class A Common Stock currently
reserved for future issuance will, when issued and delivered, be duly authorized
and validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof.
(b) Schedule 2.5(b) sets forth, as of the time immediately following the
Closing, (i) the name of each record holder of outstanding shares of capital
stock of the Company, (ii) the number of such shares (detailed for each type or
class of shares) held by each such holder, (iii) stock options of the Company
and the number and class of shares of capital stock of the Company subject to
the stock options held by each such holder, (iv) outstanding warrants of the
Company and the number and class of shares of capital stock of the Company
subject to the warrants held by each such holder, (v) the total number of shares
of capital stock of the Company, on a fully diluted basis, held by each such
holder, and (vi) the percentage ownership interest, on a fully diluted basis, of
each such holder.
(c) Except as set forth in paragraph (a) or (b) above or as disclosed on
Schedule 2.5(c), immediately after the Closing, there will be no outstanding (i)
securities convertible into or exchangeable for shares of capital stock of the
Company, (ii) options, warrants or other rights to purchase or otherwise
-4-
<PAGE> 6
acquire from the Company shares of such capital stock, or securities convertible
into or exchangeable for shares of such capital stock, or (iii) other than the
Related Agreements, contracts, agreements or commitments relating to the
issuance, repurchase or redemption by the Company of any shares of such capital
stock, any such convertible or exchangeable securities, or any such options,
warrants or other rights. Except as set forth in the Stockholders' Agreement or
as disclosed on Schedule 2.5(c), there are no voting trusts, voting agreements,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of the Company to which the Company or, to the
Company's knowledge, any of its stockholders is a party. Except for the rights
granted under the Registration Rights Agreement dated the date hereof among the
Company, the Investor and the other parties named therein (the "Registration
Rights Agreement"), a copy of which is attached hereto as Exhibit E, or as
disclosed on Schedule 2.5(c), no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities (including
debt securities) of the Company.
2.6. Small Business Concern.
The Company is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations promulgated thereunder (the
"SBIC Act"), including Title 13, Code of Federal Regulations, ss.121.301. The
information set forth in the Small Business Administration Forms 480, 652 and
Section A of Form 1031 regarding the Company and delivered in accordance with
Section 4.6 hereof, is true and complete. Neither the Company nor any subsidiary
of the Company presently engages in, and shall not hereafter engage in, any
activities, nor shall the Company or any subsidiary use directly or indirectly
the proceeds from the sale of the Shares for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the SBIC Act.
2.7. Recapitalization Agreement.
The representations and warranties set within Section 6.2 of the
Recapitalization Agreement dated as of the date of Closing among the Company and
the other parties named therein (the "Recapitalization Agreement") (a copy of
which representations and warranties are attached hereto as Schedule 2.7) are
hereby incorporated by reference and the Company hereby expressly restates such
representations and warranties as its own. Except as set forth on Schedule 2.7
hereto, all of the representations and warranties contained in the
Recapitalization Agreement (including the exhibits and schedules attached
thereto) are true and correct in all material respects and the terms of the
Recapitalization Agreement have not been revised or amended.
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<PAGE> 7
2.8. Solvency.
At and immediately following the consummation of this Agreement and the
Related Agreements, and taking into account the transactions contemplated hereby
and thereby, the Company will be Solvent (as such term is defined within the
Recapitalization Agreement).
2.9. Brokers.
Except as set forth on Schedule 2.9, the Company has no fees or other
obligations payable to any broker, finder or similar person in connection with
this Agreement or any of the transactions contemplated by this Agreement or the
Related Agreements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants to the Company as follows:
3.1. Authorization; Enforceability.
The Investor has full power and authority to execute and deliver this
Agreement and the Related Agreements to which it is a party. The execution and
delivery by the Investor of this Agreement and the Related Agreements and the
performance of the obligations of the Investor contained herein and therein have
been duly authorized by all requisite action on the part of the Investor, and
this Agreement, and the Related Agreements to which the Investor is a party,
constitute legal, valid and binding obligations of the Investor, enforceable
against the Investor in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights and subject to general principles of equity.
3.2. No Conflict.
The execution and delivery by the Investor of this Agreement and the
Related Agreements to which it is a party, its consummation of the transactions
contemplated hereby and thereby, and its compliance with the provisions hereof
and thereof, will not (i) violate any provision of any document or other
instrument governing its creation or operation, such as its charter, by-laws,
trust agreement or partnership agreement, including any amendments thereto, (ii)
violate, conflict with or constitute (with notice or lapse of time or both) a
default under, or give
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<PAGE> 8
rise to any right of termination, cancellation or acceleration, under, or result
in the creation of any Encumbrance upon the Investor's properties or assets
pursuant to, the terms, conditions or provisions of any note, bond, lease,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Investor is a party or by which the Investor or any of the Investor's
properties or assets are bound, or (iii) violate any provision of Law statute,
rule, regulation, order, judgment, award, writ, injunction or decree applicable
to the Investor or any of the Investor's properties or assets.
3.3. No Consent or Approval Required.
No permit, authorization, consent or approval of or by, or notification of
or filing with, any Person is required to be made or obtained by the Investor in
connection with the Investor's valid authorization, execution, delivery and
performance of this Agreement and the Related Agreements to which it is a party,
other than those permits, authorizations, consents, approvals, notifications or
filings which have been or will timely be obtained or made, as the case may be.
3.4. Investment Representations.
(a) The Investor understands that (i) the Shares have not been registered
under the Securities Act or registered or qualified under applicable state
securities laws by reason of their issuance by the Company in a transaction
exempt from the registration and qualification requirements of the Securities
Act and applicable state securities laws, and (ii) the Shares issued to the
Investor must be held by the Investor indefinitely unless a subsequent
disposition hereof is registered or qualified under the Securities Act and
applicable state securities laws or is exempt from such registration or
qualification.
(b) The Investor further understands that, with respect to the Shares, the
exemption from registration afforded by Rule 144 (the provisions of which are
known to the Investor) promulgated under the Securities Act depends on the
satisfaction of various conditions, and that, if applicable, Rule 144 may only
afford the basis for sales only in limited amounts.
(c) The Investor will not transfer the Shares acquired by it hereunder,
except in compliance with this Agreement and the Stockholders' Agreement.
(d) The Investor is acquiring the Shares to be purchased by it hereunder
for its own account, for investment and not with a view to the distribution
thereof within the meaning of the Securities Act.
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<PAGE> 9
(e) The Investor has not employed any broker or finder or similar person
in connection with the transactions contemplated by this Agreement.
(f) The Investor is an "accredited investor" (as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act).
(g) The Investor has such knowledge and experience in financial and
business matters that it is capable of evaluating the risks and merits of its
investment in the Shares.
(h) The Investor further understands that this Agreement is made with the
Investor in reliance upon its representations to the Company contained in this
Section 3.4.
ARTICLE IV
CONDITIONS TO THE INVESTOR'S OBLIGATIONS.
The obligation of the Investor to consummate the transactions provided in
Article I hereof is subject to the following conditions precedent:
4.1. Corporate Proceedings.
All corporate and other proceedings to be taken on the part of the Company
and all waivers, consents, approvals, qualifications and/or registrations
required to be obtained or effected in connection with the execution, delivery
and performance by the Company of this Agreement and the transactions
contemplated hereby, including, but not limited to, the issuance, sale and
delivery by the Company of the Shares, shall have been taken, obtained or
effected (except for the filing of any notice subsequent to such Closing which
may be required under applicable state securities laws which, if required, shall
be filed on a timely basis as may be so required), and all documents incident
thereto shall be satisfactory in form and substance to the Investor.
4.2. Related Agreements; Performance.
The Investor shall be satisfied, in its sole discretion, that (i) the
Related Agreements shall have been duly executed and delivered by each of the
Company and the other parties thereto and (ii) that the Company is able to
perform its obligations under each of the Related Agreements (including, without
limitation, payment of the $1,125,000 transaction fee due the Investor
simultaneous with the Closing).
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<PAGE> 10
4.3. Consents and Approvals.
The Investor shall have received from the Company or its subsidiaries, as
the case may be, duly executed copies of all consents and approvals required to
be obtained in connection with the Related Agreements, in each case in form and
substance reasonably satisfactory to the Investor. In addition to the consents
and approvals referred to in the foregoing sentence, all consents,
authorizations, orders or approvals of, and filings or registrations with, any
governmental authority which are required for or in connection with the
execution and delivery by each of the parties to this Agreement and the
agreements referred to in the foregoing sentence, to which each of them is or
will be a party and the consummation of the transactions contemplated thereby
shall have been obtained or made and shall be in full force and effect at and as
of the Closing.
4.4. Expenses.
The Company shall have paid all of the Investor's expenses relating to
this Agreement, including the reasonable fees and expenses of special counsel to
the Investor.
4.5. SBA Forms.
The Company shall have executed each of the Small Business Administration
forms referenced in Section 2.6 and the Investor shall have received copies of
such executed forms.
4.6. Opinions; Officer's Certificate.
The Investor shall have received (i) an opinion of counsel from Dorsey &
Whitney LLP, counsel to the Company, in the form of Exhibit F hereto and (ii) a
certificate, executed by a duly authorized officer of the Company, that the
conditions set forth in this Section 4 have been satisfied.
ARTICLE V
CONDITIONS OF OBLIGATIONS OF THE COMPANY.
The obligation of the Company to consummate the transactions provided in
Article I hereof is subject to the satisfaction of the following conditions
precedent:
5.1. Payment.
The Investor shall have delivered to the Company the consideration for the
Shares purchased by the Investor pursuant
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<PAGE> 11
to this Agreement as set forth opposite the name of the Investor under column
(C) on Schedule I.
5.2. Related Agreements.
The Related Agreements shall have been duly executed and delivered by the
Investor (as applicable) and the other parties thereto.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.1. Survival.
The representations and warranties of the parties set forth herein shall
survive the Closing until May 24, 1999. All statements contained in any
certificate or other instrument delivered by the Company pursuant to this
Agreement shall constitute representations and warranties by the Company under
this Agreement.
6.2. Indemnification.
(a) The Company shall indemnify, defend and hold the Investor harmless
from and against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including legal and accounting fees and
expenses), arising from (i) the breach of any of the representations or
warranties of the Company herein made to such Person and (ii) the breach or
nonperformance of any of the covenants or agreements made herein by the Company.
(b) The Investor shall defend and hold the Company harmless from and
against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including legal and accounting fees and expenses),
arising from (i) the breach of any of the representations or warranties of the
Investor herein made to the Company and (ii) the breach or nonperformance of any
of the covenants or agreements made herein by the Investor.
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<PAGE> 12
ARTICLE VII
MISCELLANEOUS.
7.1. Assignment.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
Anything contained herein to the contrary notwithstanding, unless otherwise
expressly provided in this Agreement, neither this Agreement nor any right or
obligation hereunder of any party may be assigned or delegated without the prior
written consent of the other parties hereto; provided, however, that the
Investor may assign this Agreement or its rights or obligations hereunder to any
of its Affiliates or to each Person to whom or which the Investor transferred
his, her or its Shares in a Permitted Transfer ("Affiliates" and "Permitted
Transfer" are defined in the Stockholders' Agreement) without the prior written
consent of any other party hereto.
7.2. Entire Agreement.
This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
and contemporaneous arrangements or understandings with respect thereto.
7.3. Notices.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given (a) when delivered personally to the
recipient, (b) one business day after being sent by reputable overnight courier
(charges prepaid) (regardless of whether the recipient refuses to accept
delivery), (c) five business days after being sent to the recipient by certified
or registered mail, return receipt requested and postage prepaid (regardless of
whether the recipient refuses to accept delivery) or (d) when sent to the
recipient by facsimile (followed promptly by personal, courier or certified or
registered mail delivery). Deliveries should be directed as follows:
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<PAGE> 13
If to the Company, to:
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Telephone: (212) 250-8412
Telecopy: (212) 250-7651
Attention: Richard Gersten;
if to the Investor to the address of the
Investor set forth on Schedule I:
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
Attention: John M. Scott
7.4. Amendments.
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to a written instrument executed by the Company and the
Investor.
7.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
7.6. Governing Law; Jurisdiction; Venue; Process.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in the State of New York and shall be construed without regard to (i) any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York and (ii) any presumption or other
rule requiring the construction of an agreement against the party causing it to
be drafted. Any legal action in a proceeding brought in accordance with this
Section shall be brought in either Hennepin County, Minnesota, in the courts of
the State of Minnesota or of the United States District Court for the District
of Minnesota, or in New York, New
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<PAGE> 14
York, in the courts of the State of New York or of the United States District
Court for the Southern District of New York, and by execution and delivery of
this Agreement, the parties hereby accept for themselves and in respect of their
property, generally and unconditionally, the exclusive jurisdiction of the
aforesaid courts. The parties hereby irrevocably waive any objection which they
may now or hereafter have to laying of venue of any actions or proceedings
arising out of or in connection with this Agreement or any Related Agreement,
brought in the courts referred to above and hereby further irrevocably waive and
agree, not to plead or claim in any such court that any such action or
proceeding has been brought in an inconvenient forum. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful service
of process against them, without necessity for service by any other means
provided by statute or rule of court.
7.7. Waivers.
Any condition to a party's obligations hereunder may only be waived in
writing by such party. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
****
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<PAGE> 15
IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase
Agreement to be executed as of the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
----------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title:
<PAGE> 16
Schedule I
<TABLE>
<CAPTION>
(A) (B) (C)
Name Class A Class B Aggregate
Investor Common Stock Common Stock Purchase Price
- -------- ------------ ------------ --------------
<S> <C> <C> <C>
BT Capital Partners, Inc. 586,561 442,884 $22,404,936
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Fax: (212) 250-7651
Tel.: (212) 250-8412
Attention: Richard Gersten
</TABLE>
<PAGE> 1
Exhibit 10.5
- --------------------------------------------------------------------------------
YOUNG AMERICA CORPORATION
-----------------------------
STOCK PURCHASE AGREEMENT
-----------------------------
Dated as of November 25, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
STOCK PURCHASE AGREEMENT
dated as of November 25, 1997, between
YOUNG AMERICA CORPORATION, a Minnesota
corporation (the "Company"), and ONTARIO
TEACHERS' PENSION PLAN BOARD (the
"Investor").
The parties are entering into this Agreement to provide for the Company's
issuance and sale of shares of its capital stock to the Investor and to set
forth certain other agreements between them.
ACCORDINGLY, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
AUTHORIZATION, ISSUANCE AND SALE OF SHARES; CLOSING AND
DELIVERIES AT CLOSING.
1.1. Authorization.
The Company has authorized the issuance and sale to the Investor, upon the
terms and subject to the conditions set forth in this Agreement, of 551,000
shares (the "Shares") consisting of 378,273 shares of Class A Stock, $1.00 par
value, of the Company (the "Class A Common Stock"), and 172,727 shares of Class
C Common Stock, $1.00 par value of the Company (the "Class C Common Stock") (the
Class A Common Stock, the Class C Common Stock and the Class B Stock, $1.00 par
value, of the Company are sometimes collectively referred to herein as the
"Common Stock"). The powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations,
and restrictions, of each class of Common Stock are set forth in the Amendment
and Restatement of the Articles of Incorporation of the Company (the "Restated
Articles") attached hereto as Exhibit A. A copy of the Company's by-laws as in
effect on the date hereof (the "By-laws") is attached hereto as Exhibit B.
1.2. Issuance and Sale of Shares.
At the Closing (defined below), subject to the terms and conditions hereof
and in reliance upon the representations and warranties and agreements contained
herein, the Company will issue and sell to the Investor, and the Investor will
purchase from the Company, that number of shares of Class A Common Stock and
Class C Common Stock set forth opposite the name of the
<PAGE> 3
Investor under columns (A) and (B) on Schedule I at a price of approximately
$21.764 per Share.
1.3. Closing.
The closing of the transactions contemplated hereby (the "Closing") will
take place simultaneously with the execution and delivery of this Agreement. The
Closing shall take place at the offices of Dorsey & Whitney, Pillsbury Center
South, 220 South 6th Street, Minneapolis, Minnesota.
1.4. Deliveries at the Closing.
At the Closing:
(a) the Company shall deliver to the Investor appropriate stock
certificates representing the shares of Class A Common Stock and the shares of
Class C Common Stock, as applicable, being acquired by the Investor;
(b) the Investor shall make a wire transfer to an account designated by
the Company of an amount equal to the aggregate purchase price for the Shares
being purchased by the Investor as set forth opposite the name of the Investor
under column (C) on Schedule I.
(c) there shall be delivered to the Company and the Investor the
respective certificates and other documents required to be delivered to them
under Article IV and Article V hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor as follows:
2.1. Authorization; Enforceability.
The Company has full power and authority to execute and deliver this
Agreement and the Related Agreements to which it is a party. The execution and
delivery by the Company of this Agreement and the Related Agreements and the
performance of the obligations of the Company contained herein and therein have
been duly authorized by all requisite corporate action of the Company, and this
Agreement, and the Related Agreements to which the Company is a party,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar Laws now or hereafter in effect
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<PAGE> 4
relating to creditors' rights and subject to general principles of equity.
"Related Agreements" has the meaning given to such term in the Stockholders'
Agreement dated the date hereof among the Company, the Investor, and the other
parties named therein (the "Stockholders' Agreement"), a copy of which is
attached hereto as Exhibit C. "Laws" means all United States federal, state and
local laws, rules, regulations, statutes, ordinances, and all orders, judgments,
injunctions, decrees and writs of any court, administrative agency or other
governmental body.
2.2. No Conflict.
(a) The execution and delivery by the Company of this Agreement and the
Related Agreements to which it is a party, its consummation of the transactions
contemplated hereby and thereby, and its compliance with the provisions hereof
and thereof, will not (a) violate or conflict with the Restated Articles or the
By-laws of the Company, (b) violate, conflict with, or give rise to any right of
termination, cancellation, or acceleration under any agreement, lease, security,
license, permit, or instrument to which the Company or any subsidiary of the
Company is a party, or to which they or any of their assets are subject, (c)
result in the imposition of any Encumbrance on any asset of the Company or any
subsidiary, other than the restrictions set forth in the Stockholders'
Agreement, or (d) violate or conflict with any Laws. "Encumbrance" means any
security interest, mortgage, lien, pledge, charge, easement, reservation,
restriction, or similar right of any third party.
2.3. No Consent or Approval Required.
No consent, approval or authorization of, or declaration to or filing
with, any Person is required to be made or obtained by the Company or any
subsidiary for the valid authorization, execution and delivery by the Company of
this Agreement or for the consummation of the transactions contemplated by this
Agreement and the Related Agreements or for the valid authorization, issuance
and delivery of the Shares. As used herein, "Person" shall be construed broadly
and shall include an individual, a partnership, a corporation, an association, a
joint stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision hereof or as disclosed on Schedule 2.5(c)
2.4. Offering Exemption.
Based on the truth and accuracy of the investment representations made by
the Investor in this Agreement and on the representations made in a similar
stock purchase agreement dated the date hereof between the Company and BT
Capital Partners, Inc., the offering, sale, and issuance of the Shares are
exempt from registration under the Securities Act of 1933, as amended
-3-
<PAGE> 5
("Securities Act") and the rules and regulations promulgated thereunder and
qualification under applicable state securities and "blue sky" Laws. The Company
has made or will make all requisite filings and has taken or will take all
action necessary to comply with such state securities or "blue sky" Laws in
connection with the offering, sale and issuance of the Shares.
2.5. Capitalization.
(a) The authorized capital stock of the Company consists of 6,000,000
shares of Common Stock, of which 3,000,000 shares are designated Class A Common
Stock, 1,500,000 shares are designated Class B Common Stock and 1,500,000 shares
are designated Class C Common Stock. Immediately after the Closing, (i)
1,304,389 shares of Class A Common Stock will be issued and outstanding, (ii)
442,884 shares of Class B Common Stock will be issued and outstanding, (iii)
172,727 shares of Class C Common Stock will be issued and outstanding, (iv)
338,824 shares of Class C Common Stock will be reserved for future issuance to
executive employees of the Company pursuant to an option plan to be approved by
the Board of Directors of the Company, which option plan will have terms
substantially similar to those set forth in the term sheet attached hereto as
Exhibit D and (v) 615,611 shares of Class A Common Stock will be reserved for
future issuance upon conversion of the Class B Common Stock and the Class C
Common Stock. Immediately after the Closing, all such issued and outstanding
shares of capital stock of the Company will be duly authorized and validly
issued and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof. All shares of Class A Common Stock currently
reserved for future issuance will, when issued and delivered, be duly authorized
and validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof.
(b) Schedule 2.5(b) sets forth, as of the time immediately following the
Closing, (i) the name of each record holder of outstanding shares of capital
stock of the Company, (ii) the number of such shares (detailed for each type or
class of shares) held by each such holder, (iii) stock options of the Company
and the number and class of shares of capital stock of the Company subject to
the stock options held by each such holder, (iv) outstanding warrants of the
Company and the number and class of shares of capital stock of the Company
subject to the warrants held by each such holder, (v) the total number of shares
of capital stock of the Company, on a fully diluted basis, held by each such
holder, and (vi) the percentage ownership interest, on a fully diluted basis, of
each such holder.
(c) Except as set forth in paragraph (a) or (b) above or as disclosed on
Schedule 2.5(c), immediately after the Closing, there will be no outstanding (i)
securities convertible into or exchangeable for shares of capital stock of the
Company, (ii) options, warrants or other rights to purchase or otherwise
-4-
<PAGE> 6
acquire from the Company shares of such capital stock, or securities convertible
into or exchangeable for shares of such capital stock, or (iii) other than the
Related Agreements, contracts, agreements or commitments relating to the
issuance, repurchase or redemption by the Company of any shares of such capital
stock, any such convertible or exchangeable securities, or any such options,
warrants or other rights. Except as set forth in the Stockholders' Agreement or
as disclosed on Schedule 2.5(c), there are no voting trusts, voting agreements,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of the Company to which the Company or, to the
Company's knowledge, any of its stockholders is a party. Except for the rights
granted under the Registration Rights Agreement dated the date hereof among the
Company, the Investor and the other parties named therein (the "Registration
Rights Agreement"), a copy of which is attached hereto as Exhibit E, or as
disclosed on Schedule 2.5(c), no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities (including
debt securities) of the Company.
2.6. Small Business Concern.
The Company is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations promulgated thereunder (the
"SBIC Act"), including Title 13, Code of Federal Regulations, ss.121.301. The
information set forth in the Small Business Administration Forms 480, 652 and
Section A of Form 1031 regarding the Company and delivered in accordance with
Section 4.6 hereof, is true and complete. Neither the Company nor any subsidiary
of the Company presently engages in, and shall not hereafter engage in, any
activities, nor shall the Company or any subsidiary use directly or indirectly
the proceeds from the sale of the Shares for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the SBIC Act.
2.7. Recapitalization Agreement.
The representations and warranties set within Section 6.2 of the
Recapitalization Agreement dated as of the date of Closing among the Company and
the other parties named therein (the "Recapitalization Agreement") (a copy of
which representations and warranties are attached hereto as Schedule 2.7) are
hereby incorporated by reference and the Company hereby expressly restates such
representations and warranties as its own. Except as set forth on Schedule 2.7
hereto, all of the representations and warranties contained in the
Recapitalization Agreement (including the exhibits and schedules attached
thereto) are true and correct in all material respects and the terms of the
Recapitalization Agreement have not been revised or amended.
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<PAGE> 7
2.8. Solvency.
At and immediately following the consummation of this Agreement and the
Related Agreements, and taking into account the transactions contemplated hereby
and thereby, the Company will be Solvent (as such term is defined within the
Recapitalization Agreement)
2.9. Brokers.
Except as set forth on Schedule 2.9, the Company has no fees or other
obligations payable to any broker, finder or similar person in connection with
this Agreement or any of the transactions contemplated by this Agreement or the
Related Agreements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants to the Company as follows:
3.1. Authorization; Enforceability.
The Investor has full power and authority to execute and deliver this
Agreement and the Related Agreements to which it is a party. The execution and
delivery by the Investor of this Agreement and the Related Agreements and the
performance of the obligations of the Investor contained herein and therein have
been duly authorized by all requisite action on the part of the Investor, and
this Agreement, and the Related Agreements to which the Investor is a party,
constitute legal, valid and binding obligations of the Investor, enforceable
against the Investor in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights and subject to general principles of equity.
3.2. No Conflict.
The execution and delivery by the Investor of this Agreement and the
Related Agreements to which it is a party, its consummation of the transactions
contemplated hereby and thereby, and its compliance with the provisions hereof
and thereof, will not (i) violate any provision of any document or other
instrument governing its creation or operation, such as its charter, by-laws,
trust agreement or partnership agreement, including any amendments thereto, (ii)
violate, conflict with or constitute (with notice or lapse of time or both) a
default under, or give
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<PAGE> 8
rise to any right of termination, cancellation or acceleration, under, or result
in the creation of any Encumbrance upon the Investor's properties or assets
pursuant to, the terms, conditions or provisions of any note, bond, lease,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Investor is a party or by which the Investor or any of the Investor's
properties or assets are bound, or (iii) violate any provision of Law, or any
law, statute, rule, regulation, order, judgment, award, writ, injunction or
decree of the United States, Canada (including any province or local governing
body thereof) applicable to the Investor or any of the Investor's properties or
assets.
3.3. No Consent or Approval Required.
No permit, authorization, consent or approval of or by, or notification of
or filing with, any Person is required to be made or obtained by the Investor in
connection with the Investor's valid authorization, execution, delivery and
performance of this Agreement and the Related Agreements to which it is a party,
other than those permits, authorizations, consents, approvals, notifications or
filings which have been or will timely be obtained or made, as the case may be.
3.4. Investment Representations.
(a) The Investor understands that (i) the Shares have not been registered
under the Securities Act or registered or qualified under applicable state
securities laws by reason of their issuance by the Company in a transaction
exempt from the registration and qualification requirements of the Securities
Act and applicable state securities laws, and (ii) the Shares issued to the
Investor must be held by the Investor indefinitely unless a subsequent
disposition hereof is registered or qualified under the Securities Act and
applicable state securities laws or is exempt from such registration or
qualification.
(b) The Investor further understands that, with respect to the Shares, the
exemption from registration afforded by Rule 144 (the provisions of which are
known to the Investor) promulgated under the Securities Act depends on the
satisfaction of various conditions, and that, if applicable, Rule 144 may only
afford the basis for sales only in limited amounts.
(c) The Investor will not transfer the Shares acquired by it hereunder,
except in compliance with this Agreement and the Stockholders' Agreement. The
Investor is acquiring the Shares to be purchased by it hereunder for its own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act.
(d) The Investor is acquiring the Shares to be purchased by it hereunder
for its own account, for investment and not with a view to the distribution
thereof within the meaning of the Securities Act.
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<PAGE> 9
(e) The Investor has not employed any broker or finder or similar person
in connection with the transactions contemplated by this Agreement.
(f) The Investor is an "accredited investor" (as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act).
(g) The Investor has such knowledge and experience in financial and
business matters that it is capable of evaluating the risks and merits of its
investment in the Shares.
(h) The Investor further understands that this Agreement is made with the
Investor in reliance upon its representations to the Company contained in this
Section 3.4.
ARTICLE IV
CONDITIONS TO THE INVESTOR'S OBLIGATIONS.
The obligation of the Investor to consummate the transactions provided in
Article I hereof is subject to the following conditions precedent:
4.1. Corporate Proceedings.
All corporate and other proceedings to be taken on the part of the Company
and all waivers, consents, approvals, qualifications and/or registrations
required to be obtained or effected in connection with the execution, delivery
and performance by the Company of this Agreement and the transactions
contemplated hereby, including, but not limited to, the issuance, sale and
delivery by the Company of the Shares, shall have been taken, obtained or
effected (except for the filing of any notice subsequent to such Closing which
may be required under applicable state securities laws which, if required, shall
be filed on a timely basis as may be so required), and all documents incident
thereto shall be satisfactory in form and substance to the Investor.
4.2. Related Agreements; Performance.
The Investor shall be satisfied, in its sole discretion, that (i) the
Related Agreements shall have been duly executed and delivered by each of the
Company and the other parties thereto and (ii) that the Company is able to
perform its obligations under each of the Related Agreements (including, without
limitation, payment of the $375,000 transaction fee due the Investor
simultaneous with the Closing).
-8-
<PAGE> 10
4.3. Consents and Approvals.
The Investor shall have received from the Company or its subsidiaries, as
the case may be, duly executed copies of all consents and approvals required to
be obtained in connection with the Related Agreements, in each case in form and
substance reasonably satisfactory to the Investor. In addition to the consents
and approvals referred to in the foregoing sentence, all consents,
authorizations, orders or approvals of, and filings or registrations with, any
governmental authority which are required for or in connection with the
execution and delivery by each of the parties to this Agreement and the
agreements referred to in the foregoing sentence, to which each of them is or
will be a party and the consummation of the transactions contemplated thereby
shall have been obtained or made and shall be in full force and effect at and as
of the Closing.
4.4. Expenses.
The Company shall have paid all of the Investor's expenses relating to
this Agreement, including the reasonable fees and expenses of special counsel to
the Investor; provided, however, that such fees and expenses shall not exceed
$50,000.
4.5. SBA Forms.
The Company shall have executed each of the Small Business Administration
forms referenced in Section 2.6 and the Investor shall have received copies of
such executed forms.
4.6. Opinions; Officer's Certificate.
The Investor shall have received (i) an opinion of counsel from Dorsey &
Whitney LLP, counsel to the Company, in the form of Exhibit F hereto and (ii) a
certificate, executed by a duly authorized officer of the Company, that the
conditions set forth in this Section 4 have been satisfied.
ARTICLE V
CONDITIONS OF OBLIGATIONS OF THE COMPANY.
The obligation of the Company to consummate the transactions provided in
Article I hereof is subject to the satisfaction of the following conditions
precedent:
5.1. Payment.
The Investor shall have delivered to the Company the consideration for the
Shares purchased by the Investor pursuant
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<PAGE> 11
to this Agreement as set forth opposite the name of the Investor under column
(C) on Schedule I.
5.2. Related Agreements.
The Related Agreements shall have been duly executed and delivered by the
Investor (as applicable) and the other parties thereto.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.1. Survival.
The representations and warranties of the parties set forth herein shall
survive the Closing until May 24, 1999. All statements contained in any
certificate or other instrument delivered by the Company pursuant to this
Agreement shall constitute representations and warranties by the Company under
this Agreement.
6.2. Indemnification.
(a) The Company shall indemnify, defend and hold the Investor harmless
from and against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including legal and accounting fees and
expenses), arising from (i) the breach of any of the representations or
warranties of the Company herein made to such Person and (ii) the breach or
nonperformance of any of the covenants or agreements made herein by the Company.
(b) The Investor shall defend and hold the Company harmless from and
against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including legal and accounting fees and expenses),
arising from (i) the breach of any of the representations or warranties of the
Investor herein made to the Company and (ii) the breach or nonperformance of any
of the covenants or agreements made herein by the Investor.
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<PAGE> 12
ARTICLE VII
MISCELLANEOUS.
7.1. Securities Opinion.
The Company agrees to use its commercially reasonable efforts to cause its
counsel to issue to the Investor, on or before December 5, 1997, a reasoned
opinion reasonably satisfactory to the Investor with respect to the exemption of
the issuance of the Shares hereunder in reliance on the representations and
warranties of the Investor hereunder from the registration requirements of the
Securities Act of 1933, as amended.
7.2. Assignment.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
Anything contained herein to the contrary notwithstanding, unless otherwise
expressly provided in this Agreement, neither this Agreement nor any right or
obligation hereunder of any party may be assigned or delegated without the prior
written consent of the other parties hereto; provided, however, that the
Investor may assign this Agreement or its rights or obligations hereunder to any
of its Affiliates or to each Person to whom or which the Investor transferred
his, her or its Shares in a Permitted Transfer ("Affiliates" and "Permitted
Transfer" are defined in the Stockholders' Agreement) without the prior written
consent of any other party hereto.
7.3. Entire Agreement.
This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
and contemporaneous arrangements or understandings with respect thereto.
7.4. Notices.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given (a) when delivered personally to the
recipient, (b) one business day after being sent by reputable overnight courier
(charges prepaid) (regardless of whether the recipient refuses to accept
delivery), (c) five business days after being sent to the recipient by certified
or registered mail, return receipt requested and postage prepaid (regardless of
whether the recipient refuses to accept delivery) or (d) when sent to the
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<PAGE> 13
recipient by facsimile (followed promptly by personal, courier or certified or
registered mail delivery). Deliveries should be directed as follows:
If to the Company, to:
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Telephone: (212) 250-8412
Telecopy: (212) 250-7651
Attention: Richard Gersten;
if to the Investor to the address of the
Investor set forth on Schedule I:
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telephone: 212-909-6000
Telecopy: 212-909-6836
Attention: Franci J. Blassberg, Esq.
7.5. Amendments.
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to a written instrument executed by the Company and the
Investor.
7.6. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
7.7. Governing Law; Jurisdiction; Venue; Process.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in the State of New York and shall be construed without regard to (i) any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York and (ii) any presumption or other
rule requiring the construction of an agreement against the party causing it to
be drafted. Any
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<PAGE> 14
legal action in a proceeding brought in accordance with this Section shall be
brought in either Hennepin County, Minnesota, in the courts of the State of
Minnesota or of the United States District Court for the District of Minnesota,
or in New York, New York, in the courts of the State of New York or of the
United States District Court for the Southern District of New York, and by
execution and delivery of this Agreement, the parties hereby accept for
themselves and in respect of their property, generally and unconditionally, the
exclusive jurisdiction of the aforesaid courts. The parties hereby irrevocably
waive any objection which they may now or hereafter have to laying of venue of
any actions or proceedings arising out of or in connection with this Agreement
or any Related Agreement, brought in the courts referred to above and hereby
further irrevocably waive and agree, not to plead or claim in any such court
that any such action or proceeding has been brought in an inconvenient forum.
The parties further agree that the mailing by certified or registered mail,
return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without necessity
for service by any other means provided by statute or rule of court.
7.8. Waivers.
Any condition to a party's obligations hereunder may only be waived in
writing by such party. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
7.9. Notices under Recapitalization Agreement.
The Company shall promptly provide to the Investor copies of all notices,
requests or other written communications received by the Company with respect to
any matter relating to Articles 13, 14 or 15 of the Recapitalization Agreement.
****
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<PAGE> 15
IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase
Agreement to be executed as of the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
--------------------------------
Name: Charles D. Weil
Title: President
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
--------------------------------
Name:
Title:
<PAGE> 16
IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase
Agreement to be executed as of the date first written above.
YOUNG AMERICA CORPORATION
By:
--------------------------------
Name: Charles D. Weil
Title: President
ONTARIO TEACHERS' PENSION
PLAN BOARD
By: /s/ [ILLEGIBLE]
--------------------------------
Name: [ILLEGIBLE]
Title: Portfolio Manager
<PAGE> 17
Schedule I
<TABLE>
<CAPTION>
(A) (B) (C)
Name Class A Class C Aggregate
Investor Common Stock Common Stock Purchase Price
- -------- ------------ ------------ --------------
<S> <C> <C> <C>
ONTARIO TEACHERS' PENSION 378,273 172,727 $11,992,015
PLAN BOARD
5650 Yonge Street
North York, Ontario
M2M 4H5
Fax: (416) 730-5374
Tel.: (416) 730-5330
Attention: Portfolio Manager,
Merchant Banking and
Counsel, Investments
</TABLE>
<PAGE> 1
Exhibit 10.6
================================================================================
YOUNG AMERICA CORPORATION
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
- --------------------------------------------------------------------------------
Dated as of November 25, 1997
================================================================================
<PAGE> 2
STOCKHOLDERS' AGREEMENT dated as of
November 25, 1997 among YOUNG AMERICA
CORPORATION, a Minnesota corporation (the
"Corporation"), and the stockholders of the
Corporation listed on Schedule I hereto
(each, a "Stockholder" and collectively the
"Stockholders").
Each Stockholder owns that number of shares of Common Stock (as
hereinafter defined) set forth opposite the name of such Stockholder on Schedule
I hereto. The parties hereto desire to provide for the terms with respect to
certain matters regarding the relationship between the Corporation and the
Stockholders and among the Stockholders.
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1 Definitions; Rules of Construction.
(a) Capitalized terms used in this Agreement have the meanings ascribed
to them below:
"Affiliate" means (i) with respect to any individual, (A) a spouse
or descendant (by blood or adoption) of such individual, (B) any trust or family
partnership whose beneficiaries shall solely be such individual and/or such
individual's spouse and/or any Person related by blood or adoption to such
individual or such individual's spouse, and (C) the estate of such individual,
(ii) with respect to any Person which is not an individual, any other Person
that, directly or indirectly through one or more intermediaries Controls, is
Controlled by, or is under common Control with, such Person and/or one or more
Affiliates thereof.
"Applicable Law" means, as to any Person, all provisions of laws,
statutes, ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to such Person or any of its assets or
property and all judgments applicable to such Person.
"Approved Sale" has the meaning ascribed to such term in Section
7(a).
"Articles" means the Articles of Incorporation of the Corporation as
on file with the Secretary of State of Minnesota as of the Closing Date, as the
same may hereafter be amended, modified, supplemented and restated from time to
time.
"Board" means the Board of Directors of the Corporation.
"Bridge Financing Agreement" means the Senior Credit Agreement,
dated as of the Closing Date, among the Corporation and the other parties
thereto, as such agreement may from time to time be amended, supplemented,
restated or refinanced.
"BT" means BT Capital Partners, Inc. and its Affiliates.
"BT Director" has the meaning ascribed to such term in Section
2(a)(i).
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<PAGE> 3
"BT Stockholders" shall mean the Persons identified as "BT
Stockholders" on Schedule I hereto, any Affiliate of BT which owns Common Stock
and any successor to, or assignee or transferee of, a BT Stockholder who shall
agree in writing to be treated as a BT Stockholder and to be bound by the terms
and comply with the provisions of this Agreement.
"Budget" has the meaning ascribed to such term in Section 3(a)(iv).
"By-laws" means the by-laws of the Corporation as amended from time
to time.
"Class A Common Stock" means the Class A Common Stock, $1.00 par
value, of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $1.00 par
value, of the Corporation.
"Class C Common Stock" means the Class C Common Stock, $1.00 par
value, of the Corporation.
"Closing Date" means November 25, 1997.
"Common Stock" means collectively the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock.
"Common Stock Equivalent" means a share of Common Stock or the right
to acquire, whether or not immediately exercisable, one share of Common Stock,
whether evidenced by an option, warrant, convertible security or other
instrument or agreement.
"Company" means, collectively, the Corporation and its Subsidiaries
and, individually, the Corporation and each Subsidiary of the Corporation.
"Competitor" means any Person who owns or controls any business or
organization in any part of the United States or any other jurisdiction in which
the Company sells products or provides services, which, directly or indirectly,
Competes (as hereinafter defined) with the Company. A business or organization
shall be deemed to "Compete" with the Company if such business or organization,
in the reasonable opinion of the Board, competes in a significant manner with
the business of the Company as it is conducted as of the Closing Date or at any
time while this Agreement is in effect.
"Control" means, without limitation, the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Co-Sale Acceptance" shall have the meaning ascribed to such term in
Section 6(a).
"Co-Sale Notice" shall have the meaning ascribed to such term in
Section 6(a).
"Co-Sale Offer" shall have the meaning ascribed to such term in
Section 6(a).
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<PAGE> 4
"Co-Sale Offeree" shall have the meaning ascribed to such term in
Section 6(a).
"Co-Sale Offeror" shall have the meaning ascribed to such term in
Section 6(a).
"Corporation" has the meaning ascribed to such term in the Preamble.
"Ecklund Group" means Jay F. Ecklund and any Affiliate of Jay F.
Ecklund to whom Jay F. Ecklund shall transfer Stock.
"Encumbrance" means mortgage, lien, judgment, claim, security
interest, pledge, escrow, charge or other encumbrance of any kind or character
whatsoever.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Existing Indebtedness" means any Indebtedness incurred or permitted
to be incurred under the Bridge Financing Agreement or the Recapitalization
Agreement or any other Indebtedness extant on the Closing Date.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Guaranty" means any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness or other obligation, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (iii) to purchase or otherwise pay for
merchandise, materials, supplies, services or other property under an
arrangement which provides that payment for such merchandise, materials,
supplies, services or other property shall be made regardless of whether
delivery of such merchandise, materials, supplies, services or other property is
ever made or tendered, or (iv) to maintain the working capital, equity capital
or other financial statement condition of any primary obligor, provided,
however, that the term Guaranty shall not include endorsement of instruments for
deposit and collection in the ordinary course of business.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by (or which
customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under
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<PAGE> 5
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (e) all obligations of such Person incurred,
issued or assumed as the deferred purchase price of property or services, other
than accounts payable incurred and paid on terms customary in the business of
such Person (it being understood that the "deferred purchase price" in
connection with any purchase of property or assets shall include only that
portion of the purchase price which shall be deferred beyond the date on which
the purchase is actually consummated), (f) all obligations secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property owned or acquired by
such Person, whether or not the obligations secured thereby have been assumed,
(g) all obligations of such Person under forward sales, futures, options and
other similar hedging arrangements (including interest rate hedging or
protection agreements), (h) all obligations of such Person to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, (i) any Guaranties by such Person of
indebtedness of others and (j) all obligations under capital leases (which are
required to be accounted for as such under GAAP) of such Person.
"Independent Directors" has the meaning ascribed to such term in
Section 2(a)(v).
"Internal Rate of Return" means the annual rate (assuming annual
compounding) which if used to discount to present value the payments in cash or
cash equivalents made or received by any holder of shares of Common Stock,
during the period from the date of calculation back to the initial issuance of
such shares, would cause the net present value (on such date) of such investment
to equal zero (0). In calculating an Internal Rate of Return:
(i) each payment received in cash or cash equivalents by a holder
(or its predecessors in interest) of shares of Common Stock
attributable to such shares or any sale thereof for cash shall
be treated as a cash inflow with a positive value, and each
cash disbursement made by such holder (or its predecessors in
interest) directly attributable to such shares shall be
treated as a cash outflow with a negative value;
(ii) each such payment or disbursement shall be discounted from the
date actually made to the date of such holder's initial
investment in the shares; and
(iii) indemnity payments and payments in reimbursement of
out-of-pocket expenses received by such holder of shares shall
not be treated as cash inflows and therefore shall be
disregarded.
"Majority in Interest of BT Stockholders" means, at any point in
time, BT Stockholders owning, in the aggregate, more than 50% of the Common
Stock owned by all BT Stockholders.
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<PAGE> 6
"Majority in Interest of Original Stockholders" means, at any point
in time, Original Stockholders owning, in the aggregate, more than 50% of the
Common Stock owned by all Original Stockholders.
"Majority in Interest of OTPB Stockholders" means, at any point in
time, OTPB Stockholders owning, in the aggregate, more than 50% of the Common
Stock owned by all OTPB Stockholders.
"Management Stockholders" shall mean the Persons identified as
"Management Stockholders" on Schedule I hereto, any Affiliate of such Management
Stockholders which owns Common Stock and any successor to, or assignee or
transferee of, a Management Stockholder who shall agree in writing to be treated
as a Management Stockholder and to be bound by the terms and comply with the
provisions of this Agreement.
"Option Plan " means the Corporation's 1997 Stock Option Plan as
approved by the Board with terms substantially similar to those set forth in the
term sheet attached hereto as Exhibit A.
"Original Stockholder Director" has the meaning ascribed to such
term in Section 2(a)(iii).
"Original Stockholders" shall mean the Persons identified as
"Original Stockholders" on Schedule I hereto, any Affiliate of any Original
Stockholder which owns Common Stock and any successor to, or assignee or
transferee of, an Original Stockholder who shall agree in writing to be treated
as a Original Stockholder and to be bound by the terms and comply with the
provisions of this Agreement.
"OTPB" means Ontario Teachers' Pension Plan Board and its
Affiliates.
"OTPB Director" has the meaning ascribed to such term in Section
2(a)(ii).
"OTPB Stockholders" shall mean the Persons identified as "OTPB
Stockholders" on Schedule I hereto, any Affiliate of OTPB which owns Common
Stock and any successor to, or assignee or transferee of, an OTPB Stockholder
who shall agree in writing to be treated as a OTPB Stockholder and to be bound
by the terms and comply with the provisions of this Agreement.
"Other Stockholders" has the meaning ascribed to such term in
Section 6(a).
"Permitted Transfer" means a Transfer to an Affiliate in compliance
with Section 5(c).
"Person" shall be construed broadly and shall include an individual,
a partnership, a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a governmental entity or any department, agency or political subdivision
thereof.
-5-
<PAGE> 7
"Proportionate Percentage" means, with respect to a Stockholder, a
fraction (expressed as a percentage) the numerator of which is the number of
shares of Common Stock held by such Stockholder and the denominator of which is
(i) in a situation where the Proportionate Percentage is being calculated with
respect to all Stockholders, the total number of shares of Common Stock
outstanding at the time in question and (ii) in a situation where the
Proportionate Percentage is being calculated with respect to a group of
Stockholders, the total number of shares of Common Stock held by the members of
such group.
"Public Offering" means the closing of a public offering of Common
Stock pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with an employee benefit plan or made primarily to employees or
consultants of the Corporation.
"Public Sale" means any sale, occurring simultaneously with or after
a Public Offering, of Securities to the public pursuant to an offering
registered under the Securities Act or to the public in the manner described by
the provisions of Rule 144.
"Qualified Holder" shall have the meaning ascribed to such term in
Section 3(a).
"Qualified Public Offering" means the sale by the Corporation and/or
one or more stockholders of the Corporation in an underwritten Public Offering
registered under the Securities Act of Common Stock (i) which results in
aggregate net cash proceeds (net of underwriters' discounts and commissions and
estimated offering expenses) to the Corporation and/or any selling stockholders
of not less than $30 million and (ii) pursuant to which at least 20% of all
outstanding shares of Common Stock of the Corporation are sold.
"Recapitalization Agreement" means the Recapitalization Agreement
among the Corporation and the parties named therein, dated the Closing Date, as
amended or modified from time to time.
"Registration Rights Agreement" means the Registration Rights
Agreement dated the Closing Date among the Corporation and the other parties
named therein.
"Related Agreements" means, collectively, this Agreement, the Option
Plan, the Stock Purchase Agreement dated as of the Closing Date between the
Corporation and BT, the Stock Purchase Agreement dated as of the Closing Date
between the Corporation and OTPB, the Subscription Agreements, the Registration
Rights Agreement, the Bridge Financing Agreement, the Put Option Agreement dated
the Closing Date between the Corporation and Jay F. Ecklund, the
Recapitalization Agreement and any other Transaction Documents, as such term is
defined in the Recapitalization Agreement, each as amended or modified from time
to time.
"Requisite Holders" means a Majority in Interest of the BT
Stockholders.
"Restricted Securities" means, at any point in time, any Securities
that have not theretofore been Transferred in a Public Sale.
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"Rule 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Sale of the Company" has the meaning ascribed to such term in
Section 7(a).
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act of 1933, as
amended, and includes such Person's capital stock or other equity interests or
any options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity or equity-linked interests, including phantom stock and
stock appreciation rights. Whenever a reference herein to Securities is
referring to any derivative Securities, the rights of a Stockholder shall apply
to such derivative Securities and all underlying Securities directly or
indirectly issuable upon conversion, exchange or exercise of such derivative
securities.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Securities and Exchange Commission" means the United States
Securities and Exchange commission, or any governmental body or agency
succeeding to the functions thereof.
"Small Business Sideletter" shall have the meaning ascribed to such
term in Section 8(a).
"Stock" means the Common Stock and any and all other capital stock
or equity Securities (including derivative Securities therefor) of the
Corporation.
"Stockholders" shall have the meaning ascribed to such term within
the caption and shall include any Person who hereafter becomes a party to this
Agreement pursuant to Section 5.
"Subscription Agreements" means any Subscription Agreement dated as
of the Closing Date among the Corporation and the other parties named therein.
"Subsidiary" means any other Person (i) whose Securities having a
majority of the general voting power in electing the Board or equivalent
governing body of such other Person (excluding Securities entitled to vote only
upon the failure to pay dividends thereon or the occurrence of other
contingencies) are, at the time as of which any determination is being made,
owned by such Person either directly or indirectly through one or more other
entities constituting Subsidiaries or (ii) more than a 50% interest in the
profits or capital of whom is, at the time as of which any determination is
being made, owned by such Person either directly or indirectly through one or
more other entities constituting Subsidiaries.
"Transfer" shall be construed broadly and shall include any transfer
(whether voluntary, involuntary or by operation of law) of securities or any
interest therein, including without limitation, by way of issuance, sale,
participation, pledge, attachment, levy of execution, assignment for the benefit
of creditors, gift, bequeath, intestate transfer, distribution, liquidation,
merger or consolidation.
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"Trigger Event" shall have deemed to have occurred at any time after
the Majority in Interest of BT Stockholders so elects (by written notice to the
Corporation); provided, however, that preceding such election, one or more of
the following events or conditions shall have occurred or be in existence:
(i) Charles D. Weil shall cease to be employed by the Corporation
for any reason;
(ii) by the fifth anniversary of the Closing Date, the Corporation
shall not have completed a Qualified Public Offering;
(iii) in the reasonable opinion of the Majority in Interest of BT
Stockholders, default shall be made in the due observance or
performance by any party to this Agreement (other than BT) of
any of its covenants, obligations or agreements contained in
this Agreement (including Section 4 hereof) or in any other
Related Agreement;
(iv) in the reasonable opinion of the Majority in Interest of BT
Stockholders, any representation or warranty made by any party
to this Agreement (other than BT), in this Agreement or in any
other Related Agreement or in any certificate, financial
statement or other instrument furnished by or on behalf of
such Person pursuant or any other Related Agreement shall
prove to have been false or incorrect in any material respect
when made or furnished;
(v) an Approved Sale has been proposed to the Board and such sale
is not approved, for whatever reason, by the Board within
three days of such proposal;
(vi) the Majority in Interest of BT Stockholders believes
circumstances exist which are not described in (i) through (v)
above that require such Stockholders to take control of the
Corporation in order to protect their investment in the
Corporation; and
(vii) the Majority in Interest of BT Stockholders determines that it
is permitted under Applicable Law to take control of the
Company and determines that it is in the interest of such
Stockholders to do so.
(b) Rules of Construction.
(i) The use in this Agreement of the term "including" means
"including, without limitation." The words "herein," "hereof,"
"hereunder" and other words of similar import refer to this
Agreement as a whole, including the schedules and exhibits, as
the same may from time to time be amended or supplemented, and
not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All
references to sections, schedules and exhibits mean the
sections of this Agreement and the schedules and exhibits
attached to this Agreement.
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(ii) The title of and the section and paragraph headings in this
Agreement are for convenience of reference only and shall not
govern the interpretation of any of the terms or provisions of
this Agreement.
(iii) The use herein of the masculine, feminine or neuter forms
shall also denote the other forms, as in each case the context
may require.
(iv) Where specific language is used to clarify by example a
general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner
the construction of the general statement to which it relates.
The language used in this Agreement has been chosen by the
parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
(v) Unless expressly provided otherwise, the measure of a period
of one month or year for purposes of this Agreement shall be
that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists,
the measure shall be that date of the following month or year
corresponding to the next day following the starting date. For
example, one month following February 18 is March 18, and one
month following March 31 is May 1.
2 Board of Directors.
(a) Election of Directors. The Corporation and each Stockholder shall from
time to time use all reasonable efforts to cause the Corporation to be managed
by a Board (comprised of no more than eight directors) designated as follows:
(i) two directors, (the "BT Directors") to be nominated by the
Majority in Interest of BT Stockholders, one of whom shall be
the non-executive chairman of the Corporation;
(ii) one director (the "OTPB Director"), to be nominated by the
Majority in Interest of OTPB Stockholders;
(iii) for so long as the Ecklund Group own 80% of the Common Stock
owned by Jay F. Ecklund on the Closing Date, one director (the
"Original Stockholder Director"), to be nominated by the
Majority in Interest of Original Stockholders;
(iv) one director who at any point in time shall be the Chief
Executive Officer of the Corporation (the "CEO"); and
(v) up to three directors (which individuals shall be independent
of the BT Stockholders and the OTPB Stockholders) (the
"Independent Directors "), to be nominated jointly by the
Majority in Interest of BT Stockholders and the Majority in
Interest of OTPB Stockholders;
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provided, however, that at any time after the occurrence of a Trigger Event, (x)
the Majority in Interest of BT Stockholders shall be entitled to nominate, as
additional directors to the Board, such number of additional directors as is
necessary to cause the total number of directors nominated by the Majority in
Interest of BT Stockholders to equal 50% plus 1 of the total number of directors
comprising the Board and (y) each Stockholder shall take such action as shall be
necessary to cause the Corporation to increase the size of the Board to include
such additional directors.
(b) Committees. The Board shall have an Executive Committee (the
"Executive Committee") composed of three directors which three directors shall
be the CEO, one BT Director and one OTPB Director. Each Stockholder shall use
all reasonable efforts to cause each director of the Corporation originally
nominated by such Stockholder to take such corporate actions as may be required
to ensure such composition of the Executive Committee and to ensure that that at
least one BT Director and one OTPB Director is appointed to each other committee
of the Board, if any.
(c) Expenses. The Corporation shall pay the reasonable out-of-pocket
expenses incurred by each director designated pursuant to Section 2(a) in
connection with attending the meetings of the Board and meetings of any
committees of the Board to which such director is a member.
(d) Removal of Directors. At all times such Persons shall have the right
to nominate a director to the Board as provided herein (i) the Majority in
Interest of BT Stockholders shall have the right to recommend the removal, with
or without cause, of any BT Director, (ii) the Majority in Interest of OTPB
Stockholders shall have the right to recommend the removal, with or without
cause, of any OTPB Director, (iii) the Majority in Interest of Original
Stockholders shall have the right to recommend the removal, with or without
cause, of any Original Stockholder Director and (iv) the Majority in Interest of
BT Stockholders or the Majority in Interest of OTPB Stockholders shall have the
right to recommend the removal, with or without cause, of any Independent
Director.
(e) Voting Agreement. Each Stockholder agrees to vote, in person or by
proxy, all of the Securities owned by such Stockholder and entitled to vote at
any annual or special meeting of the stockholders of the Corporation for the
election to the Board of all individuals nominated in accordance with Section
2(a) and for the removal from the Board of all directors proposed to be removed
in accordance with Section 2(d).
(f) Vacancies. In the event a vacancy is created on the Board by reason of
the death, removal or resignation of any director, each of the Stockholders
hereby agrees, in its capacity as a stockholder of the Corporation, to elect a
director to fill such vacancy in accordance with the nomination procedures set
forth in Section 2(a). Such election shall occur within the earlier of (i) the
next official Board action or (ii) thirty days after such vacancy occurs.
Following the occurrence of any such vacancy, each of the Stockholders hereby
agrees, in his, her or its capacity as a stockholder of the Corporation, to use
his, her or its best efforts to cause the Corporation either to promptly hold a
special meeting of stockholders to elect a new director to fill such vacancy or
to execute a written consent in lieu thereof.
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(g) No Inconsistent Agreements. Each Stockholder represents that he or it
has not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Agreement,
and no Stockholder shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement.
3 Reports; Inspections; Confidentiality.
(a) Prior to the consummation of a Qualified Public Offering, the
Corporation shall furnish to any Stockholder that is not a Competitor and who
holds, together with its Affiliates, at least 5% of the outstanding shares of
Common Stock (each a "Qualified Holder"), the Management Stockholders (so long
as they are employees of the Company), and so long as the Ecklund Group owns 80%
of the Common Stock owned by the Ecklund Group on the Closing Date, Jay F.
Ecklund, the following reports:
(i) Monthly Statements. As soon as available, but no later than 30
days after the end of each monthly accounting period, an
unaudited consolidated financial report of the Corporation and
its Subsidiaries in the form provided to the Corporation's
senior management which shall include the following:
(A) a profit and loss statement for such monthly accounting
period, together with a cumulative profit and loss
statement from the first day of the current year to the
last day of such monthly accounting period;
(B) a balance sheet as at the last day of such monthly
accounting period;
(C) a cash flow analysis for such monthly accounting period
on a cumulative basis for the fiscal year to date; and
(D) to the extent otherwise prepared, (x) a comparison
between the actual figures for such monthly accounting
period and the comparable figures within the Budget for
such period and (y) a comparison between the current
figures and the figures from the prior year for such
monthly accounting period, with, in each case, an
explanation of any material differences.
(ii) Quarterly Reports. As soon as available, but not later than 30
days after the end of each quarterly accounting period (other
than the last quarterly period of each fiscal year), (A) an
unaudited consolidated financial report of the Corporation and
its Subsidiaries including, with respect to such quarterly
accounting period, the statements referred to in clauses (A)
through (C) of the preceding subsection, and (B) a report by
management of the Corporation of the operating and financial
highlights of the Corporation and its Subsidiaries for the
three prior monthly accounting periods, which shall include a
comparison between (x) the actual figures for such monthly
accounting period and the comparable figures within the Budget
for such period and (y) a comparison between the current
figures and the figures from the prior year
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for such monthly accounting period, with, in each case, an
explanation of any material differences.
(iii) Annual Audit. As soon as available, but not later than 90 days
after the end of each fiscal year of the Corporation, audited
consolidated financial statements of the Corporation and its
Subsidiaries, which shall include a statement of cash flows
and statement of operations for such fiscal year and a balance
sheet as of the last day thereof and accompanied by the report
of a firm of independent certified public accountants of
recognized standing selected by the Board. The Corporation and
its Subsidiaries shall maintain a system of accounting
sufficient to enable its independent certified public
accountants to render the report referred to in this clause.
(iv) Budget. Within 45 days prior to the end of each fiscal year
the Corporation, annual updated consolidated long-range
business and strategic budget and plan (each a "Budget"),
which shall include cash flow and other financial projections
(setting forth in detail the assumptions therefor) for the
Corporation and its Subsidiaries for the immediately following
fiscal year of the Corporation, approved by the Board.
(v) Accountants Reports. Promptly upon becoming available, copies
of all reports prepared for or delivered to the management of
the Corporation by its outside accountants.
(vi) Material Events. Promptly upon becoming aware of any condition
or event that could reasonably be expected to have a material
adverse affect on the Corporation or any of its Subsidiaries
(including, without limitation, any litigation, governmental
inquiry, or discovery of a significant liability), a report
summarizing such condition or event and the proposed response
of the Corporation or the Subsidiary, as applicable, thereto.
(vii) Miscellaneous. Promptly, from time to time, such other
information (in writing if so requested) regarding the assets
and properties and operations, business affairs and financial
condition of the Company as any Qualified Holder may
reasonably request.
(viii) GAAP Reporting. The financial statements and reports
delivered under this subsection shall fairly present in all
material respects the financial position and results of
operations of the Corporation at the dates thereof and for the
periods then ended and shall have been prepared in accordance
with GAAP, in the case of unaudited financial statements,
subject to normal year-end audit adjustments and the absence
of footnotes.
(b) The Corporation and its Subsidiaries shall afford to any Qualified
Holder and its employees, counsel and other authorized representatives, during
normal business hours, access, upon reasonable advance notice, to all of the
books, records and properties of the Corporation or its Subsidiaries, as
applicable, and to make copies of such records and permit such Persons to
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discuss all aspects of the Corporation or its Subsidiaries, as applicable, with
any officers, employees or accountants of the Corporation, and the Corporation
and its Subsidiaries shall provide to any Qualified Holder responses to all
reasonable written requests from a Qualified Holder for information relating to
the Corporation, its Subsidiaries and their respective operations; provided,
however, that such investigation and preparation of responses shall not
unreasonably interfere with the operations of the Corporation or its
Subsidiaries, as applicable. The Corporation and its Subsidiaries will instruct
its independent public accountants to discuss such aspects of the financial
condition of the Corporation or its Subsidiaries, as applicable, with any
Qualified Holder and its representatives as such Person may reasonably request,
and to permit such Qualified Holder and its representatives to inspect, copy and
make extracts from such financial statements, analyses, work papers and other
documents and information (including electronically stored documents and
information) prepared by such accountants with respect to the Corporation or its
Subsidiaries, as applicable, as such Qualified Holder may reasonably request.
All costs and expenses incurred by any Qualified Holder and its representatives
in connection with exercising such rights of access shall be borne by such
Persons, and all out-of-pocket costs and expenses incurred by the Corporation or
its Subsidiaries, as applicable, in complying with any extraordinary requests by
any Qualified Holder and its representatives in connection with exercising such
access rights shall be borne by such Qualified Holder.
(c) Each Stockholder shall use its best efforts to maintain the
confidentiality of any confidential and proprietary information obtained by such
Stockholder; provided, however, that the foregoing shall in no way limit or
otherwise restrict the ability of such Stockholder or its authorized
representatives to disclose such information concerning the Corporation and its
Subsidiaries which it may be required to disclose (i) to its partners or limited
partners to the extent required to satisfy its fiduciary obligations to such
Persons, or (ii) otherwise pursuant to or as required by Applicable Law.
4 Covenants of the Corporation; Special Voting Agreements.
(a) Negative Covenants. The Corporation shall not, and shall ensure that
each Subsidiary shall not, without the affirmative vote or written consent of
the Requisite Holders:
(i) consummate a Public Offering;
(ii) except as contemplated by the Related Agreements, issue,
redeem, repurchase, reclassify, retire or cancel any
Securities;
(iii) amend, modify, supplement, restate or replace the Option Plan;
(iv) merge or consolidate with or into another entity (other than
(x) mergers of wholly-owned Subsidiaries and mergers of a
wholly-owned Subsidiary with and into the Corporation where
the Corporation is the surviving corporation or (y) as
required by Section 7 hereof);
(v) acquire any business or assets from, or capital stock of, or
make any investments in any Person;
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(vi) sell any assets of the Company other than in the ordinary
course of business;
(vii) issue or sell any Stock (or any phantom stock rights);
(viii) amend or restate the authorized capital, the Articles or the
By-laws;
(ix) take any action to hire, fire or change the duties of any
member of senior management;
(x) change or replace the Company's independent outside auditor or
make any change in the accounting principles used by the
Company; provided, however, that the Company may act to
replace its auditor as of the Closing Date with Arthur
Andersen LLP or another "Big 6" audit firm;
(xi) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(xii) enter into, revise or amend any contract, agreement or
transaction with any of its officers, directors, management
employees or Affiliates, except for any employment or
compensation agreements with individuals with an annual
expense to the Corporation of less than $60,000;
(xiii) incur or create any Indebtedness other than the Existing
Indebtedness (which, for purposes hereof, shall include
undrawn availability on revolving credit facilities), or
modify the terms of, or prepay the Existing Indebtedness;
(xiv) except as contemplated by the Related Agreements, declare or
pay any dividends, make any distributions or returns of
capital with respect to any Stock or redeem or repurchase any
Securities;
(xv) approve or make any material amendments to or deviations from
any Budget;
(xvi) enter into any business, other than the businesses in which
the Company is engaged on the Closing Date;
(xvii) fail to perform or comply with, or enter into any agreement
or commitment that would prohibit, restrict or impair the
Corporation or the Subsidiaries from complying with and
performing, their respective obligations under the Related
Agreements; and
(xviii) register the Transfer of any Stock by any Stockholder unless
such Transfer is made in accordance with the provisions of
Section 5 hereof.
(b) Affirmative Covenants. The Corporation shall, and shall cause its
Subsidiaries to, take or cause to be taken the following actions, unless
otherwise consented to in writing by the Requisite Holders:
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(i) cause to be done all things necessary to maintain, preserve
and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its properties in good repair, working order
and condition (excluding normal wear and tear), and from time
to time make all necessary or desirable repairs, renewals and
replacements, so that its businesses may be properly and
advantageously conducted at all times;
(iii) maintain customary insurance on its business and properties to
such extent and against such risks, including (w) fire and
other risks insured against by extended coverage, (x) workers'
compensation insurance (y) personal injury or death or (z)
property damage occurring upon, in, about or in connection
with, the use of any properties owned, occupied or controlled
by, or the business conducted by, such Company in each case as
is customary with companies similarly situated and in the same
or similar businesses;
(iv) pay and discharge when payable (x) all taxes, assessments and
governmental charges imposed upon its properties or upon the
income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and
(y) all claims for labor, materials or supplies which if
unpaid might by law become a lien upon any of its property,
unless and to the extent that the same are being contested in
good faith and adequate reserves (as determined in accordance
with GAAP,) have been established on its books with respect
thereto;
(v) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or
written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP) have been
established on its books with respect thereto;
(vi) furnish, as promptly as possible after obtaining knowledge of
the occurrence thereof, written notice to the Stockholders of
all events or conditions described in clauses (i)-(v) of the
definition of Trigger Event;
(vii) perform in all material respects all of its obligations under
this Agreement and the Related Agreements to which it is a
party and under each indenture or other material agreement or
instrument to which it is a party or subject;
(viii) maintain financial records in accordance with accounting
practices and controls sufficient to prepare the financial
statements, certificates and reports required by this
Agreement and the other agreements, indentures and commitments
to which it is bound;
(ix) defend itself and its properties in a commercially reasonable
manner from and against any lawsuits or claims; and
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(x) comply in all material respects with all Applicable Laws
(including ERISA laws and environmental and safety
requirements).
(c) Special Voting Agreements. The Corporation shall not, and shall ensure
that each Subsidiary shall not, without the affirmative vote or written consent
of the Majority in Interest of the OTPB Stockholders:
(i) incur or create any Indebtedness other than the Existing
Indebtedness (which, for purposes hereof, shall include
undrawn availability on revolving credit facilities) in an
amount excess of $10 million or modify the terms of any
Indebtedness;
(ii) declare or pay any dividends, make any distributions or
returns of capital with respect to any Stock or redeem or
repurchase any Securities (other than payments of subordinated
debt or payments with respect to the repurchase of Securities
from current or former employees of the Company) so long as
the Corporation or any of its Subsidiaries shall have
outstanding any long-term Indebtedness;
(iii) cause or allow any of the following to occur unless the BT
Stockholders shall have confirmed to the Corporation that the
BT Stockholders have consulted with the OTPB Stockholders
concerning such event: (A) the removal or a change in the
status of the CEO, (B) a refinancing of the Indebtedness of
the Corporation under the Bridge Financing Agreement, or (C) a
determination not to enforce any right to indemnification held
by the Corporation under the Recapitalization Agreement;
(iv) change or replace the Company's independent outside auditor or
make any change in the accounting principles used by the
Company; provided, however, that the Company may act to
replace its auditor as of the Closing Date with Arthur
Andersen LLP or another "Big 6" audit firm;
(v) permit (A) capital expenditures to be made by the Company
during any one year in an amount in excess of $10 million or
(B) the designation as obsolete or the discontinuation of any
line of business of the Company involving, in either case,
dedicated assets having a fair market value in excess of $10
million;
(vi) directly or indirectly enter into any transaction (including
the purchase, sale, lease or exchange of any property or the
rendering of any service or the entry into any financing
agreement) with any Affiliate of the Corporation (including,
without limitation, BT) on terms less favorable to the Company
than the Company would obtain in a transaction negotiated on
an arms-length basis between parties that are not Affiliates.
(vii) merge or consolidate with or into another entity (other than
(x) mergers of wholly-owned Subsidiaries and mergers of a
wholly-owned Subsidiary with
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and into the Corporation where the Corporation is the
surviving corporation or (y) as required by Section 7 hereof);
(viii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(ix) amend or restate the authorized capital, the Articles or the
By-laws;
(x) sell any assets of the Company valued in excess of $10 million
in any transaction or series of related transactions other
than in the ordinary course of business;
(xi) except as contemplated by the Related Agreements, issue,
redeem, repurchase, reclassify, retire or cancel any
Securities;
(xii) change the primary business of the Corporation or enter into
any business, other than consistent with the businesses in
which the Company is engaged on the Closing Date;
(xiii) on or before the sixth anniversary of the Closing Date,
conduct a Public Offering other than a Qualified Public
Offering at a price per share for the Common Stock such that,
if applied to the shares of Common Stock purchased by the OTPB
Stockholders on the Closing Date, would yield an Internal Rate
of Return on such shares of at least 20%.
(xiv) acquire any business assets from, or capital stock of, or make
any investments in any Person in excess of $10 million.
5 Limitations on Transfers of Stock.
(a) The provisions regarding Transfers of Stock contained herein shall
apply to all shares of Stock now owned or hereafter acquired by any Stockholder,
including shares of Stock acquired by reason of any dividend, distribution,
exchange or conversion, additional issuances of shares of Stock, and
acquisitions of outstanding shares of Stock from another Person, and such
provisions shall apply to any shares of Stock obtained by a Stockholder upon the
exercise, exchange or conversion of any option, warrant or other Security.
(b) Other than pursuant to (i) a Transfer to the Corporation, (ii) an
Approved Sale, (iii) a Public Offering (to the extent that Transfers by the
Stockholders are expressly permitted under the Registration Rights Agreement) or
(iv) a Permitted Transfer, no Stockholder shall Transfer any shares of Stock. In
addition to the foregoing, a Stockholder may Transfer shares of Stock provided
that such Transfer (x) is approved by the Requisite Holders and (y) complies
with the terms of Section 6.
(c) No Stockholder shall Transfer any shares of Stock (including, without
limitation, pursuant to a Permitted Transfer) to a Person (other than the
Corporation) not already a party to this Agreement as a Stockholder unless and
until such transferee executes and delivers to the Corporation a Joinder
Agreement substantially in the form of Exhibit B hereto, pursuant to
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which such Person shall agree to become a party to, and to be bound by and to
comply with the provisions of, this Agreement in the same capacity and to the
same extent as the Stockholder Transferring such Security. Any Transfer of
shares of Common Stock that is not made in compliance with the provisions hereof
shall be void ab initio.
6 Rights of Co-Sale.
(a) Subject to the provisions of Section 6(c) and to the last sentence of
this Section 6(a), in the event that a Stockholder (hereinafter in this Section
6 referred to as the "Co-Sale Offeree") receives a bona fide offer (the "Co-Sale
Offer") from a third party which is not an Affiliate of the Co-Sale Offeree (the
"Co-Sale Offeror") to purchase from such Co-Sale Offeree any number of shares of
Common Stock held by such Stockholder, for a specified price payable in cash or
otherwise and on specified terms and conditions, the Co-Sale Offeree shall
promptly forward a notice (the "Co-Sale Notice") complying with Section 6(b) to
the Corporation and to the other Stockholders holding Common Stock (the
Stockholders receiving a Co-Sale Notice collectively referred to herein as the
"Other Stockholders"). The Co-Sale Offeree shall not Transfer any shares of
Stock prior to the expiration of the 15-day period referred to below to the
Co-Sale Offeror unless the terms of the Co-Sale Offer are extended to each Other
Stockholder with respect to each Other Stockholder's Proportionate Percentage of
the aggregate number of shares of Common Stock to which the Co-Sale Offer
relates, whereupon (i) each Other Stockholder shall be entitled to Transfer such
Other Stockholder's Proportionate Percentage of the aggregate number of shares
of Common Stock to which the Co-Sale Offer relates and (ii) the Co-Sale Offeree
shall be entitled to Transfer the difference between the number of shares of
Common Stock to which the Co-Sale Offer relates and the number of shares of
Common Stock to which the Other Stockholders have exercised there rights to
Transfer hereunder. Each Other Stockholder shall have a period of 15 days to
deliver a written notice (the "Co-Sale Acceptance") to the Co-Sale Offeree
evidencing its acceptance of the Co-Sale Offer.
(b) The Co-Sale Notice shall set forth (i) the number of shares of Common
Stock to which the Co-Sale Offer relates and the name of the Co-Sale Offeree,
(ii) the name and address of the Co-Sale Offeror, (iii) the proposed amount and
type of consideration payable for such Common Stock (including, if the
consideration consists in whole or in part of non-cash consideration, such
information that was provided to the Co-Sale Offeree by the Co-Sale Offeror to
analyze the economic value and investment risk of such non-cash consideration)
and the terms and conditions of payment offered by the Co-Sale Offeror and (iv)
that the Co-Sale Offeror has been informed of the co-sale rights provided for in
this Section 6, and has agreed to purchase shares of Stock held by the Other
Stockholders in accordance with the terms of this Section 6 (which agreement may
contain the Co-Sale Offeror's obligation to purchase all of the shares of Stock
held by the Other Stockholders subject to the Co-Sale Offer from the Co-Sale
Offeree so long as such Co-Sale Offeree agrees to purchase simultaneously with
such sale from the Other Stockholders if they deliver a Co-Sale Acceptance the
Stock held by the Other Stockholders subject to such Co-Sale Notice of
Acceptance).
(c) The restrictions on Transfer contained in Section 6 shall not apply to
(i) any Permitted Transfers or (ii) any Public Sales.
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<PAGE> 20
7 Drag-Along Rights.
(a) Notwithstanding any provision of this Agreement to the contrary, if at
any time the Requisite Holders and (subject to the last sentence of this
paragraph) the OTPB Director approve a sale of (i) all the capital stock of the
Corporation or (ii) all or substantially all of the assets of the Corporation,
determined on a consolidated basis (each an "Approved Sale"), whether by way of
merger, consolidation, sale of stock or assets, or otherwise (each, a "Sale of
the Company"), all Stockholders shall consent to and raise no objections against
the Approved Sale, and if the Approved Sale is structured as (A) a merger or
consolidation of the Corporation, or a sale of all or substantially all of the
assets of the Corporation, each Stockholder shall waive any dissenters rights,
appraisal rights or similar rights in connection with such merger, consolidation
or asset sale, or (B) a sale of all the Stock of the Corporation, the
Stockholders shall agree to sell all their shares of Stock which are the subject
of the Approved Sale, on the terms and conditions approved by the Requisite
Holders and (subject to the last sentence of this paragraph) the OTPB Director.
Each Stockholder shall take all necessary and desirable actions approved by the
Requisite Holders in connection with the consummation of the Approved Sale,
including obtaining Board consent to the Approved Sale and the execution of such
agreements and such instruments and other actions reasonably necessary to (x)
provide customary representations, warranties, indemnities, and escrow
arrangements relating to such Approved Sale and (y) effectuate the allocation
and distribution of the aggregate consideration upon the Approved Sale as set
forth in Section 7(b) below. The Stockholders shall be permitted to sell their
Stock pursuant to an Approved Sale without complying with the provisions of
Sections 5 or 6 of this Agreement. Notwithstanding any provision of this Section
to the contrary, no Sale of the Company nor any terms of any Sale of the Company
shall require the consent or approval of the OTPB Director if the proceeds to be
received by the OTPB Stockholders in connection with such Sale of the Company
will be sufficient to yield the OTPB Stockholders an Internal Rate of Return
(calculated as of the date of such Sale of the Company) of at least 20% on the
shares of Common Stock purchased by the OTPB Stockholders on the Closing Date.
(b) The obligations of the Stockholders pursuant to this Section 7 are
subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, all of the
Stockholders shall receive the same proportion of the
aggregate consideration from such Approved Sale that such
holder would have received if such aggregate consideration had
been distributed by the Corporation in a complete liquidation
of the Corporation pursuant to the rights and preferences set
forth in the Articles as in effect immediately prior to such
Approved Sale (giving effect to applicable orders of
priority);
(ii) if any Stockholder of any class of Common Stock is given an
option as to the form and amount of consideration to be
received for such Stock, all holders of such class will be
given the same option;
(iii) all holders of then-currently exercisable Common Stock
Equivalents will be given an opportunity to exercise such
rights prior to the consummation of the Approved Sale (but
only to the extent such Common Stock Equivalents are
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<PAGE> 21
then vested or would be vested on an accelerated basis
pursuant to the terms of their issuance) and participate in
such sale as Stockholders;
(iv) no Stockholder shall be obligated to make any out-of-pocket
expenditure prior to the consummation of the Approved Sale
(excluding modest expenditures for postage, copies, etc.) and
no Stockholder shall be obligated to pay more than his, her or
its pro rata share (based upon the amount of consideration
received) of reasonable expenses incurred in connection with a
consummated Approved Sale to the extent such costs are
incurred for the benefit of all Stockholders and are not
otherwise paid by the Corporation or the acquiring party
(costs incurred by or on behalf of a Stockholder for his, her
or its sole benefit will not be considered costs of the
transaction hereunder), provided that a Stockholder's
liability for such expenses shall be capped at the total
purchase price received by such Stockholder for his, her or
its shares of Stock plus Common Stock Equivalents;
(v) subject to the provisions of Section 7(b)(vi), no Stockholder
shall be required to provide any representations, warranties
or indemnities in connection with the Approved Sale, other
than representations, warranties and indemnities concerning
such Stockholder's valid ownership of his, her or its shares
of Stock and Common Stock Equivalents, free of all
Encumbrances (other than those arising under applicable
securities laws), and each Stockholder's organization and
authority, power, and right to enter into and consummate such
purchase or merger agreement without violating any other
agreement or any organizational documents of such Stockholder;
and
(vi) in the event that the Stockholders are required to make any
indemnities for representations and warranties made by the
Company, then no Stockholder shall be liable for more than
his, her or its pro rata share (based upon the number of
shares of Common Stock Equivalents held and not the amount of
consideration received) of any liability for misrepresentation
or indemnity and such liability shall not exceed the total
purchase price received by such Stockholder for his, her or
its Common Stock Equivalents, after taxes (after giving effect
to all potential amendments of tax returns arising in
connection with any indemnification claim) and expenses.
(c) If the Corporation and any of the Stockholders or their
representatives enter into any negotiation or transaction for which Rule 506
under the Securities Act (or any similar rule then in effect) may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), each Stockholder who is not an
accredited investor (as such term is defined in Rule 501 under the Securities
Act) will, at the request of the Requisite Holders, appoint a purchaser
representative (as such term is defined in Rule 501 under the Securities Act)
reasonably acceptable to the Requisite Holders.
-20-
<PAGE> 22
8 Other Agreements.
(a) Transaction Fee. The Stockholders shall take all reasonable action
necessary to cause the Corporation to pay a transaction fee to each of BT and
OTPB in consideration of services rendered to the Corporation by such entities
relating to the arrangement of equity investments in the Corporation and the
establishment and negotiation of the Bridge Financing Agreement. Accordingly, on
the Closing Date, the Corporation shall pay or cause to be paid to BT an amount
equal to $1,125,000 and shall pay or cause to be paid to OTPB an amount equal to
$375,000.
(b) Management Fee. The Stockholders shall take all reasonable action
necessary to cause the Corporation to pay certain management fees to BT and OTPB
for services to be rendered to the Corporation by such entities during the term
of this Agreement. Such services shall include, without limitation, financial
and strategic planning and management consulting. Accordingly, on or before
December 31 of each year during the term of this Agreement (beginning with the
calendar year ending December 31, 1998) the Corporation shall pay or cause to be
paid to BT an amount equal to $187,500 and shall pay or cause to be paid to OTPB
an amount equal to $62,500.
(c) Contribution Agreement. Each of the parties to this Agreement hereby
ratifies and approves the Contribution Agreement dated as of the Closing Date
between the Corporation and YAC Corp., a Minnesota corporation and a
wholly-owned subsidiary of the Corporation, a copy of which is attached hereto
as Exhibit C.
9 Regulatory Matters.
(a) Cooperation of Other Stockholders. Each Stockholder agrees to
cooperate with the Corporation in all reasonable respects in complying with the
terms and provisions of the letter agreement between the Corporation and BT, a
copy of which is attached hereto as Exhibit D, regarding small business matters
(the "Small Business Sideletter"), including, without limitation, voting to
approve amending the Articles, the By-laws or this Agreement in a manner
reasonably requested by any Regulated Stockholder (as defined in the Articles)
in order to avoid a Regulatory Problem (as defined in the Small Business
Sideletter) . Additionally, each Stockholder agrees to cooperate with the
Corporation and any Regulated Stockholder in all reasonable respects, including
without limitation, voting to approve amendments to the Articles, the By-laws or
this Agreement in order for such Regulated Stockholder to avoid, prevent or cure
a Regulatory Problem; provided, however, that no Stockholder shall as a result
of such agreement be required to take any action that could reasonably be
expected to have a material adverse effect on such Stockholder's investment in
the Corporation.
(b) Covenant Not to Amend. The Corporation and each Stockholder agree not
to amend or waive the voting or other provisions of the Articles, the By-laws or
this Agreement if such amendment or waiver would cause any Regulated older to
have a Regulatory Problem, provided that any such Stockholder notifies the
Company that it would have a Regulatory Problem promptly after it has notice of
such amendment or waiver.
(c) Conversion of Class A Common Stock by OTPB. OTPB hereby agrees that in
order to avoid the possibility of a Regulatory Problem upon a Trigger Event,
OTPB shall not, on or
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<PAGE> 23
after the Closing Date, convert any shares of Class A Common Stock held by OTPB
into shares of Class B Common Stock.
10 Securities Law Compliance; Legends.
(a) Restriction on Transfer. No Stockholder shall Transfer Restricted
Securities except in compliance with the conditions specified in this Agreement
and pursuant to a Public Sale.
(b) Restrictive Legends. Each certificate for the Restricted Securities
shall (unless otherwise provided by the provisions of Section 10(d)) be stamped
or otherwise imprinted with a legend in substantially the following terms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT
TO THE SATISFACTION OF CERTAIN CONDITIONS SET FORTH WITHIN A
STOCKHOLDERS' AGREEMENT DATED AS OF NOVEMBER 25, 1997, AMONG YOUNG
AMERICA CORPORATION, AND THE OTHER PARTIES NAMED THEREIN AND A
REGISTRATION RIGHTS AGREEMENT DATED NOVEMBER 25, 1997, AMONG YOUNG
AMERICA CORPORATION, AND THE OTHER PARTIES NAMED THEREIN, AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF YOUNG AMERICA CORPORATION."
(c) Notice of Transfer. The holder of any Restricted Securities, by its
acceptance or purchase thereof, agrees, prior to any Transfer of any such
Restricted Securities (except pursuant to an effective registration statement),
to give written notice to the Corporation of such holder's intention to effect
such Transfer and agrees to comply in all other respects with the provisions of
this Section 10. Each such notice shall describe the manner and circumstances of
the proposed Transfer and, unless waived by the Corporation, shall be
accompanied by the written opinion, addressed to the Corporation, of counsel for
the holder of such Restricted Securities (which counsel shall be reasonably
satisfactory to the Corporation), stating that in the opinion of such counsel
(which opinion shall be reasonably satisfactory to the Corporation) such
proposed Transfer does not involve a transaction requiring registration or
qualification of such Restricted Securities under the Securities Act. Subject to
complying with the other applicable provisions hereof, such holder of Restricted
Securities shall be entitled to consummate such Transfer in accordance with the
terms of the notice delivered by it to the Corporation if the Corporation does
-22-
<PAGE> 24
not object (on the basis that such Transfer violates the provisions of this
Section 10) to such Transfer within fifteen days after the delivery of such
notice, or, if it requests such opinion, does not reasonably object to such
Transfer within fifteen days after delivery of such opinion. Each certificate or
other instrument evidencing the securities issued upon the Transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such Securities) shall bear the legend set forth in
Section 10(b) unless (i) in such opinion of such counsel registration of future
Transfer is not required by the applicable provisions of the Securities Act or
(ii) the Corporation shall have waived the requirement of such legend.
(d) Removal of Legends, Etc. Notwithstanding the foregoing provisions of
this Section 10, the restriction imposed by Sections 10(a), (b) and (c) upon the
transferability of any Restricted Securities shall cease and terminate when (i)
any such Restricted Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in a registration statement or are sold or otherwise disposed of in a
transaction contemplated by Section 10(c) which does not require that the
securities transferred bear the legend set forth in Section 10(b), or (ii) the
holder of such Restricted Securities has met the requirement of transfer of such
Restricted Securities pursuant to subparagraph (k) of Rule 144. Whenever the
restrictions imposed by Sections 10(a), (b) and (c) shall terminate, as herein
provided, the holder of any Restricted Securities shall be entitled to receive
from the Corporation, without expense, a new certificate not bearing the
restrictive legend set forth in Section 10(b) and not containing any other
reference to the restrictions imposed by Sections 10(a), (b) and (c).
11 Duration of Agreement.
This Agreement shall terminate upon the earlier of the completion of
an Approved Sale and a Qualified Public Offering. The rights and obligations of
each Stockholder under this Agreement shall terminate, if earlier, as to such
Stockholder upon the Transfer of all shares of Stock owned by such Stockholder
in a manner permitted by this Agreement (but nothing shall relieve such
Stockholder from a claim for damages for a breach prior to such Transfer).
12 Severability.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under Applicable Law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any Applicable Law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and such invalid, void or
otherwise unenforceable provisions shall be null and void. It is the intent of
the parties, however, that any invalid, void or otherwise unenforceable
provisions be automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable provisions
but are valid and enforceable to the fullest extent permitted by law.
-23-
<PAGE> 25
13 Entire Agreement.
This document together with the Related Agreements embodies the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
14 Certain Stockholders.
If any Stockholder is an entity that was formed for the purpose of
acquiring Securities or that has no substantial assets other than Securities or
interests in Securities, such Stockholder agrees that (a) shares of its common
stock or other instruments reflecting equity interests in such entity (and the
shares of common stock or other equity interests in any similar entities
controlling such entity) will note the restrictions contained in this Agreement
on the transfer of Securities as if such common stock or other equity interests
were Securities and (b) no shares of such common stock or other equity interests
may be transferred to any Person other than in accordance with the terms and
provisions of this Agreement as if such common stock or other equity interests
were Securities.
15 Successors and Assigns.
Except as otherwise provided herein, this Agreement will bind and
inure to the benefit of and be enforceable by the Corporation and its successors
and assigns and the Stockholders and any subsequent holders of Securities and
the respective successors and permitted assigns of each of them, so long as they
hold Securities. None of the provisions hereof shall create, or be construed or
deemed to create, any right to employment in favor of any Person by the
Corporation or any of its Subsidiaries. This Agreement is not intended to create
any third party beneficiaries.
16 Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart. The failure of any
Stockholder to execute this Agreement does not make it invalid as against any
other Stockholder.
17 Remedies.
(a) Each Stockholder shall have all rights and remedies reserved for such
Stockholder pursuant to this Agreement and the Articles and By-laws and all
rights and remedies which such holder has been granted at any time under any
other agreement or contract and all of the rights
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<PAGE> 26
which such holder has under any law or equity. Any Person having any rights
under any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law or equity.
(b) The parties hereto agree that if any parties seek to resolve any
dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties fail to comply with any of the
obligations herein imposed on them and that in the event of any such failure, an
aggrieved Person will be irreparably damaged and will not have an adequate
remedy at law. Any such person shall, therefore, be entitled to injunctive
relief, including specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
18 Notices.
All notices, requests, consents and other communications hereunder
to any party shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to have been duly given when delivered in person,
by telecopy, by nationally-recognized overnight courier, or by first class
registered or certified mail, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by the addressee to the addressor:
(i) if to the Company, to:
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Fax: (212) 250-7651
Tel.: (212) 250-8412
Attention: Richard Gersten
with a copy to:
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<PAGE> 27
Ontario Teachers' Pension Plan Board
5650 Yonge Street
North York, Ontario
M2M 4H5
Fax: (416) 730-5374
Tel.: (416) 730-5330
Attention: Portfolio Manager, Merchant Banking
and Counsel, Investments.
(ii) if to the Investors:
to the address set forth for such Stockholder on
Schedule I, with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 408-2420
Tel.: (212) 408-2400
Attention: John M. Scott; and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Tel.: (212) 909-6000
Attention: Franci J. Blassberg; and
Dorsey & Whitney
Pillsbury Center South
220 South 6th Street
Minneapolis, Minnesota 55402
Fax: (612) 340-8827
Tel.: (612) 340-2802
Attention: Michael J. McDonnell.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day and (c) in the case of mailing, on
the third business day following such mailing if sent by certified mail, return
receipt requested.
19 Further Assurances.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates,
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<PAGE> 28
instruments, and documents as any other party hereto reasonably may request in
order to carry out the provisions of this Agreement and the consummation of the
transactions contemplated hereby.
20 Governing Law; Jurisdiction; Venue; Process.
.This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in the State of New York and shall be construed without regard to (i)
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York and (ii) any presumption or
other rule requiring the construction of an agreement against the party causing
it to be drafted. Any legal action in a proceeding brought in accordance with
this Section shall be brought in either Hennepin County, Minnesota, in the
courts of the State of Minnesota or of the United States District Court for the
District of Minnesota, or in New York, New York, in the courts of the State of
New York or of the United States District Court for the Southern District of New
York, and by execution and delivery of this Agreement, the parties hereby accept
for themselves and in respect of their property, generally and unconditionally,
the exclusive jurisdiction of the aforesaid courts. The parties hereby
irrevocably waive any objection which they may now or hereafter have to laying
of venue of any actions or proceedings arising out of or in connection with this
Agreement or any Related Agreement, brought in the courts referred to above and
hereby further irrevocably waive and agree, not to plead or claim in any such
court that any such action or proceeding has been brought in an inconvenient
forum. The parties further agree that the mailing by certified or registered
mail, return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without necessity
for service by any other means provided by statute or rule of court.
21 Conflicting Agreements.
(a) No Stockholder shall enter into any stockholder agreements or
arrangements of any kind with any Person with respect to any Securities on terms
inconsistent with the provisions of this Agreement (whether or not such
agreements or arrangements are with other Stockholders or with Persons that are
not parties to this Agreement), including but not limited to, agreements or
arrangements with respect to the acquisition or disposition of securities of the
Corporation in a manner which is inconsistent with this Agreement. In the event
of any inconsistency between this Agreement and any other agreement (including,
without limitation, the Registration Rights Agreement), this Agreement shall
control as amongst the parties to this Agreement.
(b) In the event of any inconsistency between this Agreement and the
Articles, the Stockholders shall use all reasonable efforts to cause the
Corporation to amend the Articles to conform to the terms of this Agreement.
22 Amendment.
The provisions of this Agreement may only be amended, waived or
terminated with the prior written consent of (i) the Corporation, and (ii) the
Requisite Holders and (iii) a
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<PAGE> 29
Majority in Interest of OTPB Stockholders; provided, however, that (A) any such
amendment, modification, or waiver that would adversely affect the rights
hereunder of any Stockholder, in its capacity as a Stockholder, without
similarly affecting the rights hereunder of all Stockholders, in their
capacities as Stockholders, shall not be effective as to such Stockholder
without its prior written consent and (B) Schedule I to this Agreement shall be
deemed to be automatically amended from time to time to reflect Transfers of
Stock made in compliance with this Agreement without requiring the consent of
any party, and the Corporation will, from time to time, distribute to the
Stockholders a revised Schedule I to reflect any such changes.
23 Waiver.
No course of dealing between the Corporation, its Subsidiaries and
the Stockholders (or any of them) or any delay in exercising any rights
hereunder will operate as a waiver of any rights of any party to this Agreement.
The failure of any party to enforce any of the provisions of this Agreement will
in no way be construed as a waiver of such provisions and will not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
24 Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
* * * * *
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<PAGE> 30
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
------------------------------
Name:
Title:
/s/ Jay F. Ecklund
------------------------------
Jay F. Ecklund
<PAGE> 31
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
YOUNG AMERICA CORPORATION
By:
------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By: /s/ [ILLEGIBLE]
------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
------------------------------
Name:
Title:
------------------------------
Jay F. Ecklund
<PAGE> 32
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
YOUNG AMERICA CORPORATION
By:
------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By: /s/ [ILLEGIBLE]
------------------------------
Name: [ILLEGIBLE]
Title: Portfolio Manager
------------------------------
Jay F. Ecklund
<PAGE> 33
Schedule I
Names and Addresses of Stockholders
BT Stockholders
BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Facsimile: (212) 250-7651
Attention: Richard Gersten
Original Stockholders
Jay F. Ecklund
Pier 66 Resort & Marina
2301 Southeast 17th Street
Ft. Lauderdale, Florida 33316
Fax: (954) 830-3220
Tel.: (954) 767-8998
OTPB Stockholders
Ontario Teachers' Pension Plan Board
5650 Yonge Street
North York, Ontario
M2M 4H5
Fax: (416) 730-5374
Tel.: (416) 730-5330
Attention: Portfolio Manager, Merchant Banking
and Counsel, Investments.
[Management Stockholders]
<PAGE> 1
Exhibit 10.7
================================================================================
REGISTRATION RIGHTS AGREEMENT
dated November 25, 1997,
among
YOUNG AMERICA CORPORATION
and the
OTHER PARTIES LISTED HEREIN
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
dated November 25, 1997, among YOUNG AMERICA
CORPORATION , a Minnesota corporation (the
"Company"), and the stockholders of the
Company listed on Schedule I (the
"Investors").
Each Investor currently owns (or has the right to acquire) the number of
shares of Common Stock of the Company set forth opposite the name of such
Investor on Schedule I. The parties hereto deem it to be in their best interests
to set forth their rights and obligations in connection with public offerings
and sales of shares of Common Stock. Accordingly, the parties agree as follows:
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means collectively, the Class A Common Stock, par value
$1.00 per share, of the Company, the Class B Common Stock, par value $1.00 per
share, and the Class C Common Stock, par value $1.00 per share of the Company.
"Ecklund" means Jay F. Ecklund and any person or entity that acquires
Restricted Shares directly or indirectly from Ecklund in accordance with Section
17.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules
and regulations of the Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"Initial Public Offering" means the first underwritten public offering of
Common Stock for sale to the public for the account of the Company and offered
on a "firm commitment" or "best efforts" basis pursuant to an offering
registered under the Securities Act with the Commission on Form S-1 or its then
equivalent.
"Other Shares" means at any time those shares of Common Stock which do not
constitute Primary Shares or Registrable Shares.
"Primary Shares" means at any time the authorized but unissued shares of
Common Stock or shares of Common Stock held by the Company in its treasury.
<PAGE> 3
"Registrable Shares" means at any time, with respect to any Stockholder,
the Restricted Shares held by such Stockholder which constitute Common Stock.
"Requisite Percentage of Stockholders" means at any time prior to the
sixth anniversary of the date of this Agreement, the Stockholders holding not
less than 50% (by number of shares) of the then outstanding Registrable Shares,
and at any time thereafter, the Stockholders holding not less than 20% (by
number of shares) of the then outstanding Registrable Shares.
"Restricted Shares" means at any time, with respect to any Stockholder,
the shares of Common Stock, any other securities which by their terms are
exercisable or exchangeable for or convertible into Common Stock or other
securities which are so exercisable or convertible and any securities received
in respect thereof, which are held by such Stockholder and which have not
previously been sold to the public pursuant to a registration statement under
the Securities Act or pursuant to Rule 144 or which are not (or would not be,
upon any such exercise, exchange or conversion) eligible for sale by the holder
thereof under Rule 144(k) or any successor rule thereto or any complementary
rule thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
"Stockholders" means the Investors and any person or entity that acquires
Restricted Shares directly or indirectly from an Investor in accordance with
Section 17.
"Transfer" means any disposition of any Restricted Shares or of any
interest therein which constitutes a sale within the meaning of the Securities
Act, other than any disposition pursuant to an effective registration statement
under the Securities Act and complying with all applicable state securities and
"blue sky" laws.
SECTION 2. Demand Registration.
(a) If the Company shall be requested by the Requisite Percentage of
Stockholders to effect a registration under the Securities Act of Registrable
Shares in accordance with this Section, then the Company shall promptly give
written notice of such proposed registration to all holders of Restricted Shares
and shall offer to include in such proposed registration any Registrable Shares
requested to be included in such proposed registration by such holders who
respond in writing to the
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<PAGE> 4
Company's notice within 30 days after delivery of such notice (which response
shall specify the number of Registrable Shares proposed to be included in such
registration). The Company shall promptly use its best efforts to effect such
registration on an appropriate form, including Form S-2 or S-3, if available,
under the Securities Act of the Registrable Shares which the Company has been so
requested to register; provided, however, that the Company shall not be
obligated to effect any registration under the Securities Act except in
accordance with the following provisions:
(i) the Company shall not be obligated to (A) file more than four
registration statements in total pursuant to this Section or (C) file more
than one registration statement pursuant to this Section within any
consecutive 180-day period, which registration statement(s) were initiated
pursuant to this Section and become effective or which are rescinded by
the Stockholders without reimbursement as specified in the last paragraph
of this Section;
(ii) the Company shall not be obligated to file any registration statement
during any period in which any other registration statement (other than on
Form S-4 or Form S-8 promulgated under the Securities Act or any successor
forms thereto) pursuant to which Primary Shares are to be or were sold has
been filed and not withdrawn or has been declared effective within the
prior 90 days;
(iii) with respect to any registration pursuant to this Section, the
Company may include in such registration any Primary Shares or Other
Shares; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares, Primary Shares and
Other Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of all such securities,
then the number of Registrable Shares, Primary Shares and Other Shares
proposed to be included in such registration shall be included in the
following order:
(A) first, the Primary Shares;
(B) second, the Registrable Shares held by the Stockholders,
pro rata based upon the number of Restricted Shares (based upon
Common Stock equivalents) owned by each such Stockholder at the time
of such registration; and
(C) third, the Other Shares,
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<PAGE> 5
(b) A requested registration under this Section may be rescinded by
written notice to the Company by a majority of the Stockholders requesting such
registration; such rescinded registration shall not count as a registration
statement initiated pursuant to this Section for purposes of paragraph (a) above
if such registration statement is rescinded prior to the effective date thereof
and if the Stockholders initiating such request shall have reimbursed the
Company for all out-of-pocket expenses incurred by the Company in connection
with such rescinded registration. A registration shall not count as a
registration statement initiated pursuant to this Section for purposes of
paragraph (a) above unless it becomes effective and the Stockholders requesting
such registration are able to sell at least 80% of the Registrable Shares sought
to be included in such registration statement.
SECTION 3. Registrations on Form S-3.
Anything contained in Section 2 to the contrary notwithstanding, at such
time as the Company shall have qualified for the use of Form S-3 or any
successor form promulgated under the Securities Act, if the Company shall be
requested by the Stockholders (other than Ecklund) to effect a registration
under the Securities Act of Registrable Shares in accordance with this Section,
then the Company shall promptly give written notice of such proposed
registration to all holders of Restricted Shares (including Ecklund) and shall
offer to include in such proposed registration any Registrable Shares requested
to be included in such proposed registration by such holders who respond in
writing to the Company's notice within 30 days after delivery of such notice
(which response shall specify the number of Registrable Shares proposed to be
included in such registration). The Company shall promptly use its best efforts
to effect such registration on Form S-3 of the Registrable Shares which the
Company has been so requested to register; provided, however, that the Company
shall not be obligated to file any registration statement pursuant to this
Section if the Company shall reasonably conclude that the anticipated gross
offering price of all Registrable Shares to be included therein would be less
than $500,000.
SECTION 4. Piggyback Registration.
If the Company at any time proposes for any reason to register Primary
Shares or Other Shares under the Securities Act (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto or other
than in connection with an exchange offer or offering solely to the Company's
stockholders), it shall promptly give written notice to each Stockholder of its
intention to so register the Primary Shares or Other Shares and, upon the
written request, given within 30 days after delivery of any such notice by the
Company, of any Stockholder to include in such registration Registrable
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<PAGE> 6
Shares held by such Stockholder (which request shall specify the number of
Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all Registrable
Shares or Other Shares proposed to be included in such registration would
interfere with the successful marketing (including pricing) of the Primary
Shares proposed to be registered by the Company, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(a) first, the Primary Shares;
(b) second, the Registrable Shares held by the Stockholders, pro rata
based upon the number of Restricted Shares (based upon Common Stock equivalents)
owned by each such Stockholder at the time of such registration; and
(c) third, the Other Shares.
SECTION 5. Expenses.
The Company shall bear the expense of any registrations effected pursuant
to Sections 2, 3 and 4 , including, without limitation, all registration and
filing fees (including all expenses incident to filing with the NASD), fees and
expenses of complying with securities and blue sky laws, printing expenses, and
fees and expenses of the Company's counsel and accountants, and the fees and
expenses of the Selling Stockholders Counsel (as defined below), but excluding
any underwriters' or brokers' discounts or commissions and the fees of any
counsel to any Selling Stockholder, other than the Selling Stockholders'
Counsel. The expenses of any additional registrations pursuant to Sections 2 and
3 shall be borne by the Stockholders participating in such registration pro rata
based upon the number of shares registered pursuant thereto by each such
Stockholder.
SECTION 6. Holdback Agreement.
(a) If the Company at any time shall register shares of Common Stock under
the Securities Act pursuant to an Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the Company in writing to the Stockholders, which
period shall not begin more than 10 days prior to the effectiveness of the
registration statement pursuant to which such public offering
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<PAGE> 7
shall be made and shall not last more than 180 days after the effective date of
such registration statement; provided that the Stockholders shall be bound by
this provision only if, and to the extent, the executive officers of the Company
owning Common Stock shall be bound by such a provision.
(b) If the Company at any time shall register shares of Common Stock under
the Securities Act (including any registration pursuant to Sections 2, 3 or 4)
for sale to the public after the Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the Company in writing to the Stockholders, which
period shall not begin more than 10 days prior to the effectiveness of the
registration statement pursuant to which such public offering shall be made and
shall not last more than 90 days after the effective date of such registration
statement; provided that the Stockholders shall be bound by this provision only
if, and to the extent, the executive officers of the Company owning Common Stock
shall be bound by such a provision.
SECTION 7. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares, the Company shall, as expeditiously as practicable:
(a) use its best efforts to cause a registration statement that registers
such Registrable Shares to become and remain effective for a period of 180 days
or until all of such Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five business days before filing a registration
statement that registers such Registrable Shares, a prospectus relating thereto
or any amendments or supplements relating to such a registration statement or
prospectus, to each holder of Registrable Shares, to any counsel to any Selling
Stockholder and to one counsel selected by the holders of a majority of such
Registrable Shares (the "Selling Stockholders' Counsel"), copies of all such
documents proposed to be filed (it being understood that such five-business-day
period need not apply to successive drafts of the same document proposed to be
filed so long as such successive drafts are supplied to such counsel in advance
of the proposed filing by a period of time that is customary and reasonable
under the circumstances);
(c) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such
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<PAGE> 8
registration statement effective for at least a period of 180 days or until all
of such Registrable Shares have been disposed of (if earlier) and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares;
(d) notify in writing any counsel to any Selling Stockholder and the
Selling Stockholders' Counsel promptly (i) of the receipt by the Company of any
notification with respect to any comments by the Commission with respect to such
registration statement or prospectus or any amendment or supplement thereto or
any request by the Commission for the amending or supplementing thereof or for
additional information with respect thereto, (ii) of the receipt by the Company
of any notification with respect to the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or prospectus
or any amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of such
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purposes;
(e) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as any seller
of Registrable Shares reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller of
Registrable Shares to consummate the disposition in such jurisdictions of the
Registrable Shares owned by such seller; provided, however, that the Company
will not be required to qualify generally to do business, subject itself to
general taxation or consent to general service of process in any jurisdiction
where it would not otherwise be required so to do but for this paragraph (e);
(f) furnish to each seller of such Registrable Shares such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller of Registrable Shares may reasonably request in
order to facilitate the public sale or other disposition of such Registrable
Shares;
(g) use its best efforts to cause such Registrable Shares to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Shares;
(h) notify on a timely basis each seller of such Registrable Shares at any
time when a prospectus relating to such
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<PAGE> 9
Registrable Shares is required to be delivered under the Securities Act within
the appropriate period mentioned in paragraph (a) of this Section, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the offerees of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(i) make available for inspection by any counsel to any Selling
Stockholder and the Selling Stockholders' Counsel or any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in connection with
such registration statement. Any of the Information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, shall not be disclosed by the Inspectors unless (i) the disclosure
of such Information is necessary to avoid or correct a misstatement or omission
in the registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction or
(iii) such Information has been made generally available to the public. The
seller of Registrable Shares agrees that it will, upon learning that disclosure
of such Information is sought in a court of competent jurisdiction, give notice
to the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent certified public
accountants "comfort" letters in customary form and at customary times and
covering matters of the type customarily covered by comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or opinions
in customary form;
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<PAGE> 10
(l) provide a transfer agent and registrar (which may be the same entity
and which may not be the Company) for such Registrable Shares;
(m) issue to any underwriter to which any seller of Registrable Shares may
sell shares in such offering certificates evidencing such Registrable Shares;
provided, however, that the Company shall have the right to approve any such
underwriter with such approval not to be unreasonably withheld;
(n) list such Registrable Shares on any national securities exchange on
which any shares of the Common Stock are listed or, if the Common Stock is not
listed on a national securities exchange, use its best efforts to qualify such
Registrable Shares for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc. (the "NASD") or such national
securities exchange as the holders of a majority of such Registrable Shares
shall request;
(o) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission and make available to its securityholders, as soon
as reasonably practicable, earnings statements (which need not be audited)
covering a period of 12 months beginning within three months after the effective
date of the registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) use its best efforts to take all other steps necessary to effect the
registration of such Registrable Shares contemplated hereby.
SECTION 8. Indemnification.
In connection with any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Company shall indemnify and hold
harmless the seller of such Registrable Shares, its officers and directors, each
underwriter, broker or any other person acting on behalf of such seller and each
other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the
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<PAGE> 11
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse such seller, such officer or director, such underwriter, such
broker or such other person acting on behalf of such seller and each such
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action; 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 or omission or alleged omission made in said registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document
incident to registration or qualification of any Registrable Shares in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such seller or underwriter specifically for use
in the preparation thereof; provided, further, that the foregoing indemnity
shall not inure to the benefit of any underwriter, with respect to any
preliminary prospectus, from who the person asserting any losses, claims,
damages and liabilities and judgments purchased Registrable Shares or any person
controlling such underwriter, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such underwriter to such
person, if required by law so to have been delivered, or prior to a written
confirmation of the sale of the Registrable Shares to such person, and if the
prospectus (as so amended and supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or judgment, unless such failure to
deliver the prospectus (as so amended and supplemented was a result of
noncompliance by the Company with Section 7(f) hereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section) the Company, each director
of the Company, each officer of the Company who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the foregoing persons within the meaning
of the Securities Act and each other seller of Registrable Shares under such
registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller specifically for
use in connection with the
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<PAGE> 12
preparation of such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; provided, however, that the
obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Shares, and the maximum amount of liability in respect of
such indemnification shall be in proportion to and limited to, in the case of
each seller of Registrable Shares, an amount equal to the net proceeds actually
received by such seller from the sale of Registrable Shares effected pursuant to
such registration.
The indemnification required by this Section 9 will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred, subject to prompt refund in the event any
such payments are determined not to have been due and owing hereunder.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the latter in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available to
such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement provided
in this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section.
The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities.
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If the indemnification provided for in this Section is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage or liability as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the sellers of Registrable Shares agree that it would not be just and equitable
if contributions pursuant to this paragraph were determined by pro rata
allocation or by any other method of allocation which did not take into account
the equitable considerations referred to herein. The amount paid or payable to
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses referred to above shall be deemed to include, subject to the limitation
set forth in the fourth paragraph of this Section 8, any legal or other expenses
reasonably incurred in connection with investigating or defending the same.
Notwithstanding the foregoing, in no event shall the amount contributed by a
seller of Registrable Shares exceed the aggregate net offering proceeds received
by such seller from the sale of its Registrable Shares.
SECTION 9. Underwriting Agreement.
Notwithstanding the provisions of Sections 6, 7 and 8, to the extent that
the Company and the Stockholders selling Registrable Shares in a proposed
registration shall enter into an underwriting or similar agreement, which
agreement contains provisions covering one or more issues addressed in such
Sections, the provisions contained in such Sections addressing such issue or
issues shall be superseded with respect to such registration by such other
agreement.
SECTION 10. Information by Holder.
Each Stockholder selling Registrable Shares in a proposed registration
shall furnish to the Company such written information regarding such holder and
the distribution proposed by such Stockholder as the Company may reasonably
request in writing and as shall be reasonably required in connection with
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any registration, qualification or compliance referred to in this Agreement.
SECTION 11. Exchange Act Compliance.
From and after the Demand Registration Date or such earlier date as a
registration statement filed by the Company pursuant to the Exchange Act
relating to any class of the Company's securities shall have become effective,
the Company shall comply with all of the reporting requirements of the Exchange
Act and with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. The Company shall cooperate with each Stockholder in supplying
such information as may be necessary for such Stockholder to complete and file
any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
SECTION 12. No Conflict of Rights.
The Company represents and warrants to the Stockholders that the
registration rights granted to the Stockholders hereby do not conflict with any
other registration rights granted by the Company. The Company shall not, after
the date hereof, grant any registration rights which conflict with the
registration rights granted hereby.
SECTION 13. Restriction on Transfer.
(a) The Restricted Shares shall not be transferable except upon the
conditions specified in this Section, which conditions are intended to insure
compliance with the provisions of the Securities Act.
(b) Each certificate representing Restricted Shares shall (unless
otherwise permitted by the provisions of paragraph (c) and (d) below) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT
TO THE SATISFACTION OF CERTAIN CONDITIONS SET FORTH WITHIN A
STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 25, 1997 AMONG YOUNG
AMERICA
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<PAGE> 15
CORPORATION, AND THE OTHER PARTIES NAMED THEREIN AND A REGISTRATION
RIGHTS AGREEMENT DATED NOVEMBER 25, 1997, AMONG YOUNG AMERICA
CORPORATION, AND THE OTHER PARTIES NAMED THEREIN, AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF YOUNG AMERICA CORPORATION."
(c) The holder of any Restricted Shares by acceptance thereof agrees,
prior to any Transfer of any Restricted Shares, to give written notice to the
Company of such holder's intention to effect such Transfer and to comply in all
other respects with the provisions of this Section. Each such notice shall
describe the manner and circumstances of the proposed Transfer. Upon request by
the Company, the holder delivering such notice shall deliver a written opinion,
addressed to the Company, of counsel for the holder of Restricted Shares,
stating that in the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to the Company) such proposed Transfer does not involve
a transaction requiring registration or qualification of such Restricted Shares
under the Securities Act. Such holder of Restricted Shares shall be entitled to
Transfer such Restricted Shares in accordance with the terms of the notice
delivered to the Company, if the Company does not reasonably object to such
Transfer and request such opinion within fifteen days after delivery of such
notice, or, if it requests such opinion, does not reasonably object to such
Transfer within fifteen days after delivery of such opinion. Each certificate or
other instrument evidencing the securities issued upon the Transfer of any
Restricted Shares (and each certificate or other instrument evidencing any
untransferred balance of such Registered Shares) shall bear the legend set forth
in paragraph (b) above unless (i) in such opinion of counsel to the holder of
Restricted Shares (which opinion and counsel shall be reasonably acceptable to
the Company) registration of any future Transfer is not required by the
applicable provisions of the Securities Act or (ii) the Company shall have
waived the requirement of such legends.
(d) Notwithstanding the foregoing provisions of this Section, the
restrictions imposed by this Section upon the transferability of any Restricted
Shares shall cease and terminate when (i) any such Restricted Shares are sold or
otherwise disposed of (A) pursuant to an effective registration statement under
the Securities Act or (B) in a transaction contemplated by paragraph (c) above
which does not require that the Restricted Shares so transferred bear the legend
set forth in paragraph (b) hereof, or (ii) the holder of such Restricted Shares
has met the requirements for Transfer of such Restricted Shares under Rule
144(k) under the Securities Act (subject to the deliver of opinions as set forth
above). Whenever the restrictions imposed by this Section shall terminate, the
holder of any Restricted Shares as to which such restrictions have
-14-
<PAGE> 16
terminated shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in paragraph (b) above
and not containing any other reference to the restrictions imposed by this
Section.
SECTION 14. Termination.
This Agreement shall terminate and be of no further force or effect on the
date on which there remains no Restricted Shares outstanding.
SECTION 15. Severability.
Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, and such invalid, void or otherwise unenforceable
provisions shall be null and void. It is the intent of the parties, however,
that any invalid, void or otherwise unenforceable provisions be automatically
replaced by other provisions which are as similar as possible in terms to such
invalid, void or otherwise unenforceable provisions but are valid and
enforceable to the fullest extent permitted by law.
SECTION 16. Entire Agreement.
This Agreement, together with the Stockholders' Agreement dated the date
hereof among the Company and the other parties named therein (the "Stockholders'
Agreement"), contains the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior arrangements or understandings
with respect hereto. In the event of any inconsistency between this Agreement
and the Stockholders' Agreement, the Stockholders' Agreement shall control.
SECTION 17. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the Company and the
Stockholders and their respective successors and permitted assigns; provided,
however, that each such person or entity shall, as a condition to the
effectiveness of such assignment, be required to execute a counterpart to this
Agreement whereupon such person or entity shall have the benefits of, and shall
be subject to the restrictions contained in, this Agreement with respect to such
Restricted Shares.
SECTION 18. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
any one of which need not contain the
-15-
<PAGE> 17
signatures of more than one party, but all such counterparts taken together will
constitute one and the same agreement. It shall not be necessary in making proof
of this Agreement to produce or account for more than one such counterpart. The
failure of any Stockholder to execute this Agreement does not make it invalid as
against any other Stockholder.
SECTION 19. Remedies.
(a) Each Stockholder shall have all rights and remedies reserved for such
Stockholder pursuant to this Agreement and the Articles of Incorporation and the
By-laws of the Company and all rights and remedies which such Stockholder has
been granted at any time under any other agreement or contract and all of the
rights which such holder has under any law or equity. Any person having any
rights under any provision of this Agreement will be entitled to enforce such
rights specifically, to recover damages by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law or equity.
(b) The parties hereto agree that if any parties seek to resolve any
dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties fail to comply with any of the
obligations herein imposed on them and that in the event of any such failure, an
aggrieved person will be irreparably damaged and will not have an adequate
remedy at law. Any such person shall, therefore, be entitled to injunctive
relief, including specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
SECTION 20. Notices.
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument and
shall be deemed to have been duly given when delivered in person, by telecopy,
by nationally-recognized overnight courier, or by first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the addressor:
(i) if to the Company, to:
-16-
<PAGE> 18
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Fax: (212) 250-7651
Tel.: (212) 250-8412
Attention: Richard Gersten
(ii) if to the Investors:
to the address set forth for such Investor on
Schedule I, with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 408-2420
Tel.: (212) 408-2400
Attention: John M. Scott; and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Tel.: (212) 909-6000
Attention: Franci J. Blassberg; and
Dorsey & Whitney
Pillsbury Center South
220 South 6th Street
Minneapolis, Minnesota 55402
Fax: (612) 340-8827
Tel.: (612) 340-2802
Attention: Michael J. McDonnell.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day and (c) in the case of mailing, on
the third business day following such mailing if sent by certified mail, return
receipt requested.
SECTION 21. Governing Law; Jurisdiction; Venue; Process.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in the State of New York and shall be construed without regard to (i) any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application
-17-
<PAGE> 19
of the laws of any jurisdiction other than the State of New York and (ii) any
presumption or other rule requiring the construction of an agreement against the
party causing it to be drafted. Any legal action in a proceeding brought in
accordance with this Section shall be brought in either Hennepin County,
Minnesota, in the courts of the State of Minnesota or of the United States
District Court for the District of Minnesota, or in New York, New York, in the
courts of the State of New York or of the United States District Court for the
Southern District of New York, and by execution and delivery of this Agreement,
the parties hereby accept for themselves and in respect of their property,
generally and unconditionally, the exclusive jurisdiction of the aforesaid
courts. The parties hereby irrevocably waive any objection which they may now or
hereafter have to laying of venue of any actions or proceedings arising out of
or in connection with this Agreement brought in the courts referred to above and
hereby further irrevocably waive and agree, not to plead or claim in any such
court that any such action or proceeding has been brought in an inconvenient
forum. The parties further agree that the mailing by certified or registered
mail, return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without necessity
for service by any other means provided by statute or rule of court.
SECTION 22. Further Assurances.
Each party hereto shall do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments, and documents as any other party hereto
reasonably may request in order to carry out the provisions of this Agreement
and the consummation of the transactions contemplated hereby.
SECTION 23. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be modified, amended or
waived, except pursuant to a writing signed by the Majority in Interest of BT
Stockholders and the Majority in Interest of OTPB Stockholders (as such terms
are defined within the Stockholders Agreement); provided, however, that any such
amendment, modification, or waiver that would adversely affect the rights
hereunder of any Stockholder, in its capacity as a Stockholder, without
similarly affecting the rights hereunder of all Stockholders, in their
capacities as Stockholders, shall not be effective as to such Stockholder
without its prior written consent.
-18-
<PAGE> 20
SECTION 24. Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
SECTION 25. Waiver.
No course of dealing between the Company and the Stockholders (or any of
them) or any delay in exercising any rights hereunder will operate as a waiver
of any rights of any party to this Agreement. The failure of any party to
enforce any of the provisions of this Agreement will in no way be construed as a
waiver of such provisions and will not affect the right of such party thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
SECTION 26. Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS
ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON
AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
-19-
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
--------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
--------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
--------------------------------
Name:
Title:
/s/ Jay F. Ecklund
--------------------------------
Jay F. Ecklund
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
YOUNG AMERICA CORPORATION
By:
--------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
--------------------------------
Name:
Title:
--------------------------------
Jay F. Ecklund
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
YOUNG AMERICA CORPORATION
By:
--------------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
--------------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By: /s/ [ILLEGIBLE]
--------------------------------
Name: [ILLEGIBLE]
Title: Portfolio Manager
--------------------------------
Jay F. Ecklund
<PAGE> 24
Schedule I
<TABLE>
<CAPTION>
Shares of
Investors Common Stock
- --------- ------------
<S> <C>
BT CAPITAL PARTNERS, INC. 1,029,859
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Fax: (212) 250-7651
Tel.: (212) 250-8412
Attention: Richard Gersten
ONTARIO TEACHERS' PENSION PLAN BOARD 551,000
5650 Yonge Street
North York, Ontario
M2M 4H5
Fax: (416) 730-5374
Tel.: (416) 730-5330
Attention: Portfolio Manager, Merchant
Banking and Counsel,
Investments
JAY F. ECKLUND 134,400
Pier 66 Resort & Marina
2301 Southeast 17th Street
Ft. Lauderdale, Florida 33316
Fax: (954) 830-3320
Tel.: (954) 767-8998
</TABLE>
<PAGE> 1
Exhibit 10.8
YOUNG AMERICA CORPORATION
$ 80,000,000
11 5/8% Senior Subordinated Notes due 2006
PURCHASE AGREEMENT
February 18, 1998
BT ALEX. BROWN INCORPORATED
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Young America Corporation, a Minnesota corporation (the "Company"),
and Young America Holdings, Inc., a Minnesota corporation and the parent of the
Company ("Holdings"), hereby confirm their agreement with you (the "Initial
Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchaser
$80,000,000 aggregate principal amount of its 11 5/8% Senior Subordinated Notes
due 2006, Series A (the "Notes"). The Notes will be unconditionally guaranteed
(the "Guarantee") on a senior subordinated basis by Holdings. The Notes and the
Guarantee are collectively referred to herein as the "Securities". The
Securities are to be issued under an indenture (the "Indenture") to be dated as
of February 23, 1998 by and among the Company, Holdings and Marine Midland Bank,
as Trustee (the "Trustee").
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum dated January 29, 1998 (the
"Preliminary Memorandum"), and a final offering memorandum dated February 18,
1998 (the "Final Memorandum"; the Preliminary Memorandum and the Final
Memorandum
<PAGE> 2
-2-
each herein being referred to as a "Memorandum") setting forth or including a
description of the terms of the Securities, the terms of the offering of the
Securities, a description of the Company and any material developments relating
to the Company occurring after the date of the most recent historical financial
statements included therein.
The Initial Purchaser and its direct and indirect transferees of the
Securities will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Company and Holdings
have agreed, among other things, to file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") registering the Notes or the Exchange Notes (as defined in the
Registration Rights Agreement) under the Act.
2. Representations and Warranties. The Company and Holdings
represent and warrant to the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor
the Final Memorandum nor any amendment or supplement thereto as of the date
thereof and at all times subsequent thereto up to the Closing Date (as defined
in Section 3 below) contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this Section 2(a) do not apply to statements or omissions made in reliance
upon and in conformity with information relating to the Initial Purchaser
furnished to the Company in writing by the Initial Purchaser expressly for use
in the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(b) As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth in the Final Memorandum; all of
the outstanding shares of capital stock of the Company have been, and as of the
Closing Date will be, duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights; all of the outstanding shares of capital stock of the Company will be
free and clear of all liens, encumbrances, equities and claims or restrictions
on transferability (other than those imposed by the Act and the securities or
"Blue Sky" laws of certain jurisdictions) or voting; except as set forth in the
Final Memorandum, there are no (i) options,
<PAGE> 3
-3-
warrants or other rights to purchase, (ii) agreements or other obligations to
issue or (iii) other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of or ownership interests in the Company
outstanding. The Company does not own, directly or indirectly, any shares of
capital stock or any other equity or long-term debt securities or have any
equity interest in any firm, partnership, joint venture or other entity.
(c) Each of the Company and Holdings is duly incorporated, validly
existing and in good standing under the laws of the State of Minnesota and has
all requisite corporate power and authority to own its properties and conduct
its business as now conducted and as described in the Final Memorandum; each of
the Company and Holdings is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or otherwise) or results of operations of the
Company or Holdings, taken as a whole (any such event, a "Material Adverse
Effect").
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes, the Exchange Notes
and the Private Exchange Notes (as defined in the Registration Rights
Agreement). The Notes, when issued, will be in the form contemplated by the
Indenture. The Notes, the Exchange Notes and the Private Exchange Notes have
each been duly and validly authorized by the Company and, when executed by the
Company and authenticated by the Trustee in accordance with the provisions of
the Indenture and, in the case of the Notes, when delivered to and paid for by
the Initial Purchaser in accordance with the terms of this Agreement, 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 that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(e) Holdings has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Guarantee. The Guarantee
has been duly and validly authorized by Holdings and, when the Indenture has
been duly and validly author-
<PAGE> 4
-4-
ized, executed and delivered, and when the Notes are duly and validly
authorized, executed, issued and delivered against payment therefor in
accordance with the terms hereof, the Guarantee will constitute a valid and
legally binding obligation of Holdings, entitled to the benefits of the
Indenture, and enforceable against Holdings in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(f) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform its obligations under the
Indenture. The Indenture meets the requirements for qualification under the
Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly
and validly authorized by the Company and Holdings and, when executed and
delivered by the Company and Holdings (assuming the due authorization, execution
and delivery by the Trustee), will constitute a valid and legally binding
agreement of the Company and Holdings, enforceable against the Company and
Holdings in accordance with its terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity and the discretion of the court before
which any proceeding therefor may be brought.
(g) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has been duly
and validly authorized by the Company and Holdings and, when executed and
delivered by the Company and Holdings, will constitute a valid and legally
binding agreement of the Company and Holdings enforceable against the Company
and Holdings in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought and (B) any rights to
indemnity or contribution thereunder may be limited by federal and state
securities laws and public policy considerations.
<PAGE> 5
-5-
(h) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the consummation by the Company and Holdings of the transactions
contemplated hereby have been duly and validly authorized by the Company and
Holdings. This Agreement has been duly executed and delivered by the Company and
Holdings.
(i) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, no consent, approval, authorization
or order of any court or governmental agency or body, or third party is required
for the issuance and sale by the Company or Holdings for (i) the issuance and
sale by the Company of the Notes to the Initial Purchaser, (ii) the issuance by
Holdings of the Guarantee or (iii) the consummation by the Company and Holdings
of the other transactions contemplated hereby, except such as have been obtained
and such as may be required under state securities or "Blue Sky" laws in
connection with the purchase and resale of the Notes by the Initial Purchaser.
Neither the Company nor Holdings is (x) in violation of its certificate of
incorporation or bylaws (or similar organizational document), (y) in breach or
violation of any statute, judgment, decree, order, rule or regulation applicable
to any of them or any of their respective properties or assets, except for any
such breach or violation which would not, individually or in the aggregate, have
a Material Adverse Effect, or (z) in breach of or default under (nor has any
event occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of them or their
respective properties or assets is subject (collectively, "Contracts"), except
for any such breach, default, violation or event which would not, individually
or in the aggregate, have a Material Adverse Effect.
(j) The execution, delivery and performance by the Company and
Holdings of this Agreement, the Indenture and the Registration Rights Agreement
and the consummation by the Company and Holdings of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
sale of the Securities to the Initial Purchaser) will not conflict with or
constitute or result in a breach of or a default under (or an event which with
notice or passage of time or both would constitute a default under) or violation
of any of (i) the
<PAGE> 6
-6-
terms or provisions of any Contract, except for any such conflict, breach,
violation, default or event which would not, individually or in the aggregate,
have a Material Adverse Effect, (ii) the articles of incorporation or bylaws of
the Company or Holdings or (iii) (assuming compliance with all applicable state
securities or "Blue Sky" laws and assuming the accuracy of the representations
and warranties of the Initial Purchaser in Section 8 hereof) any statute,
judgment, decree, order, rule or regulation applicable to the Company or
Holdings or any of their respective properties or assets, except for any such
conflict, breach or violation which would not, individually or in the aggregate,
have a Material Adverse Effect.
(k) The audited consolidated financial statements of Holdings and
the Company included in the Final Memorandum present fairly in all material
respects the financial position, results of operations and cash flows of the
Company and Holdings at the dates and for the periods to which they relate and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein. The summary
and selected financial and statistical data in the Final Memorandum present
fairly in all material respects the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein. Arthur Andersen
LLP (the "Independent Accountants") is an independent public accounting firm
within the meaning of the Act and the rules and regulations promulgated
thereunder.
(l) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final Memorandum
(i) comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, and (iii) have been properly computed on the bases described
therein. The assumptions used in the preparation of the pro forma financial data
and other pro forma financial information included in the Final Memorandum are
believed by the Company to be reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein in all material respects.
(m) There is not pending or, to the knowledge of the Company or
Holdings, threatened, any action, suit, proceeding, inquiry or investigation to
which the Company or Holdings is a
<PAGE> 7
-7-
party, or to which the property or assets of the Company or Holdings are
subject, before or brought by any court, arbitrator or governmental agency or
body which, if determined adversely to the Company or Holdings, would,
individually or in the aggregate, have a Material Adverse Effect or which seeks
to restrain, enjoin, prevent the consummation of, or otherwise challenge, the
issuance or sale of the Securities to be sold hereunder or the consummation of
the other transactions described in the Final Memorandum.
(n) Each of the Company and Holdings possesses all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal, state, local
and other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, presently required or necessary to own or lease, as
the case may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in the
Final Memorandum ("Permits"), except where the failure to obtain such Permits
would not, individually or in the aggregate, have a Material Adverse Effect; and
none of the Company or Holdings has received any notice of any proceeding
relating to revocation or modification of any such Permit, except as described
in the Final Memorandum and except where such revocation or modification would
not, individually or in the aggregate, have a Material Adverse Effect.
(o) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein, (i) neither the Company
nor Holdings has incurred any liabilities or obligations, direct or contingent,
or entered into or agreed to enter into any transactions or contracts (written
or oral) not in the ordinary course of business which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, result in a
Material Adverse Effect, (ii) neither the Company nor Holdings has repurchased
any of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock and (iii) there has
not been any change in the capital stock or long-term indebtedness of the
Company or Holdings.
(p) Each of the Company and Holdings has filed all necessary
federal, state and foreign income and franchise tax returns, except where the
failure to so file such returns would not, individually or in the aggregate,
have a Material Adverse Effect, and has paid all taxes shown as due thereon; and
other
<PAGE> 8
-8-
than tax deficiencies which the Company or Holdings is contesting in good faith
and for which the Company or Holdings has provided adequate reserves, there is
no tax deficiency that has been asserted against the Company or Holdings that
would have, individually or in the aggregate, a Material Adverse Effect.
(q) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company and Holdings
believe to be reliable and accurate in all material respects.
(r) None of the Company, Holdings or any agent acting on their
behalf has taken or will take any action that might cause this Agreement or the
sale of the Notes to violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System, in each case as in effect, or as the same may
hereafter be in effect, on the Closing Date.
(s) Each of the Company and Holdings has good and marketable title
to all real property and good title to all personal property described in the
Final Memorandum as being owned by it and good and marketable title to a
leasehold estate in the real and personal property described in the Final
Memorandum as being leased by it, free and clear of all liens, charges,
encumbrances or restrictions, except as described in the Final Memorandum or to
the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect. All leases, contracts and agreements
to which the Company or Holdings is a party or by which any of them is bound are
valid and enforceable against the Company or Holdings, and to the knowledge of
the Company and Holdings, are valid and enforceable against the other party or
parties thereto and are in full force and effect with only such exceptions as
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company and Holdings own or possess adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how
currently used to conduct the businesses now operated by them as described in
the Final Memorandum, and neither the Company nor Holdings has received any
notice of infringement of or conflict with asserted rights of others with
respect to any patents, trademarks, service marks, trade names, copyrights or
know-how which, if such assertion of infringement or conflict were sustained,
would have a Material Adverse Effect.
(t) There are no legal or governmental proceedings involving or
affecting the Company or Holdings or any of their
<PAGE> 9
-9-
respective properties or assets which would be required to be described in a
prospectus pursuant to the Act that are not described in the Final Memorandum,
nor are there any material contracts or other documents which would be required
to be described in a prospectus pursuant to the Act that are not described in
the Final Memorandum.
(u) Except as would not, individually or in the aggregate, have a
Material Adverse Effect (A) each of the Company and Holdings is in compliance
with and not subject to liability under applicable Environmental Laws (as
defined below), (B) each of the Company and Holdings has made all filings and
provided all notices required under any applicable Environmental Law, and has
and is in compliance with all Permits required under any applicable
Environmental Laws and each of them is in full force and effect, (C) there is no
civil, criminal or administrative action, suit, demand, claim, hearing, notice
of violation, investigation, proceeding, notice or demand letter or request for
information pending or, to the knowledge of the Company or Holdings, threatened
against the Company or Holdings under any Environmental Law, (D) no lien,
charge, encumbrance or restriction has been recorded under any Environmental Law
with respect to any assets, facility or property owned, operated, leased or
controlled by the Company or Holdings, (E) neither the Company nor Holdings has
received notice that it has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA") or any comparable state law, (F) no property or
facility of the Company or Holdings is (i) listed or proposed for listing on the
National Priorities List under CERCLA or is (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials into the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation, treatment, storage,
disposal, transport or handling of hazardous materials, and (iii) underground
and above ground storage tanks
<PAGE> 10
-10-
and related piping, and emissions, discharges, releases or threatened releases
therefrom.
(v) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or Holdings which is pending or, to the
knowledge of the Company or Holdings, threatened.
(w) Each of the Company and Holdings carries insurance (including
self-insurance) in such amounts and covering such risks as the Company and
Holdings believe is adequate for the conduct of its business and the value of
its properties.
(x) Neither the Company nor Holdings has any liability for any
prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or Holdings makes or ever has made a
contribution and in which any employee of the Company or Holdings is or has ever
been a participant except any such liabilities as would not have a Material
Adverse Effect. With respect to such plans, each of the Company and Holdings is
in compliance with all applicable provisions of ERISA except as to any
non-compliance which would not have a Material Adverse Effect.
(y) Each of the Company and Holdings (i) makes and keeps, or in the
case of the Company will keep, accurate books and records and (ii) maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
assets is permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing assets at
reasonable intervals.
(z) Neither the Company nor Holdings will be an "investment company"
or "promoter" or "principal underwriter" for an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder.
(aa) The Notes, the Guarantee, the Indenture and the Registration
Rights Agreement, when executed, will conform in
<PAGE> 11
-11-
all material respects to the descriptions thereof in the Final Memorandum.
(bb) No holder of securities of the Company or Holdings will be
entitled to have such securities registered under the registration statements
required to be filed by the Company and Holdings pursuant to the Registration
Rights Agreement other than as expressly permitted thereby.
(cc) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable value
of the assets of each of the Company and Holdings (each on a consolidated basis
and in each case, including going-concern value) will exceed the sum of its
stated liabilities and identified contingent liabilities; neither the Company
nor Holdings (each on a consolidated basis) is, nor will any of the Company or
Holdings (each on a consolidated basis) be, after giving effect to the
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, (a) left with unreasonably small capital
with which to carry on its business as it is proposed to be conducted or (b)
unable to pay its debts (contingent or otherwise) as they mature.
(dd) None of the Company, Holdings or any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any "security" (as defined in the
Act) which is or could be integrated with the sale of the Notes in a manner that
would require the registration under the Act of the Notes or (ii) engaged in any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Notes or in
any manner involving a public offering within the meaning of Section 4(2) of the
Act. Assuming the accuracy of the representations and warranties of the Initial
Purchaser in Section 8 hereof, it is not necessary in connection with the offer,
sale and delivery of the Securities to the Initial Purchaser in the manner
contemplated by this Agreement to register any of the Securities under the Act
or to qualify the Indenture under the TIA.
(ee) No securities of the Company or Holdings are of the same class
(within the meaning of Rule 144A under the Act) as the Securities and listed on
a national securities exchange registered under Section 6 of the Exchange Act,
or quoted in a U.S. automated inter-dealer quotation system.
<PAGE> 12
-12-
(ff) Neither the Company nor Holdings has taken, nor will any of
them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Securities.
Any certificate signed by any officer of the Company or Holdings and
delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall
be deemed a joint and several representation and warranty by the Company and
Holdings to the Initial Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company and Holdings
agree to issue and sell to the Initial Purchaser, and the Initial Purchaser
agrees to purchase, the Securities at 97% of their principal amount. One or more
certificates in definitive form for the Securities, and in such denomination or
denominations and registered in such name or names as the Initial Purchaser
requests upon notice to the Company at least 36 hours prior to the Closing Date,
shall be delivered by or on behalf of the Company to the Initial Purchaser,
against payment by or on behalf of the Initial Purchaser of the purchase price
therefor by wire transfer (same day funds) to such account or accounts as the
Company shall specify prior to the Closing Date, or by such means as the parties
hereto shall agree prior to the Closing Date. Such delivery of and payment for
the Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York at 9:00 A.M., New York time, on February 23, 1998, or
at such other place, time or date as the Initial Purchaser, on the one hand, and
the Company, on the other hand, may agree upon, such time and date of delivery
against payment being herein referred to as the "Closing Date." The Company will
make such certificate or certificates for the Securities available for checking
and packaging by the Initial Purchaser at the offices of BT Alex. Brown
Incorporated in New York, New York, or at such other place as BT Alex. Brown
Incorporated may designate, at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes
to make an offering of the Securities at the price and upon the terms set forth
in the Final Memorandum, as soon as practicable after this Agreement is entered
into and as in the judgment of the Initial Purchaser is advisable.
<PAGE> 13
-13-
5. Covenants of the Company. The Company and Holdings covenant and
agree with the Initial Purchaser that:
(a) Neither the Company nor Holdings will amend or supplement the
Final Memorandum or any amendment or supplement thereto of which the Initial
Purchaser shall not previously have been advised and furnished a copy for a
reasonable period of time prior to the proposed amendment or supplement and as
to which the Initial Purchaser shall not have given its consent unless the
Company is advised by Counsel that such amendment or supplement is legally
required. The Company and Holdings will promptly, upon the reasonable request of
the Initial Purchaser or counsel for the Initial Purchaser, make any amendments
or supplements to the Preliminary Memorandum or the Final Memorandum that may be
necessary or advisable in connection with the resale of the Securities by the
Initial Purchaser.
(b) The Company and Holdings will cooperate with the Initial
Purchaser in arranging for the qualification of the Securities for offering and
sale under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may reasonably request and will continue such qualifications
in effect for as long as may be necessary to complete the resale of the
Securities; provided, however, that in connection therewith, the Company and
Holdings shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction or subject itself to
taxation in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchaser of the Securities or the Private Exchange Notes, any event
occurs or information becomes known as a result of which the Final Memorandum as
then amended or supplemented would include any untrue statement of a material
fact, or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if for any other reason it is necessary at any time to amend or supplement the
Final Memorandum to comply with applicable law, the Company and Holdings will
promptly notify the Initial Purchaser thereof and will prepare, at the expense
of the Company, an amendment or supplement to the Final Memorandum that corrects
such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary Memorandum and the Final Memo-
<PAGE> 14
-14-
randum or any amendment or supplement thereto as the Initial Purchaser may
reasonably request.
(e) The Company and Holdings will apply the net proceeds from the
sale of the Securities as set forth under "Use of Proceeds" in the Final
Memorandum.
(f) For so long as any of the Securities remain outstanding, the
Company and Holdings will furnish to the Initial Purchaser copies of all reports
and other communications (financial or otherwise) furnished by the Company to
the Trustee or to the holders of the Securities and, as soon as available,
copies of any reports or financial statements furnished to or filed by the
Company with the Commission or any national securities exchange on which any
class of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company and Holdings will furnish
to the Initial Purchaser, as soon as they have been prepared, a copy of any
unaudited interim financial statements of the Company and Holdings for any
period subsequent to the period covered by the most recent financial statements
appearing in the Final Memorandum.
(h) None of the Company, Holdings or any of their Affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Act of the Securities.
(i) Neither the Company nor Holdings will engage in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Securities or
in any manner involving a public offering within the meaning of Section 4(2) of
the Act.
(j) For so long as any of the Securities remain outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the Act, the
Company will make available at its expense, upon request, to any holder of such
Securities and any prospective purchasers thereof the information specified in
Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13
or 15(d) of the Exchange Act.
(k) The Company and Holdings will use their reasonable efforts to
(i) permit the Securities to be designated
<PAGE> 15
-15-
PORTAL securities in accordance with the rules and regulations adopted by the
NASD relating to trading in the Private Offerings, Resales and Trading through
Automated Linkages market (the "Portal Market") and (ii) permit the Securities
to be eligible for clearance and settlement through The Depository Trust
Company.
(l) The Company agrees, at its expense, and concurrently with the
filing of the Registration Statement, that it will prepare a registration
statement under the Act to be used in connection with the market-making
activities of the Initial Purchaser with respect to the Exchange Notes, or
included in the Registration Statement, in each case, containing such
disclosures as are customary and appropriate for such a document (the "Market
Making Registration Statement"). The Company will use its reasonable best
efforts to cause the Market Making Registration Statement to become effective
concurrently with the Registration Statement, and it will keep the Market Making
Registration Statement in effect as long as is required by the Act in the
reasonable judgment of the Initial Purchaser to engage in market-making
activity. The Company agrees to obtain from its Independent Accountants, at its
expense, on each effective date of the Market Making Registration Statement, a
letter addressed to the Initial Purchaser dated such date covering matters
described in Section 5(g) hereof, modified as appropriate to reflect the
registered nature of the Exchange Notes in form and substance satisfactory to
the Initial Purchaser. The Company agrees to furnish the Initial Purchaser as
many copies of the Market Making Registration Statement and each report of the
Company filed with the Commission pursuant to Section 13 or 15 of the Exchange
Act as the Initial Purchaser shall reasonably request in connection with its
market-making activities. If a "qualified independent underwriter" is required
by the National Association of Securities Dealers, Inc. (the "NASD") in
connection with such market-making activities, the Initial Purchaser shall pay
such underwriter's fee and expenses and the Company agrees to indemnify such
underwriter on customary terms. Such qualified independent underwriter shall be
a firm selected by the Company and reasonably agreed upon by the Initial
Purchaser.
6. Expenses. The Company agrees to pay all reasonable costs and
expenses incident to the performance of its obligations under this Agreement,
whether or not the transactions contemplated herein are consummated or this
Agreement is terminated pursuant to Section 11 hereof, including all reasonable
costs and expenses incident to (i) the printing, word processing or other
production of documents with respect to the trans-
<PAGE> 16
-16-
actions contemplated hereby, including any costs of printing the Preliminary
Memorandum and the Final Memorandum and any amendment or supplement thereto, and
any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the
Initial Purchaser of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company, (iv) preparation (including printing), issuance and
delivery to the Initial Purchaser of the Securities, (v) the qualification of
the Securities under state securities and "Blue Sky" laws, including filing fees
and fees and disbursements of counsel for the Initial Purchaser relating
thereto, (vi) fees and expenses of the Trustee, including fees and expenses of
its counsel, (vii) all expenses and listing fees incurred in connection with the
application for quotation of the Securities on the PORTAL Market and (viii) any
fees charged by investment rating agencies for the rating of the Securities. If
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Initial Purchaser set forth in Section 7
hereof is not satisfied, because this Agreement is terminated or because of any
failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder (other than solely by reason of a default by the Initial Purchaser of
its obligations hereunder after all conditions hereunder have been satisfied in
accordance herewith), the Company agrees to promptly reimburse the Initial
Purchaser upon demand for all out-of-pocket expenses (including reasonable fees,
disbursements and charges of Cahill Gordon & Reindel, counsel for the Initial
Purchaser) that shall have been incurred by the Initial Purchaser in connection
with the proposed purchase and sale of the Securities.
7. Conditions of the Initial Purchaser's Obligations. The obligation
of the Initial Purchaser to purchase and pay for the Securities shall, in its
sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated the Closing Date and addressed to the Initial Purchaser, of
Kaplan, Strangis and Kaplan, P.A., Minnesota counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchaser, to the effect
that:
(i) Each of the Company and Holdings is duly incorporated, validly
existing and in good standing under the
<PAGE> 17
-17-
laws of the State of Minnesota and has all requisite corporate power and
authority to own its properties and to conduct its business as described
in the Final Memorandum. Each of the Company and Holdings is duly
qualified to do business as a foreign corporation in good standing in the
State of Missouri.
(ii) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform each of its
obligations under the Indenture, the Notes, the Exchange Notes and the
Private Exchange Notes; the Indenture has been duly and validly authorized
by the Company and Holdings; the Notes have been duly and validly
authorized by the Company; the Guarantee has been duly and validly
authorized by Holdings; and the Exchange Notes and the Private Exchange
Notes have been duly and validly authorized by the Company.
(iii) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform its obligations under
the Registration Rights Agreement; and the Registration Rights Agreement
has been duly and validly authorized by the Company and Holdings.
(iv) Each of the Company and Holdings has all requisite corporate
power and authority to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby; and
this Agreement and the consummation by the Company and Holdings of the
transactions contemplated hereby have been duly and validly authorized by
the Company and Holdings.
(v) The execution, delivery and performance of this Agreement, the
Indenture, the Registration Rights Agreement and the consummation of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance and sale of the Securities to the Initial
Purchaser) will not constitute or result in a breach or a default under
(or an event which with notice or passage of time or both would constitute
a default under) or violation of any of (i) the certificate of
incorporation or bylaws (or similar organizational document) of the
Company or Holdings, or (ii) (assuming compliance with all applicable
state securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchaser in Section 8
hereof and the representations and warranties of the Company and Holdings
in Section 2(dd) hereof) any statute or regulation which to such
<PAGE> 18
-18-
counsel's actual knowledge are applicable to the Company or Holdings or
any of their respective properties or assets, except for any such
conflict, breach or violation which would not, individually or in the
aggregate, have a Material Adverse Effect.
The opinion of Kaplan, Strangis and Kaplan, P.A. described in this
Section may be limited to matters of Minnesota law and shall be rendered to the
Initial Purchaser at the request of the Company and shall so state therein.
(b) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated the Closing Date and addressed to the Initial Purchaser, of
O'Sullivan Graev & Karabell, LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Initial Purchaser, to the effect that:
(i) The Indenture meets the requirements for qualification under the
TIA; the Indenture, when duly executed and delivered by the Company and
Holdings (assuming the due authorization, execution and delivery thereof
by the Trustee), will constitute the valid and legally binding agreement
of the Company and Holdings, enforceable against the Company and Holdings
in accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought.
(ii) The Notes are in the form contemplated by the Indenture. The
Notes, when duly executed and delivered by the Company and paid for by the
Initial Purchaser in accordance with the terms of this Agreement (assuming
the due authorization, execution and delivery of the Indenture by the
Trustee and due authentication and delivery of the Notes by the Trustee in
accordance with the Indenture), will constitute the valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought.
<PAGE> 19
-19-
(iii) The Guarantee is in the form contemplated by the Indenture.
The Guarantee, when duly executed and delivered by Holdings, and when the
Notes are duly and validly authorized, executed and delivered by the
Company and paid for by the Initial Purchaser in accordance with the terms
of this Agreement, will constitute the valid and legally binding agreement
of Holdings, enforceable against Holdings in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(iv) The Exchange Notes and the Private Exchange Notes, when duly
executed and delivered by the Company in accordance with the terms of the
Registration Rights Agreement and the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee and
due authentication and delivery of the Exchange Notes and the Private
Exchange Notes by the Trustee in accordance with the Indenture), will
constitute the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought.
(v) The Registration Rights Agreement, when duly executed and
delivered by the Company and Holdings (assuming due authorization,
execution and delivery thereof by the Initial Purchaser), will constitute
the valid and legally binding agreement of the Company and Holdings,
enforceable against the Company and Holdings in accordance with its terms,
except that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought and (B) any rights to indemnity or
contribution thereunder may be limited by federal and state securities
laws and public policy considerations. No opinion need be given with
respect to the enforceability of the additional in-
<PAGE> 20
-20-
terest provisions contained in Section 4 of the Registration Rights
Agreement.
(vi) The Indenture, the Notes, the Guarantee and the Registration
Rights Agreement conform in all material respects to the descriptions
thereof contained in the Final Memorandum.
(vii) To such counsel's actual knowledge, no legal or governmental
proceedings are pending to which the Company or Holdings is a party or to
which the property or assets of the Company or Holdings is subject which
would be required to be described in a prospectus pursuant to the Act that
are not described in the Final Memorandum or which seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or
sale of the Securities to be sold hereunder or the consummation of the
other transactions described in the Final Memorandum under the caption
"Use of Proceeds."
(viii) The execution, delivery and performance by the Company and
Holdings of this Agreement, the Indenture, the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby (including without limitation, the issuance and sale of the
Securities to the Initial Purchaser) will not constitute or result in a
breach or a default under (or an event which with notice or passage of
time or both would constitute a default under) or violation or any of (i)
the terms or provisions of any Contract set forth on a list attached to an
officer's certificate of the Company and certified as being all material
real estate leases, all material agreements entered into in connection
with the Recapitalization and all agreements relating to indebtedness for
borrowed money; (ii) (assuming compliance with all applicable state
securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchaser in Section 8
hereof and the representations and warranties of the Company and Holdings
in Section 2(dd) hereof) any statute, or regulation actually known to such
counsel to be applicable to the Company or Holdings or any of their
respective properties or assets, or (iii) any judgment, decree or order
set forth on a list attached to an officer's certificate of the Company
and certified as being all material judgments, decrees and orders naming
Holdings or the Company and binding on it or its property except for any
such breach or violation which would not,
<PAGE> 21
-21-
individually or in the aggregate, have a Material Adverse Effect.
(ix) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof and the representations and
warranties of the Company and Holdings in Section 2(dd) hereof, no
consent, approval, authorization or order of any governmental authority is
required for the issuance and sale by the Company of the Notes to the
Initial Purchaser or the consummation by the Company of the other
transactions contemplated hereby, except such as may be required under
Blue Sky laws, as to which such counsel need express no opinion, and those
which have previously been obtained.
(x) To the actual knowledge of such counsel, there are no material
contracts or other documents to which the Company or Holdings is a party
which would be required to be described in a prospectus pursuant to the
Act that are not described in the Final Memorandum.
(xi) Neither the Company nor Holdings is, or immediately after the
sale of the Securities to be sold hereunder and the application of the
proceeds from such sale (as described in the Final Memorandum under the
caption "Use of Proceeds") will be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(xii) No registration under the Act of the Securities is required in
connection with the sale of the Securities to the Initial Purchaser as
contemplated by this Agreement and the Final Memorandum or in connection
with the initial resale of the Securities by the Initial Purchaser in
accordance with Section 8 of this Agreement, and prior to the commencement
of the Exchange Offer (as defined in the Registration Rights Agreement) or
the effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the TIA, in each case assuming (i) that the purchasers who
buy such Securities in the initial resale thereof are qualified
institutional buyers as defined in Rule 144A promulgated under the Act
("QIBs") or accredited investors as defined in Rule 501(a) (1), (2), (3)
or (7) promulgated under the Act ("Accredited Investors"), (ii) the
accuracy of the Initial Purchaser's representations in Section 8 and those
of the Company contained in this Agreement regarding the absence of a
general solici-
<PAGE> 22
-22-
tation in connection with the sale of such Securities to the Initial
Purchaser and the initial resale thereof and (iii) the due performance by
the Initial Purchaser of the agreements set forth in Section 8 hereof.
(xiii) Neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the Notes
will violate Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
At the time the foregoing opinion is delivered, O'Sullivan Graev &
Karabell, LLP shall additionally state that it has participated in conferences
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company, representatives of the Initial
Purchaser and counsel for the Initial Purchaser, at which conferences the
contents of the Final Memorandum and related matters were discussed, and,
although it has not independently verified and is not passing upon and assumes
no responsibility for the accuracy, completeness or fairness of the statements
contained in the Final Memorandum (except as expressly set forth in paragraph
(vi) above), no facts have come to its attention which lead it to believe that
the Final Memorandum, on the date thereof or at the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such firm need make no statement of belief and express no
opinion with respect to the financial statements and related notes thereto and
the other financial, statistical and accounting data included in the Final
Memorandum). The opinion of O'Sullivan Graev & Karabell LLP described in this
Section shall be rendered to the Initial Purchaser at the request of the Company
and shall so state therein.
References to the Final Memorandum in this subsection (b) shall
include any amendment or supplement thereto prepared in accordance with the
provisions of this Agreement at the Closing Date.
(c) On the Closing Date, the Initial Purchaser shall have received
the opinion, in form and substance satisfactory to the Initial Purchaser, dated
as of the Closing Date and addressed to the Initial Purchaser, of Cahill Gordon
& Reindel, counsel for the Initial Purchaser, with respect to certain legal
matters relating to this Agreement and such other related
<PAGE> 23
-23-
matters as the Initial Purchaser may reasonably require. In rendering such
opinion, Cahill Gordon & Reindel shall have received and may rely upon such
certificates and other documents and information as it may reasonably request to
pass upon such matters.
(d) The Initial Purchaser shall have received from the Independent
Accountants a comfort letter or letters dated the date hereof and the Closing
Date, in form and substance satisfactory to counsel for the Initial Purchaser.
(e) The representations and warranties of the Company and Holdings
contained in this Agreement shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date; the statements of the Company's officers made pursuant
to any certificate delivered in accordance with the provisions hereof shall be
true and correct on and as of the date made and on and as of the Closing Date;
the Company shall have performed in all material respects all covenants and
agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date; and, except as described in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), subsequent to the date of the most recent financial statements in
such Final Memorandum, there shall have been no event or development, and no
information shall have become known, that, individually or in the aggregate, has
or would be reasonably likely to have a Material Adverse Effect.
(f) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(g) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto after
the date hereof), neither the Company nor Holdings shall have sustained any loss
or interference with respect to its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any strike, labor dispute, slow down or work stoppage or from any legal or
governmental proceeding, order or decree, which loss or interference,
individually or in the aggregate, has or would be reasonably likely to have a
Material Adverse Effect.
(h) The Initial Purchaser shall have received a certificate of the
Company, dated the Closing Date, signed on be-
<PAGE> 24
-24-
half of the Company by its President and its Chief Financial Officer, to the
effect that:
(i) The representations and warranties of the Company and Holdings
contained in this Agreement are true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date, and the
Company and Holdings have performed in all material respects all covenants
and agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), no event or
development has occurred, and no information has become known to such
officers, that, individually or in the aggregate, has or would be
reasonably likely to have a Material Adverse Effect; and
(iii) Neither of such Officers has received notice that the sale of
the Securities hereunder has been enjoined (temporarily or permanently).
(i) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by the Company and Holdings.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall have received such further documents, certificates,
letters and schedules or instruments relating to the business, corporate, legal
and financial affairs of the Company as they shall have heretofore reasonably
requested from the Company.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates, letters, schedules and instruments in such quantities as
the Initial Purchaser shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. The Initial
Purchaser represents and warrants that it is a QIB.
<PAGE> 25
-25-
The Initial Purchaser agrees with the Company (as to itself only) that (i) it
has not and will not solicit offers for, or offer or sell, the Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers
for the Securities only from, and will offer the Securities only to (A) in the
case of offers inside the United States, persons whom the Initial Purchaser
reasonably believes to be QIBs 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 the Initial Purchaser that each such
account is a QIB, 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 under
Rule 144A and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers," which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)); provided,
however, that, in the case of this clause (B), in purchasing such Securities
such persons are deemed to have represented and agreed as provided under the
caption "Transfer Restrictions" contained in the Final Memorandum (or, if the
Final Memorandum is not in existence, in the most recent Memorandum).
9. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities to which the Initial Purchaser or such controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as any such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto;
or
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein not misleading,
<PAGE> 26
-26-
and will reimburse, as incurred (subject to paragraph (c) below), the Initial
Purchaser and each such controlling person for any reasonable legal or other
out-of-pocket expenses reasonably incurred by the Initial Purchaser or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, the Company will not be liable
in any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in any Memorandum or any amendment or
supplement thereto in reliance upon and in conformity with written information
concerning the Initial Purchaser furnished to the Company by the Initial
Purchaser specifically for use therein and provided, further, that the Company
will not be liable if such untrue statement or alleged untrue statement or
omission or alleged omission was contained or made in any Memorandum and
corrected in the Final Memorandum or any amendment or supplement thereto and the
Final Memorandum does not contain any other untrue statement or omission or
alleged untrue statement or omission of a material fact that was the subject
matter of the related proceeding and any such loss, claim, damage or liability
suffered or incurred by the Initial Purchaser resulted from any action, claim or
suit by any person who purchased Securities which are the subject thereof from
the Initial Purchaser and it is established in the related proceeding that the
Initial Purchaser failed to deliver or provide a copy of the Final Memorandum
(as amended or supplemented) to such person with or prior to the confirmation of
the sale of such Securities sold to such person, unless such failure to deliver
or provide a copy of the Final Memorandum (as amended or supplemented) was a
result of noncompliance by the Company with Section 5(d) of this Agreement. This
indemnity agreement will be in addition to any liability that the Company may
otherwise have to the indemnified parties. The Company shall not be liable under
this Section 9 for any settlement of any claim or action effected without its
prior written consent, which shall not be unreasonably withheld, but if settled
with such consent or if there shall be a final non-appealable judgment for the
plaintiff for which the Initial Purchaser is entitled to indemnification
pursuant to this Agreement, the Company agrees to indemnify the Initial
Purchaser from and against any loss or liability by reason of such settlement or
judgment.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors, its officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against
<PAGE> 27
-27-
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendment or supplement thereto, or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in any Memorandum or any amendment or supplement thereto, or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information concerning such Initial Purchaser, furnished to the Company by the
Initial Purchaser specifically for use therein; and subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will be
in addition to any liability that the Initial Purchaser may otherwise have to
the indemnified parties. The Initial Purchaser shall not be liable under this
Section 9 for any settlement of any claim or action effected without its
consent, which shall not be unreasonably withheld, but if settled with such
consent or if there shall be a final non-appealable judgment for the plaintiff
for which the Company is entitled to indemnification pursuant to this Agreement,
the Initial purchaser agrees to indemnify the Company from and against any loss
or liability by reason of such settlement or judgment. The Company shall not,
without the prior written consent of the Initial Purchaser, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which the Initial Purchaser is or could have been a party, or indemnity could
have been sought hereunder by the Initial Purchaser, unless such settlement (A)
includes an unconditional written release of the Initial Purchaser, in form and
substance reasonably satisfactory to the Initial Purchaser, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnifi-
<PAGE> 28
-28-
cation under this Section 9, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 9,
notify the indemnifying party of the commencement thereof in writing; but the
omission to so notify the indemnifying party (i) will not relieve it from any
liability under paragraph (a) or (b) above unless and to the extent such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraphs (a) and (b) above. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to it and/or other indemnified parties that
are different from or additional to those available to the indemnifying party,
or (iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after receipt by the indemnifying party of notice of the
institution of such action, then, in each such case, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but
<PAGE> 29
-29-
substantially similar actions in the same jurisdiction arising out of the same
general allegations or circumstances, designated by the Initial Purchaser in the
case of paragraph (a) of this Section 9 or the Company in the case of paragraph
(b) of this Section 9, representing the indemnified parties under such paragraph
(a) or paragraph (b), as the case may be, who are parties to such action or
actions) or (ii) the indemnifying party has authorized in writing the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable (other than by
reason of any exception provided therein) to, or insufficient to hold harmless,
an indemnified party in respect of any losses, claims, damages or liabilities
(or actions in respect thereof), each indemnifying party, in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect (i) the relative benefits received by the indemnifying party or
parties on the one hand and the indemnified party on the other from the offering
of the Securities or (ii) if the allocation provided by the foregoing clause (i)
is not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received by
the Company on the one hand and the Initial Purchaser
<PAGE> 30
-30-
on the other shall be deemed to be in the same proportion as the total proceeds
from the offering (before deducting expenses) received by the Company bear to
the total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand, or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
paragraph (d). Notwithstanding any other provision of this paragraph (d), the
Initial Purchaser shall not be obligated to make contributions hereunder that in
the aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchaser under this Agreement, less the aggregate
amount of any damages that the Initial Purchaser has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Initial Purchaser or any controlling person
referred to in Section 9 hereof and (ii) delivery of and payment for the Notes.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless
of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to
<PAGE> 31
-31-
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder at or prior thereto or, if at or prior to the Closing
Date:
(i) either the Company or Holdings shall have sustained any loss or
interference with respect to its businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any strike, labor dispute, slow down or work stoppage
or any legal or governmental proceeding, which loss or interference, in
the sole judgment of the Initial Purchaser, has had or has a Material
Adverse Effect, or there shall have been, in the sole judgment of the
Initial Purchaser, any event or development that, individually or in the
aggregate, has or could be reasonably likely to have a Material Adverse
Effect (including without limitation a change in control of the Company or
Holdings), except in each case as described in the Final Memorandum
(exclusive of any amendment or supplement thereto);
(ii) trading in securities of the Company or in securities generally
on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market shall have been suspended or minimum or maximum prices
shall have been established on any such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial markets
of the United States which, in the case of (A), (B) or (C) above and in
the sole judgment of the Initial Purchasers, makes it impracticable or
inadvisable to proceed with the offering or the delivery of the Securities
as contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
<PAGE> 32
-32-
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements
set forth in the last paragraph on the front cover page and in the second and
third sentences of the third paragraph under the heading "Private Placement" in
the Final Memorandum (to the extent such statements relate to the Initial
Purchaser) constitute the only information furnished by the Initial Purchaser to
the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and,
if sent to the Initial Purchaser, shall be mailed or delivered to (i) BT Alex.
Brown Incorporated, 130 Liberty Street, New York, New York 10006, Attention:
Corporate Finance Department; if sent to the Company, shall be mailed or
delivered to the Company at 717 Faxon Roan, Young America, Minnesota 55397,
Attention: L. Joseph Kulas; with a copy to O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112 Attention: Frederick M. Bachman.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company, its officers and
any person or persons who control the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act. No purchaser of Notes from the
<PAGE> 33
-33-
Initial Purchaser will be deemed a successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Entire Agreement. This Agreement, together with the engagement
letter dated November 25, 1997 between the Company and BT Alex. Brown
Incorporated, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. This Agreement and such engagement letter
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 34
-34-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
------------------------------
Name: Charles D. Weil
Title: President/CFO
YOUNG AMERICA HOLDINGS, INC.
By: /s/ Charles D. Weil
------------------------------
Name: Charles D. Weil
Title: President/CFO
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
BT ALEX. BROWN INCORPORATED
By: /s/ William W. Archer
------------------------------
Name: William W. Archer
Title: Managing Director
<PAGE> 1
Exhibit 10.9
A G R E E M E N T
November 25, 1997
The undersigned hereby agree that Young America Corporation (the
"Corporation") shall pay certain management fees to BT Capital Partners, Inc.
("BT") and Ontario Teachers' Pension Plan Board ("OTPB") for services to be
rendered to the Corporation by such entities during the term of the
Stockholders' Agreement dated as of November 25, 1997 among the Corporation, BT,
OTPB and the other parties named therein (the "Stockholders' Agreement"). Such
services shall include, without limitation, financial and strategic planning and
management consulting. Accordingly, on or before December 31 of each year during
the term of the Stockholders' Agreement (beginning with the calendar year ending
December 31, 1998) the Corporation shall pay or cause to be paid to BT an amount
equal to $187,500 and shall pay or cause to be paid to OTPB an amount equal to
$62,500.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
----------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
----------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
----------------------------
Name:
Title:
<PAGE> 2
A G R E E M E N T
November 25, 1997
The undersigned hereby agree that Young America Corporation (the
"Corporation") shall pay certain management fees to BT Capital Partners, Inc.
("BT") and Ontario Teachers' Pension Plan Board ("OTPB") for services to be
rendered to the Corporation by such entities during the term of the
Stockholders' Agreement dated as of November 25, 1997 among the Corporation, BT,
OTPB and the other parties named therein (the "Stockholders' Agreement"). Such
services shall include, without limitation, financial and strategic planning and
management consulting. Accordingly, on or before December 31 of each year during
the term of the Stockholders' Agreement (beginning with the calendar year ending
December 31, 1998) the Corporation shall pay or cause to be paid to BT an amount
equal to $187,500 and shall pay or cause to be paid to OTPB an amount equal to
$62,500.
YOUNG AMERICA CORPORATION
By:
----------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By: /s/ [ILLEGIBLE]
----------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By:
----------------------------
Name:
Title:
<PAGE> 3
A G R E E M E N T
November 25, 1997
The undersigned hereby agree that Young America Corporation (the
"Corporation") shall pay certain management fees to BT Capital Partners, Inc.
("BT") and Ontario Teachers' Pension Plan Board ("OTPB") for services to be
rendered to the Corporation by such entities during the term of the
Stockholders' Agreement dated as of November 25, 1997 among the Corporation, BT,
OTPB and the other parties named therein (the "Stockholders' Agreement"). Such
services shall include, without limitation, financial and strategic planning and
management consulting. Accordingly, on or before December 31 of each year during
the term of the Stockholders' Agreement (beginning with the calendar year ending
December 31, 1998) the Corporation shall pay or cause to be paid to BT an amount
equal to $187,500 and shall pay or cause to be paid to OTPB an amount equal to
$62,500.
YOUNG AMERICA CORPORATION
By:
----------------------------
Name: Charles D. Weil
Title: President
BT CAPITAL PARTNERS, INC.
By:
----------------------------
Name:
Title:
ONTARIO TEACHERS' PENSION
PLAN BOARD
By: /s/ John A. MacDonald
----------------------------
Name: John A. MacDonald
Title: Portfolio Manager
<PAGE> 1
Exhibit 10.10
STOCK SUBSCRIPTION AND
REPURCHASE AGREEMENT dated as of
November 25, 1997, among YOUNG
AMERICA CORPORATION, a Minnesota
corporation (the "Company") and
Charles D. Weil (the "Investor").
The Company has offered to sell certain shares of its v Class A
voting common stock, par value $1.00 per share (the "Class A Stock") to the
Investor subject to the terms and conditions contained herein, and the Investor
has agreed to purchase shares of Class A Stock, subject to the terms and
conditions contained herein.
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained in this Agreement, the sufficiency of which is hereby acknowledged,
the parties hereto agree as follows.
1. Purpose; History.
(a) The Investor is currently, and has for a period of time prior to
the date hereof been, an employee of the Company. Prior to the date hereof, the
Investor has not held any shares of any class of capital stock of the Company.
(b) Simultaneous with the execution and delivery hereof, the Company
is entering into certain documents including a Recapitalization Agreement among
the Company, Jay F. Ecklund ("Ecklund"), certain trusts established for the
benefit of certain affiliates of Ecklund (the "Ecklund Trusts" and together with
Ecklund, the "Selling Stockholders"), BT Capital Partners, Inc. ("BT"), the
Ontario Teachers' Plan Board ("OTPB"), and the other parties named therein (the
"Recapitalization Agreement") pursuant to which the Company is (i) redeeming the
majority of the shares of outstanding capital stock of the Company held by the
Selling Stockholders, and (ii) issuing new shares of capital stock to BT and
OTPB such that BT and OTPB will become the new controlling shareholders of the
Company.
(c) In consideration of the commitment made by the Investor to
remain employed by the Company following the execution and delivery of the
Recapitalization Agreement, BT and OTPB have offered the Investor compensation
in the form of this opportunity to purchase shares of Class A Stock. The
Company's offer to sell shares of Class A Stock hereby is intended to qualify as
an exempt transaction under Rule 701 promulgated under the Securities Act of
1933, as amended.
<PAGE> 2
2. Authorization of Issuance of the Shares.
Upon the terms and subject to the conditions hereof, the Company has
authorized the issuance at the Closing of __________ shares of Class A Stock to
the Investor (the "Shares"). The Class A Stock has the rights and privileges set
forth in the Amendment and Restatement of the Articles of Incorporation of the
Company (the "Restated Articles") as filed with the Secretary of State of the
State of Minnesota on or prior to the date hereof. A copy of the Restated
Articles are attached hereto as Exhibit A.
3. Closing.
The closing of the transactions contemplated hereby (the "Closing") will
take place simultaneously with the execution and delivery of this Agreement (the
"Closing Date"). The Closing shall take place at the offices of Dorsey & Whitney
LLP, Pillsbury Center South, 220 South 6th Street, Minneapolis, Minnesota.
4. Sale and Purchase of Shares.
At the Closing the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, the number of shares of Class A Stock
set forth beneath the name of such Investor on the signature page hereto.
5. Representations and Warranties of the Investor.
The Investor represents and warrants to the Company as follows.
5.1. Authorization, Etc.
(a) Such Investor has full legal right, power and authority to enter
into this Agreement and to perform his or her obligations under this Agreement.
This Agreement has been duly executed and delivered by the Investor and is the
valid and binding obligation of the Investor, enforceable against the Investor
in accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, and similar Laws affecting creditors' rights generally
and subject to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at Law). "Laws" means all laws, rules,
regulations, statutes, ordinances, orders, judgments, injunctions, decrees and
other legislative, administrative or judicial restrictions.
(b) No permit, authorization, consent or approval of or by, or
notification of or filing with, any person (governmental or private) is required
in connection with the execution or delivery
-2-
<PAGE> 3
by the Investor of, or performance by the Investor of his or her obligations
under, this Agreement, other than the actions and filings contemplated by this
Agreement.
5.2. Investment by the Investor.
(a) The Investor (i) is personally familiar with the business of the
Company as an employee of the Company (ii) has been furnished with or has had
access to the information the Investor has requested from the Company, including
without limitation, the "Investor Book" in respect of the Company which book
includes (1) three years of historical financial information for the Company,
(2) a discussion of the "risk factors" associated with the Investor's purchase
of the Shares and (3) a confidential memorandum discussing the Company prepared
by the Company's investment banker, (iii) has had an opportunity to discuss with
management of the Company the intended business and financial affairs of the
Company and (iv) has such knowledge and expertise in financial and business
matters and with respect to investments in securities to evaluate the merits and
risks of an investment in the Company and to make an informed investment
decision with respect thereto. The Investor is aware that his or her purchase of
the Shares is highly speculative and he or it is able, without impairing his or
her financial condition, to hold such Shares for an indefinite period of time
and to suffer a complete loss of his or her investment.
(b) The Investor recognizes that an investment in the Company involves
certain risks, and has taken full cognizance of, and understands all of, the
risk factors related to the purchase of the Shares. The Investor has consulted
with his or her legal advisors with respect to the consequences of his or her
participation as an Investor of the Company.
(c) The Investor is acquiring the Shares for his or her own account only
for investment and not with a view to the resale or further distribution
thereof, nor with any present intention of distributing the same, in any such
case in violation of Federal or state securities Laws. The Investor understands
that such Shares may only be transferred in compliance with the conditions
specified in Sections 4 through 7 of the Stockholders' Agreement dated hereof
among the Company, the Investor, BT, OTPB and the other parties named therein
(the "Stockholders' Agreement").
(d) The Investor understands and acknowledges that the offering of the
Shares has not been considered or approved by any governmental or other entity.
(e) The Investor understands that there is no public market for the Shares
and that the transferability of the Shares is restricted.
-3-
<PAGE> 4
(f) The Investor understands that the Shares have not been, and will not
upon issuance be, registered or qualified under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise (including under any applicable
state securities Laws) by reason of their issuance in a transaction exempt from
the registration or qualification requirements of the Securities Act and such
Laws, and that the Shares cannot be offered for sale or sold by the Investor or
by anyone acting for the Investor's account or on the Investor's behalf without
the registration of the Shares and/or the fulfillment of other regulatory
requirements.
(g) The Investor understands that the exemption from registration afforded
by Rule 144 (the provisions of which are known to the Investor) promulgated
under the Securities Act depends on the satisfaction of various conditions and
that, if applicable, Rule 144 may only afford the basis for sales under certain
circumstances only in limited amounts.
6. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investor as follows:
6.1. Authorization; Enforceability.
The Company has full legal right, power and authority to enter into this
Agreement and to perform its obligations under this Agreement. The execution and
delivery by the Company of this Agreement and the performance of the obligations
of the Company contained herein have been duly authorized by all requisite
corporate action of the Company and when duly executed and delivered by the
Company will be a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar Laws now or hereafter in effect relating to creditors' rights and
subject to general principles of equity.
-4-
<PAGE> 5
6.2. No Conflict.
The execution and delivery by the Company of this Agreement, its
consummation of the transactions contemplated hereby, and its compliance with
the provisions hereof, will not (a) violate or conflict with the Restated
Articles or the By-laws of the Company, (b) violate, conflict with, or give rise
to any right of termination, cancellation, or acceleration under any agreement,
lease, security, license, permit, or instrument to which the Company or any
subsidiary of the Company is a party, or to which they or any of their assets
are subject, (c) result in the imposition of any Encumbrance on any asset of the
Company or any subsidiary, other than the restrictions set forth in the
Stockholders' Agreement, or (d) violate or conflict with any Laws. "Encumbrance"
means any security interest, mortgage, lien, pledge, charge, easement,
reservation, restriction, or similar right of any third party.
6.3. No Consent or Approval Required.
No consent, approval or authorization of, or declaration to or filing
with, any person is required to be made or obtained by the Company or any
subsidiary for the valid authorization, execution and delivery by the Company of
this Agreement or for the consummation of the transactions contemplated hereby
or for the valid authorization, issuance and delivery of the Shares, other than
those consents, approvals, authorizations, declarations or filings which have
been or will be timely obtained or made, as the case may be.
6.4. Offering Exemption.
Based on the truth and accuracy of the investment representations
made by the Investor in this Agreement, the offering, sale, and issuance of the
Shares are exempt from registration under the Securities Act of 1933, as amended
("Securities Act") and the rules and regulations promulgated thereunder and
applicable state securities and "blue sky" Laws. the Company has made or will
make all requisite filings and has taken or will take all action necessary to
comply with such state securities or "blue sky" Laws in connection with the
offering, sale and issuance of the Shares.
7. Conditions Precedent to the Obligations of the Investor.
The respective several obligations of the Investor to purchase and pay for
the Shares in accordance with Section 4, are subject to the following conditions
precedent.
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<PAGE> 6
7.1. Stockholders' Agreement.
Each of the Company and the other parties thereto shall have executed and
delivered the Stockholders' Agreement.
8. Conditions Precedent to the Obligations of the Company.
The obligation of the Company to issue, sell, and deliver the Shares, in
accordance with Section 4, is subject to the following conditions precedent.
8.1. Payment.
The Investor shall have delivered to the Company the consideration as set
forth in Section 4.
8.2. Stockholders' Agreement.
Each of the Investor shall have executed and delivered the Stockholders'
Agreement.
9. Repurchase Agreement.
9.1. Definitions.
"Allowed Resignation" means, with respect to any Investor, the termination
by the Investor of the Investor's employment with the Company due to
circumstances determined by the Board to be "allowed" hereunder; provided,
however, that the termination by any Investor of the Investor's employment with
the Company shall be an Allowed Resignation if such termination results from (i)
the Retirement of the Investor, (ii) the Company's effort without the consent of
the Investor to relocate the Investor's employment to a location more than 50
miles from the location of the Investor's employment on the Closing Date or
(iii) a reduction in the base compensation paid to the Investor or a material
reduction (such reduction being particular to the Investor) in the aggregate
benefits then received by the Investor.
"Appraisal Procedure", if applicable, means the following procedure to
determine the Fair Value Per Share of any security. The Fair Value Per Share
shall be determined by an investment banking firm of national recognition, which
firm shall be reasonably acceptable to the Board and the Selling Investor. If
the Board and the Selling Investor are unable to agree upon an acceptable
investment banking firm within ten (10) days after the date either party
proposed that one be selected, the investment banking firm will be selected by
an arbitrator located in New York City, New York, selected by the American
Arbitration Association (or if such organization ceases to exist, the arbitrator
shall be chosen by a court of competent jurisdiction).
-6-
<PAGE> 7
The arbitrator shall select the investment banking firm (within ten (10) days of
his appointment) from a list, jointly prepared by the Board and the Selling
Investor, of not more than six investment banking firms of national standing in
the United States, of which no more than three may be named by the Board and no
more than three may be named by the Selling Investor. The arbitrator may
consider, within the ten-day period allotted, arguments from the parties
regarding which investment banking firm to choose, but the selection by the
arbitrator shall be made in its sole discretion from the list of six. The Board
and the Selling Investor shall submit to the investment banking firm their
respective calculations of the valuation amount, and any supporting arguments
and other data as they may desire, within ten (10) days of the appointment of
the investment banking firm, and the investment banking firm shall as soon as
practicable thereafter make its own calculation of the valuation amount. The
Fair Value Per Share for purposes hereof shall be the average, as determined by
the investment banking firm, of the (i) valuation amount calculated by the
investment banking firm and (ii) that valuation which is the closer to the
valuation amount calculated by the investment banking firm (the "Closer
Valuation"), as determined by the investment banking firm, from among the
valuation amount submitted by the Company and valuation amount submitted by the
Selling Investor. The determination of the Fair Value Per Share by such
investment banking firm shall be final and binding upon the parties. The fees
and expenses of the investment banking firm and arbitrator (if any) used to
determine the Fair Value Per Share shall be split among the Company and the
Selling Investor with the party that submitted the Closer Valuation paying 20%
of such amount and the other party paying the remaining 80%. If required by any
such investment banking firm or arbitrator, the Company shall execute a retainer
and engagement letter containing reasonable terms and conditions, including,
without limitation, customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such investment
banking firm or arbitrator and its officers, directors, partners, employees,
agents and affiliates. Any determination of Fair Value Per Share made pursuant
to these Appraisal Procedures shall be deemed effective for any purchase of
securities that results from any event that occurred or is based upon an event
that occurred during the period ending ninety (90) days from the date of such
determination.
"Board" means the Board of Directors of the Company.
"Cause", with respect to any employee of the Company, shall be determined
in good faith by the Board and shall include, without limitation, the following:
(i) repeated neglect by such employee of any material duties of such
employee or the repeated failure or omission by such employee to carry out
lawful and reasonable directives from the Board which failures or
omissions are,
-7-
<PAGE> 8
in the reasonable judgment of the Board, willful and deliberate and which
failures or omissions are not cured within a reasonable period of time
following such employee's receipt of written notice thereof from the
Company;
(ii) any act or acts of personal dishonesty by such employee
intended to result in the personal enrichment of such employee at the
expense of the Company;
(iii) any willful and deliberate misconduct on the part of such
employee that is materially and demonstrably injurious to the Company;
(iv) any statement, representation or warranty made by such employee
to the Board that is materially false or misleading; and
(v) the commitment of a felony by such employee, whether or not such
felony is committed against the Company.
"Fair Value Per Share" means, as to any security, (i) if such security is
Publicly Traded, the Market Price of such security and (ii) if such security is
not Publicly Traded, the market value thereof as reasonably determined in good
faith by the Board, using an appropriate valuation method, assuming an
arms-length sale to an independent party (not taking into account any reduction
in the value of such security due to such security representing a minority
interest in the Company or any discount based upon the illiquidity of such
security); provided, however, that if the Selling Investor shall disagree with
the valuation made by the Board and such disagreement is not resolved within ten
(10) days of the Board's determination, then Fair Value Per Share shall be
determined in accordance with the Appraisal Procedure. Any determination of Fair
Value Per Share hereunder shall be made as of the date that the right to
repurchase such Shares arises under this Section 9.
"Market Price" means, as to any security, the average of the closing
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York City time, on such day, or, if on
any day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar or successor organization (and in each such case averaged over a period
of 30 days consisting of the day as of which Market Price is being
-8-
<PAGE> 9
determined and the 29 consecutive Business Days prior to such day.
"Original Cost" means with respect to the repurchase of any Share pursuant
to Section 9 hereof, the purchase price originally paid to the Company for such
Share pursuant to Section 4 hereof.
"Publicly Traded" means, with respect to any security, that such security
is (i) listed on any domestic securities exchange, (ii) a price quoted in the
NASDAQ System, or (iii) has a price quoted by the National Quotation Bureau,
Incorporated.
"Retirement" means, with respect to any Investor, the retirement of the
Investor from the Investor's employment with the Company upon the Investor
reaching the age of at least 60 years.
"Sale Event" means, with respect to any Investor, (i) the death of the
Investor, (ii) the permanent disability of the Investor causing the Investor to
permanently cease his or her employment with the Company, (iii) an Allowed
Resignation or (iv) a Termination of Employment by the Company other than a
Termination for Cause.
"Selling Investor" means any Investor whose Shares are being repurchased
pursuant to this Section 9.
"Termination of Employment" means, with respect to any Investor, the
termination by the Company of the Investors employment with the Company.
"Termination for Cause" means, with respect to any Investor, the
termination by the Company of the Investors employment with the Company for
Cause.
9.2. Repurchase at Investor's Option.
(a) The Investor shall have the option following the occurrence of a Sale
Event and for the applicable period set forth below, to cause the Company to
purchase from the Investor all (but not less than all) of the Shares then held
by the Investor. The period following the occurrence of a Sale Event during
which the Investor shall have such option shall be:
(i) in the case of the death of such Investor, 180 days;
(ii) in the case of the permanent disability of such Investor, 60
days following the final determination of such disability; and
-9-
<PAGE> 10
(iii) in the case of an Allowed Resignation or a Termination of
Employment by the Company other than a Termination for Cause, 30 days.
(b) If the Company shall receive a valid request pursuant to Section
9.2(a) hereof, the Company shall within 45 days of such receipt, purchase from
the requesting Investor all of the Shares then held by the Investor in the
manner set forth in Section 9.4.
9.2. Repurchase at Company's Option.
(a) The Company shall have the option, for a period of 45 days following
any Sale Event, to purchase from the Investor all (but not less than all) of the
Shares then held by the Investor in the manner set forth in Section 9.4.
(b) The Company shall have the option, for a period of 45 days following
the Termination for Cause of any Investor or the termination by the Investor of
the Investor's employment with the Company for any reason (other than a Sale
Event) that does not constitute an Allowed Resignation, to purchase from the
Investor all (but not less than all) of the Shares then held by the Investor in
the manner set forth in Section 9.4.
9.4. Procedures for Repurchase.
(a) Any repurchase of Shares by the Company pursuant to Section 9.2 or
9.3(a) hereof shall be made at a purchase price per Share equal to the Fair
Value Per Share.
(b) Any repurchase of Shares by the Company pursuant to Section 9.3(b)
hereof shall be at a purchase price equal to the lesser of (i) the Original Cost
or (ii) the Fair Value Per Share.
(c) The purchase price for any repurchase of Shares by the Company shall
be paid in cash (to the extent allowed by the Company's agreements with its
lenders) due upon the surrender of the Shares being repurchased. If the Company
shall not be able to pay the full purchase price in cash upon the surrender of
the Shares being repurchased, the Company shall pay at least 50% of such amount
due with the remainder payable in the form of a note of the Company that shall
bear interest at a market rate and which shall have a maximum term of three
years.
10. Parties in Interest; Assignment.
This Agreement shall bind and inure to the benefit of the Company, the
Investor, and to the respective successors and permitted assigns of the Company
and the Investor.
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<PAGE> 11
11. Duration of Agreement.
This Agreement shall terminate upon the earlier of the completion of
an Approved Sale and a Qualified Public Offering (each as defined within the
Stockholders' Agreement).
12. Entire Agreement.
This Agreement and the other writings and agreements referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, among the parties with respect
to their subject matter.
13. Notices.
All notices, claims, certificates, requests, demands and other
communications to any party shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed to such party at the address set forth
below or as may hereafter be designated in writing by such party to the other
parties at the address shown below (or to such other address as the party to
whom notice is to be given may have furnished to the other parties in writing in
accordance herewith):
(a) if to the Company, to:
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Telephone: (212) 250-8412
Telecopy: (212) 250-7651
Attention: Richard Gersten;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
41st Floor
New York, New York 10112
Telephone: 212-408-2400
Telecopier: 212-408-2420
Attention: John M. Scott; and
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<PAGE> 12
Debevoise & Plimpton
875 third Avenue
New York, New York 10022
Telephone: 212-909-6000
Telecopy: 212-909-6836
Attention: Franci J. Blassberg
(b) if to an Investor, to the Investor at his or her address set forth
the signature page hereto.
Any such notice or communication shall be deemed to have been delivered and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of dispatch by nationally-recognized overnight courier, on the
next business day following such dispatch, (iii) in the case of telecopy
transmission, on the date of such delivery, and (iv) in the case of mailing, on
the fifth business day after the posting thereof.
14. Amendments.
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to the prior written consent of the Company and the Investor.
15. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
16. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
domestic Laws of the State of Minnesota without giving effect to any choice or
conflict of law provision or rule thereof.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement as of the date first above written.
YOUNG AMERICA CORPORATION
By: /s/ Ludwik J. Kulas
--------------------------------------
Name: Ludwik J. Kulas
Title: CFO
INVESTOR:
/s/ Charles D. Weil
-----------------------------------------
Charles D. Weil
$3,400,000
-----------------------------------------
Amount of Commitment
156,222
-----------------------------------------
Number of Shares
Charles D. Weil
-----------------------------------------
717 Faxon Rd.
-----------------------------------------
Young America, MN 55397
-----------------------------------------
612/467-1151 (phone)
-----------------------------------------
612/467-3895 (fax)
-----------------------------------------
Please print Name, Address,
Phone and Facsimile Numbers.
<PAGE> 1
Exhibit 10.11
AMENDMENT TO STOCK
SUBSCRIPTION AND REPURCHASE AGREEMENT
dated as of February 23, 1998 between
YOUNG AMERICA HOLDINGS, INC. (f/k/a
Young America Corporation), a Minnesota
corporation ("the Company") and CHARLES
D. WEIL (the "Investor").
RECITALS
1. The Company and the Investor are parties to a Stock Subscription
and Repurchase Agreement dated as of November 25, 1998 (the "Agreement").
2. On the date hereof, the Company is entering into an Indenture
among the Company, its subsidiary, Young America Corporation ("YAC"), and Marine
Midland Bank, as trustee, pursuant to which the ability of the Company to abide
by certain of the terms to the Agreement will be restricted.
3. The Company and the Investor agree that it is in their mutual
best interest for the Company to enter into the Indenture.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants of the parties provided herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Amendment. Section 9.4(c) of the Agreement is hereby amended in
its entirety to read as follows:
"(c) The purchase price for any repurchase of Shares by the
Company shall be paid in cash due upon the surrender of the Shares
being repurchased; provided, however, that the Company shall not,
and will not cause or permit YAC to, directly or indirectly,
repurchase all or any portion of the Shares unless (a) YAC would
have been permitted to purchase, redeem or otherwise acquire or
retire for value any of its own Equity Interests (as defined in the
Indenture) for a like amount of consideration without violating or
causing a "Default" or "Event of Default" (each as defined in the
Indenture) under the Indenture or (b) YAC expressly consents to the
repurchase of such Shares and no "Default" or "Event of Default"
under the Indenture shall have occurred and be continuing after
giving effect to such
<PAGE> 2
repurchase of Shares. If the Company shall not be able to pay all or
any portion of the purchase price in cash upon the surrender of the
Shares to be repurchased, the unexercised rights of the Investor
under Section 9.2 hereof and/or the rights of the Company under
Section 9.3 hereof shall be suspended until such time as the Company
shall give notice to the Investor that it is permitted under the
terms of this Section 9.4(c) to pay all or any portion of the
purchase price for the Shares to be repurchased. If the Investor
shall have exercised his rights under Section 9.2 (c), then the
Company shall repurchase and pay for Shares from time to time (but
no more frequently than quarterly or in amounts less than $25,000)
to the extent it is permitted under the terms of this Section
9.4(c), with any permitted amount applied first to the payment of
interest as provided in the immediately following sentence and
thereafter to the payment of purchase price for Shares. Any amounts
not paid due to any suspension in accordance with this Section
9.4(c) shall bear interest from the date of such suspension at a
rate equal to the rate the Company shall then be paying or the rate
which is available to the Company under any then existing or
available working capital or operating line of credit. The Company
hereby agrees to give prompt notice to the Investor of its ability
to repurchase Shares following any suspension of rights pursuant to
the terms of this Section 9.4(c)."
2. Other Provisions. All other provisions and terms of the STOCK
SUBSCRIPTION aND REPURCHASE Agreement shall continue in full force and effect.
Counterparts. This Amendment to STOCK SUBSCRIPTION aND REPURCHASE
Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but both of which shall together constitute one and the
same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to STOCK
SUBSCRIPTION aND REPURCHASE Agreement to be executed and delivered as of the
date set forth above.
YOUNG AMERICA HOLDINGS, INC.
By:
--------------------------
Name:
Title:
-----------------------------
Charles D. Weil
3
<PAGE> 1
Exhibit 10.12
STOCK SUBSCRIPTION AND
REPURCHASE AGREEMENT dated as of
November 25, 1997, among YOUNG
AMERICA CORPORATION, a Minnesota
corporation (the "Company") and the
other party named on the signature
page hereto (the "Investor").
The Company has offered to sell certain shares of its v Class A
voting common stock, par value $1.00 per share (the "Class A Stock") to the
Investor subject to the terms and conditions contained herein, and the Investor
has agreed to purchase shares of Class A Stock, subject to the terms and
conditions contained herein.
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained in this Agreement, the sufficiency of which is hereby acknowledged,
the parties hereto agree as follows.
1. Purpose; History.
(a) The Investor is currently, and has for a period of time prior to the
date hereof been, an employee of the Company. Prior to the date hereof, the
Investor has not held any shares of any class of capital stock of the Company.
(b) Simultaneous with the execution and delivery hereof, the Company is
entering into certain documents including a Recapitalization Agreement among the
Company, Jay F. Ecklund ("Ecklund"), certain trusts established for the benefit
of certain affiliates of Ecklund (the "Ecklund Trusts" and together with
Ecklund, the "Selling Stockholders"), BT Capital Partners, Inc. ("BT"), the
Ontario Teachers' Plan Board ("OTPB"), and the other parties named therein (the
"Recapitalization Agreement") pursuant to which the Company is (i) redeeming the
majority of the shares of outstanding capital stock of the Company held by the
Selling Stockholders, and (ii) issuing new shares of capital stock to BT and
OTPB such that BT and OTPB will become the new controlling shareholders of the
Company.
(c) In consideration of the commitment made by the Investor to remain
employed by the Company following the execution and delivery of the
Recapitalization Agreement, BT and OTPB have offered the Investor compensation
in the form of this opportunity to purchase shares of Class A Stock. The
Company's offer to sell shares of Class A Stock hereby is intended to qualify as
an exempt transaction under Rule 701 promulgated under the Securities Act of
1933, as amended.
<PAGE> 2
2. Authorization of Issuance of the Shares.
Upon the terms and subject to the conditions hereof, the Company has
authorized the issuance at the Closing of __________ shares of Class A Stock to
the Investor (the "Shares"). The Class A Stock has the rights and privileges set
forth in the Amendment and Restatement of the Articles of Incorporation of the
Company (the "Restated Articles") as filed with the Secretary of State of the
State of Minnesota on or prior to the date hereof. A copy of the Restated
Articles are attached hereto as Exhibit A.
3. Closing.
The closing of the transactions contemplated hereby (the "Closing") will
take place simultaneously with the execution and delivery of this Agreement (the
"Closing Date"). The Closing shall take place at the offices of Dorsey & Whitney
LLP, Pillsbury Center South, 220 South 6th Street, Minneapolis, Minnesota.
4. Sale and Purchase of Shares.
At the Closing the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, the number of shares of Class A Stock
set forth beneath the name of such Investor on the signature page hereto.
5. Representations and Warranties of the Investor.
The Investor represents and warrants to the Company as follows.
5.1. Authorization, Etc.
(a) Such Investor has full legal right, power and authority to enter into
this Agreement and to perform his or her obligations under this Agreement. This
Agreement has been duly executed and delivered by the Investor and is the valid
and binding obligation of the Investor, enforceable against the Investor in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, and similar Laws affecting creditors' rights generally
and subject to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at Law). "Laws" means all laws, rules,
regulations, statutes, ordinances, orders, judgments, injunctions, decrees and
other legislative, administrative or judicial restrictions.
(b) No permit, authorization, consent or approval of or by, or
notification of or filing with, any person (governmental or private) is required
in connection with the execution or delivery
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<PAGE> 3
by the Investor of, or performance by the Investor of his or her obligations
under, this Agreement, other than the actions and filings contemplated by this
Agreement.
5.2. Investment by the Investor.
(a) The Investor (i) is personally familiar with the business of the
Company as an employee of the Company (ii) has been furnished with or has had
access to the information the Investor has requested from the Company, including
without limitation, the "Investor Book" in respect of the Company which book
includes (1) three years of historical financial information for the Company,
(2) a discussion of the "risk factors" associated with the Investor's purchase
of the Shares and (3) a confidential memorandum discussing the Company prepared
by the Company's investment banker, (iii) has had an opportunity to discuss with
management of the Company the intended business and financial affairs of the
Company and (iv) has such knowledge and expertise in financial and business
matters and with respect to investments in securities to evaluate the merits and
risks of an investment in the Company and to make an informed investment
decision with respect thereto. The Investor is aware that his or her purchase of
the Shares is highly speculative and he or it is able, without impairing his or
her financial condition, to hold such Shares for an indefinite period of time
and to suffer a complete loss of his or her investment.
(b) The Investor recognizes that an investment in the Company involves
certain risks, and has taken full cognizance of, and understands all of, the
risk factors related to the purchase of the Shares. The Investor has consulted
with his or her legal advisors with respect to the consequences of his or her
participation as an Investor of the Company.
(c) The Investor is acquiring the Shares for his or her own account only
for investment and not with a view to the resale or further distribution
thereof, nor with any present intention of distributing the same, in any such
case in violation of Federal or state securities Laws. The Investor understands
that such Shares may only be transferred in compliance with the conditions
specified in Sections 4 through 7 of the Stockholders' Agreement dated hereof
among the Company, the Investor, BT, OTPB and the other parties named therein
(the "Stockholders' Agreement").
(d) The Investor understands and acknowledges that the offering of the
Shares has not been considered or approved by any governmental or other entity.
(e) The Investor understands that there is no public market for the Shares
and that the transferability of the Shares is restricted.
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<PAGE> 4
(f) The Investor understands that the Shares have not been, and will not
upon issuance be, registered or qualified under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise (including under any applicable
state securities Laws) by reason of their issuance in a transaction exempt from
the registration or qualification requirements of the Securities Act and such
Laws, and that the Shares cannot be offered for sale or sold by the Investor or
by anyone acting for the Investor's account or on the Investor's behalf without
the registration of the Shares and/or the fulfillment of other regulatory
requirements.
(g) The Investor understands that the exemption from registration afforded
by Rule 144 (the provisions of which are known to the Investor) promulgated
under the Securities Act depends on the satisfaction of various conditions and
that, if applicable, Rule 144 may only afford the basis for sales under certain
circumstances only in limited amounts.
6. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investor as follows:
6.1. Authorization; Enforceability.
The Company has full legal right, power and authority to enter into this
Agreement and to perform its obligations under this Agreement. The execution and
delivery by the Company of this Agreement and the performance of the obligations
of the Company contained herein have been duly authorized by all requisite
corporate action of the Company and when duly executed and delivered by the
Company will be a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar Laws now or hereafter in effect relating to creditors' rights and
subject to general principles of equity.
6.2. No Conflict.
The execution and delivery by the Company of this Agreement, its
consummation of the transactions contemplated hereby, and its compliance with
the provisions hereof, will not (a) violate or conflict with the Restated
Articles or the By-laws of the Company, (b) violate, conflict with, or give rise
to any right of termination, cancellation, or acceleration under any agreement,
lease, security, license, permit, or instrument to which the Company or any
subsidiary of the Company is a party, or to which they or any of their assets
are subject, (c) result in the imposition of any Encumbrance on any asset of the
Company or any subsidiary, other than the restrictions set forth in the
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<PAGE> 5
Stockholders' Agreement, or (d) violate or conflict with any Laws. "Encumbrance"
means any security interest, mortgage, lien, pledge, charge, easement,
reservation, restriction, or similar right of any third party.
6.3. No Consent or Approval Required.
No consent, approval or authorization of, or declaration to or filing
with, any person is required to be made or obtained by the Company or any
subsidiary for the valid authorization, execution and delivery by the Company of
this Agreement or for the consummation of the transactions contemplated hereby
or for the valid authorization, issuance and delivery of the Shares, other than
those consents, approvals, authorizations, declarations or filings which have
been or will be timely obtained or made, as the case may be.
6.4. Offering Exemption.
Based on the truth and accuracy of the investment representations
made by the Investor in this Agreement, the offering, sale, and issuance of the
Shares are exempt from registration under the Securities Act of 1933, as amended
("Securities Act") and the rules and regulations promulgated thereunder and
applicable state securities and "blue sky" Laws. the Company has made or will
make all requisite filings and has taken or will take all action necessary to
comply with such state securities or "blue sky" Laws in connection with the
offering, sale and issuance of the Shares.
7. Conditions Precedent to the Obligations of the Investor.
The respective several obligations of the Investor to purchase and pay for
the Shares in accordance with Section 4, are subject to the following conditions
precedent.
7.1. Stockholders' Agreement.
Each of the Company and the other parties thereto shall have executed and
delivered the Stockholders' Agreement.
8. Conditions Precedent to the Obligations of the Company.
The obligation of the Company to issue, sell, and deliver the Shares, in
accordance with Section 4, is subject to the following conditions precedent.
8.1. Payment.
The Investor shall have delivered to the Company the consideration as set
forth in Section 4.
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<PAGE> 6
8.2. Stockholders' Agreement.
Each of the Investor shall have executed and delivered the Stockholders'
Agreement.
9. Repurchase Agreement.
9.1. Definitions.
"Allowed Resignation" means, with respect to any Investor, the termination
by the Investor of the Investor's employment with the Company due to
circumstances determined by the Board to be "allowed" hereunder; provided,
however, that the termination by any Investor of the Investor's employment with
the Company shall be an Allowed Resignation if such termination results from (i)
the Retirement of the Investor, (ii) the Company's effort without the consent of
the Investor to relocate the Investor's employment to a location more than 50
miles from the location of the Investor's employment on the Closing Date or
(iii) a reduction in the base compensation paid to the Investor or a material
reduction (such reduction being particular to the Investor) in the aggregate
benefits then received by the Investor.
"Appraisal Procedure", if applicable, means the following procedure to
determine the Fair Value Per Share of any security. The Fair Value Per Share
shall be determined by an investment banking firm of national recognition, which
firm shall be reasonably acceptable to the Board and the Selling Investor. If
the Board and the Selling Investor are unable to agree upon an acceptable
investment banking firm within ten (10) days after the date either party
proposed that one be selected, the investment banking firm will be selected by
an arbitrator located in New York City, New York, selected by the American
Arbitration Association (or if such organization ceases to exist, the arbitrator
shall be chosen by a court of competent jurisdiction). The arbitrator shall
select the investment banking firm (within ten (10) days of his appointment)
from a list, jointly prepared by the Board and the Selling Investor, of not more
than six investment banking firms of national standing in the United States, of
which no more than three may be named by the Board and no more than three may be
named by the Selling Investor. The arbitrator may consider, within the ten-day
period allotted, arguments from the parties regarding which investment banking
firm to choose, but the selection by the arbitrator shall be made in its sole
discretion from the list of six. The Board and the Selling Investor shall submit
to the investment banking firm their respective calculations of the valuation
amount, and any supporting arguments and other data as they may desire, within
ten (10) days of the appointment of the investment banking firm, and the
investment banking firm shall as soon as practicable thereafter make its own
calculation of the valuation amount. The Fair Value Per Share for purposes
hereof shall be the average, as
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<PAGE> 7
determined by the investment banking firm, of the (i) valuation amount
calculated by the investment banking firm and (ii) that valuation which is the
closer to the valuation amount calculated by the investment banking firm (the
"Closer Valuation"), as determined by the investment banking firm, from among
the valuation amount submitted by the Company and valuation amount submitted by
the Selling Investor. The determination of the Fair Value Per Share by such
investment banking firm shall be final and binding upon the parties. The fees
and expenses of the investment banking firm and arbitrator (if any) used to
determine the Fair Value Per Share shall be split among the Company and the
Selling Investor with the party that submitted the Closer Valuation paying 20%
of such amount and the other party paying the remaining 80%. If required by any
such investment banking firm or arbitrator, the Company shall execute a retainer
and engagement letter containing reasonable terms and conditions, including,
without limitation, customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such investment
banking firm or arbitrator and its officers, directors, partners, employees,
agents and affiliates. Any determination of Fair Value Per Share made pursuant
to these Appraisal Procedures shall be deemed effective for any purchase of
securities that results from any event that occurred or is based upon an event
that occurred during the period ending ninety (90) days from the date of such
determination.
"Board" means the Board of Directors of the Company.
"Cause", with respect to any employee of the Company, shall be determined
in good faith by the Board and shall include, without limitation, the following:
(i) repeated neglect by such employee of any material duties of such
employee or the repeated failure or omission by such employee to carry out
lawful and reasonable directives from the Board which failures or
omissions are, in the reasonable judgment of the Board, willful and
deliberate and which failures or omissions are not cured within a
reasonable period of time following such employee's receipt of written
notice thereof from the Company;
(ii) any act or acts of personal dishonesty by such employee
intended to result in the personal enrichment of such employee at the
expense of the Company;
(iii) any willful and deliberate misconduct on the part of such
employee that is materially and demonstrably injurious to the Company;
(iv) any statement, representation or warranty made by such employee
to the Board that is materially false or misleading; and
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<PAGE> 8
(v) the commitment of a felony by such employee, whether or not such
felony is committed against the Company.
"Fair Value Per Share" means, as to any security, (i) if such security is
Publicly Traded, the Market Price of such security and (ii) if such security is
not Publicly Traded, the market value thereof as reasonably determined in good
faith by the Board, using an appropriate valuation method, assuming an
arms-length sale to an independent party (not taking into account any reduction
in the value of such security due to such security representing a minority
interest in the Company or any discount based upon the illiquidity of such
security); provided, however, that if the Selling Investor shall disagree with
the valuation made by the Board and such disagreement is not resolved within ten
(10) days of the Board's determination, then Fair Value Per Share shall be
determined in accordance with the Appraisal Procedure. Any determination of Fair
Value Per Share hereunder shall be made as of the date that the right to
repurchase such Shares arises under this Section 9.
"Market Price" means, as to any security, the average of the closing
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York City time, on such day, or, if on
any day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar or successor organization (and in each such case averaged over a period
of 30 days consisting of the day as of which Market Price is being determined
and the 29 consecutive Business Days prior to such day.
"Original Cost" means with respect to the repurchase of any Share pursuant
to Section 9 hereof, the purchase price originally paid to the Company for such
Share pursuant to Section 4 hereof.
"Publicly Traded" means, with respect to any security, that such security
is (i) listed on any domestic securities exchange, (ii) a price quoted in the
NASDAQ System, or (iii) has a price quoted by the National Quotation Bureau,
Incorporated.
"Retirement" means, with respect to any Investor, the retirement of the
Investor from the Investor's employment with the Company upon the Investor
reaching the age of at least 55 years.
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<PAGE> 9
"Sale Event" means, with respect to any Investor, (i) the death of the
Investor, (ii) the permanent disability of the Investor causing the Investor to
permanently cease his or her employment with the Company, (iii) an Allowed
Resignation or (iv) a Termination of Employment by the Company other than a
Termination for Cause.
"Selling Investor" means any Investor whose Shares are being repurchased
pursuant to this Section 9.
"Termination of Employment" means, with respect to any Investor, the
termination by the Company of the Investors employment with the Company.
"Termination for Cause" means, with respect to any Investor, the
termination by the Company of the Investors employment with the Company for
Cause.
9.2. Repurchase at Investor's Option.
(a) The Investor shall have the option following the occurrence of a Sale
Event and for the applicable period set forth below, to cause the Company to
purchase from the Investor all (but not less than all) of the Shares then held
by the Investor. The period following the occurrence of a Sale Event during
which the Investor shall have such option shall be:
(i) in the case of the death of such Investor, 180 days;
(ii) in the case of the permanent disability of such Investor, 60
days following the final determination of such disability; and
(iii) in the case of an Allowed Resignation or a Termination of
Employment by the Company other than a Termination for Cause, 30 days.
(b) If the Company shall receive a valid request pursuant to Section
9.2(a) hereof, the Company shall within 45 days of such receipt, purchase from
the requesting Investor all of the Shares then held by the Investor in the
manner set forth in Section 9.4.
9.3. Repurchase at Company's Option.
(a) The Company shall have the option, for a period of 45 days following
any Sale Event, to purchase from the Investor all (but not less than all) of the
Shares then held by the Investor in the manner set forth in Section 9.4.
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<PAGE> 10
(b) The Company shall have the option, for a period of 45 days following
the Termination for Cause of any Investor or the termination by the Investor of
the Investor's employment with the Company for any reason (other than a Sale
Event) that does not constitute an Allowed Resignation, to purchase from the
Investor all (but not less than all) of the Shares then held by the Investor in
the manner set forth in Section 9.4.
9.4. Procedures for Repurchase.
(a) Any repurchase of Shares by the Company pursuant to Section 9.2 or
9.3(a) hereof shall be made at a purchase price per Share equal to the Fair
Value Per Share.
(b) Any repurchase of Shares by the Company pursuant to Section 9.3(b)
hereof shall be at (i) a purchase price equal to the Fair Market Value Per Share
provided that the Investor whose Shares are being repurchased shall enter into a
Non-Competition Agreement with the Company containing the terms set forth on the
Exhibit B attached hereto or, (ii) in the absence of such an agreement, at a
purchase price equal to the lesser of (x) the Original Cost or (y) the Fair
Value Per Share.
(c) The purchase price for any repurchase of Shares by the Company shall
be paid in cash (to the extent allowed by the Company's agreements with its
lenders) due upon the surrender of the Shares being repurchased. If the Company
shall not be able to pay the full purchase price in cash upon the surrender of
the Shares being repurchased, the Company shall pay at least 50% of such amount
due with the remainder payable in the form of a note of the Company that shall
bear interest at a market rate and which shall have a maximum term of three
years.
10. Parties in Interest; Assignment.
This Agreement shall bind and inure to the benefit of the Company, the
Investor, and to the respective successors and permitted assigns of the Company
and the Investor.
11. Duration of Agreement.
This Agreement shall terminate upon the earlier of the completion of an
Approved Sale and a Qualified Public Offering (each as defined within the
Stockholders' Agreement).
12. Entire Agreement.
This Agreement and the other writings and agreements referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and
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<PAGE> 11
understandings, oral or written, among the parties with respect to their subject
matter.
13. Notices.
All notices, claims, certificates, requests, demands and other
communications to any party shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed to such party at the address set forth
below or as may hereafter be designated in writing by such party to the other
parties at the address shown below (or to such other address as the party to
whom notice is to be given may have furnished to the other parties in writing in
accordance herewith):
(a) if to the Company, to:
Young America Corporation
c/o BT Capital Partners, Inc.
130 Liberty Street
Mail Stop 2255
New York, New York 10006
Telephone: (212) 250-8412
Telecopy: (212) 250-7651
Attention: Richard Gersten;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
41st Floor
New York, New York 10112
Telephone: 212-408-2400
Telecopier: 212-408-2420
Attention: John M. Scott; and
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<PAGE> 12
Debevoise & Plimpton
875 third Avenue
New York, New York 10022
Telephone: 212-909-6000
Telecopy: 212-909-6836
Attention: Franci J. Blassberg
(b) if to an Investor, to the Investor at his or her address set forth
the signature page hereto.
Any such notice or communication shall be deemed to have been delivered and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of dispatch by nationally-recognized overnight courier, on the
next business day following such dispatch, (iii) in the case of telecopy
transmission, on the date of such delivery, and (iv) in the case of mailing, on
the fifth business day after the posting thereof.
14. Amendments.
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to the prior written consent of the Company and the Investor.
15. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
16. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
domestic Laws of the State of Minnesota without giving effect to any choice or
conflict of law provision or rule thereof.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement as of the date first above written.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
--------------------------------------
Name: Charles D. Weil
Title: President
INVESTOR:
/s/ L. Kula
-----------------------------------------
(Signature of Investor)
$60,000.00
-----------------------------------------
Amount of Commitment
2,757
-----------------------------------------
Number of Shares
LUDWIK JOSEPH KULAS
-----------------------------------------
8148 LEE AVENUE NORTH
-----------------------------------------
BROOKLYN PARK, MN 55443
-----------------------------------------
612-566-6364
-----------------------------------------
612-467-1722
-----------------------------------------
Please print Name, Address,
Phone and Facsimile Numbers.
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made by and between YOUNG AMERICA CORPORATION
("Employer") and CHARLES D. WEIL ("Employee").
RECITALS
1. Employee has been employed by Employer in the position of
President and Chief Operating Officer.
2. The ownership and control of Employer have changed. In light of
these changes, the parties hereto wish to change the terms and conditions of
Employee's employment by Employer.
3. Therefore, in consideration of and exchange for the mutual
covenants and promises herein, the parties agree as follows.
AGREEMENTS
1. Employment. The Company hereby agrees to continue to employ
Employee, and Employee accepts such employment upon the terms and conditions set
forth in this Agreement.
2. Term. The term of this Agreement shall commence on the date of
Employee's execution of this Agreement. The term shall continue for three years
unless earlier terminated in accordance with the terms of Paragraph 8 below.
Following the initial three-year term, this Agreement will be renewed for
additional one-year periods unless either party gives the other party written
notice of intent not to renew the Agreement at least sixty days prior to the end
of the initial three-year term or the end of each renewal year thereafter.
3. Duties. Employee will be employed in the position of President
and Chief Executive Officer of Employer. Employee will report to the Board of
Directors of Employer (the "Board") with full operational responsibility within
the constraints set by the Board and by law. Employee will devote his full time,
attention and efforts to the business and affairs of Employer. During the term
of this Agreement, Employee will not engage in any other business activity which
would conflict with his ability to perform his duties under this Agreement.
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<PAGE> 2
4. Compensation and Benefits.
A. Base Salary. Employee will be paid an annual base salary in
the amount of $300,000, payable in accordance with Employer's normal payroll
procedures and policies. The base salary shall be reviewed annually by the Board
of Directors and will be increased at least five percent (5%) each year as of
each January 1st, beginning with January 1, 1999.
B. Participation in Benefit Plans. Employee shall be entitled
to receive family medical and dental coverage with the normal contribution level
for senior managers. Employee shall be entitled to receive life insurance in the
amount of $500,000, with an additional gross-up bonus to be paid to cover the
incremental additional income tax incurred by Employee with respect to $350,000
of the supplemental life insurance. Employee shall be entitled to participation
in Employer's short- and long-term disability plans.
C. Stock Option Plan. Employee shall be entitled to
participate in a Stock Option Plan, the terms of which are defined in Exhibit A
hereto, and which shall be adopted by Employer within fifteen days of Employee's
execution of this Employment Agreement.
D. Reimbursement of Expenses. Employer will reimburse Employee
for all necessary and ordinary expenses incurred by him in the performance of
his duties, in accordance with Employer's policies and practices with regard to
documentation and payment of such expenses. Employer will also reimburse
Employee for:
i. Monthly membership dues at a club chosen by Employee,
exclusive of initiation fees or assessments, up to $500; and
ii. Payment of up to $5,000 annually for fees for tax
preparation and financial planning to be performed by persons chosen by
Employee.
E. Vacation. Employee shall be entitled to four weeks vacation
to be used during each year of this Agreement beginning with the commencement of
this Agreement.
F. 1997 Annual Incentive Bonus. Employee shall be entitled to
an Annual Incentive Bonus for 1997 to be calculated as follows. In the event
that Employer's "Return on Sales" for 1997 (which shall be defined in percentage
terms and equal to the quotient of (i) Employer's net income before taxes plus
(a) salary and non-business related expenses of Jay Ecklund in excess of
$600,000 and less (b) gain on and expenses of the sale of all or substantially
all of Employer's assets (the "Adjusted NIBT") divided by (ii) Employer's net
fulfillment revenue for that year as determined by
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<PAGE> 3
Employer's internal financial statement) is greater than 10%, then Employee
shall receive an annual bonus of an amount equal to the product of (i) the
Adjusted NIBT and (ii) the percentage in Column B of Exhibit B, that is in the
same line as the Return on Sales percentage in Table 1, Column A of Exhibit B.
If the Return on Sales is 40% or greater, the columns in Table 1 of Exhibit B
shall be extrapolated in the same percentage increments. Employee shall be paid
$900,000 of said bonus on or about January 7, 1998. The balance shall be paid
within 30 days of approval by Employer's Board of Directors of the annual
financial statements for 1997.
G. Annual Incentive Bonus After 1997. For 1998 and all years
following, Employee shall participate in Employer's Annual Management Incentive
Plan, as that plan may be amended from time to time, provided that such
amendments shall not reduce the maximum amount payable to Employee under the
Plan.
H. Long Term Bonus. On or before January 7, 1998 Employer
shall pay to Employee a long-term bonus in the amount of $500,000 (provided that
the Final Closing Balance Sheet, as that term is defined in that certain
Recapitalization Agreement by and between Young America Corporation, Jay F.
Ecklund, The John F. Ecklund 1995 Irrevocable Trust, The Sheldon McKensie
Ecklund 1995 Irrevocable Trust, The John F. Ecklund 1997 Irrevocable Trust, the
Jay F. Ecklund Irrevocable Annuity Trust, and B. T. Capital Partners, Inc.
("Recapitalization Agreement")) reflects an accrued liability of such amount.
This amount shall satisfy Employer's obligation to Employee pursuant to
Paragraphu4.05(b) of the Original Employment Agreement.
I. Sale of Company Bonus. Upon the final determination of the
Final Closing Balance Sheet, as that term is defined in the "Recapitalization
Agreement." Employer shall pay to Employee a sum equal to 15% of the Final
Closing Adjustment payable by the Company pursuant to Section 3.4 of the
Recapitalization Agreement, if any, provided that such amount is reflected as a
liability on the Final Closing Balance Sheet.
5. Disclosure of Information.
A. From and after the date hereof, Employee shall not use or
disclose to any person, firm, corporation or other business entity (other than
any officer, director, executive, affiliate or representative of Employer),
except as required in connection with the performance of Employee's duties under
and in compliance with the terms of this Agreement and as required by law or
judicial process, any Confidential Information (as hereinafter defined) for any
reason or purpose whatsoever, nor shall Employee make use of any of the
Confidential Information for Employee's purposes or for the benefit of any
person or entity except Employer or any subsidiary thereof.
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<PAGE> 4
B. For purposes of this Agreement, "Confidential Information"
shall mean (i) Intellectual Property Rights (as hereinafter defined) of Employer
and its subsidiaries and (ii) all other information of a proprietary nature
relating to Employer or any subsidiary thereof, or the business or assets of
Employer or any such subsidiary, including, without limitation, books, records,
customer and registered user lists, vendor lists, supplier lists, distribution
channels, pricing information, cost information, marketing plans, strategies,
forecasts, financial statements, budgets and projections, other than information
which is generally within the public domain at the time of the receipt thereof
by Employee or at the time of use or disclosure of such Confidential Information
by Employee other than as a result of the breach by Employee of his agreement
hereunder.
C. As used herein, the term "Intellectual Property Rights"
means all industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications, copyrights,
copyright applications, know-how, certificates of public inventions, development
tools, marketing materials, trade dress, logos and designs and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
6. Right to Inventions. Employee shall promptly disclose, grant and
assign to Employer for its sole use and benefit any and all inventions,
improvements, technical information and suggestions reasonably relating to the
business of Employer or any subsidiary or affiliate thereof (collectively, the
"Inventions") which Employee may develop or acquire during the period of the
employment hereunder (whether or not during usual working hours), together with
all patent applications, letters patent, copyrights and reissues thereof that
may at any time be granted for or upon the Inventions. In connection therewith:
A. Employee recognizes and agrees that the Inventions shall be
the sole property of Employer, and Employer shall be the sole owner of all
patent applications, letters patent, copyrights and reissues thereof that may at
any time be granted for or on the Inventions;
B. Employee hereby assigns to Employer any rights Employee may
have in or to acquire to the Inventions;
C. Employee shall, at the expense of Employer, promptly
execute and deliver such applications, assignments, descriptions and other
instruments as may be necessary or proper in the opinion of Employer to vest
title to the Inventions and any patent applications, patents, copyrights,
reissues or other proprietary rights related thereto in Employer and to enable
it to obtain and maintain the entire right and title thereto throughout the
world;
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<PAGE> 5
D. Employee recognizes and agrees that the Inventions to the
extent copyrightable shall constitute works for hire under the copyright laws of
the United States; and
E. Employee shall render to Employer, at its expense, all such
assistance as it may require in the prosecution of applications for said
patents, copyrights, reissues or other proprietary rights, in the prosecution or
defense of interferences which may be declared involving any said applications,
patents, copyrights or other proprietary rights and in any litigation in which
Employer may be involved relating to the Inventions.
7. Restrictive Covenants.
A. Employee acknowledges and recognizes that during his
employment hereunder, he will be privy to Confidential Information and further
acknowledges and recognizes that Employer would find it extremely difficult to
replace Employee. Accordingly, in consideration of the premises contained herein
and the consideration to be received by Employee hereunder (including, without
limitation, any severance compensation described in Paragraph 8 and any
consulting payments pursuant to Paragraph 8), without the prior written consent
of Employer, Employee shall not, at any time during his employment hereunder and
for the 18-month period (whether such termination is with or without "cause" and
whether such termination is occasioned by Employer or Employee) after the
termination of such employment,(i) directly or indirectly engage in, represent
in any way, or be connected with, any Competing Business, whether such
engagement shall be as an officer, director, owner, executive, partner,
affiliate or other participant in any Competing Business, (ii) assist others in
engaging in any Competing Business in the manner described in clause (i) above,
(iii) induce other employees of Employer or any subsidiary or affiliate thereof
to terminate their employment with Employer or any such subsidiary or affiliate
in order to engage in any Competing Business or (iv) induce any entity or person
with which Employer or any subsidiary or any affiliate thereof has a business
relationship to terminate or alter such business relationship. As used herein,
"Competing Business" shall mean any business in any city or county in any state
of the United States if such business is competitive at the time of the
Termination of Employment with (A) the business of Employer or any affiliate
thereof or (B) any of the products or business being developed or conducted by
Employer of any affiliate thereof.
B. Employee understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the business of
Employer or any subsidiary or affiliate thereof, but he nevertheless believes
that he has received and will receive sufficient consideration and other
benefits as an executive of Employer and as otherwise provided hereunder to
justify clearly such restrictions which, in any event
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<PAGE> 6
(given his education, skills and ability), the Executive does not believe would
prevent him from earning a living.
8. Termination. Employee's employment under this Agreement may be
terminated as follows.
A. Termination by Employer for Cause. Employer shall have the
right to terminate Employee's employment at any time during the term of this
Agreement for Cause, as defined below, by giving written notice to Employee,
specifying the particulars of Employee's conduct forming the basis for such
Cause. Cause shall be defined as:
i. Employee's repeated neglect of any of his material duties
or his repeated failures or omission to carry out lawful and reasonable
directives from the Board which, in the reasonable judgment of the Board,
are willful and deliberate and which are not cured within a reasonable
period after Employee's receipt of written notice thereof from Employer;
ii. Any act or acts of personal dishonesty by Employee
intended to result in the personal enrichment of Employee at the expense
of Employer;
iii. Any willful and deliberate misconduct that is materially
and demonstrably injurious to Employer;
iv. The Board reasonably determines that any statement,
representation or warranty made to the Board by Employee is materially
false or misleading;
v. Employee commits a felony whether or not against Employer,
it being understood that Employer shall bear the burden to prove that
Employee has committed such felony.
In the event of discharge for Cause, Employee shall be entitled to receive his
base salary through the effective date of the termination of his employment.
B. Termination by Employer Without Cause. Employer may
terminate Employee's employment hereunder by failure to renew this Agreement as
provided in Paragraph 1 hereof or upon thirty days written notice to Employee.
In such event, Employee shall be entitled to Severance Benefits as defined in
Paragraph 8.D. hereof.
C. Termination by Employee for Good Reason. Employee shall
have the right to terminate his employment at any time during this Agreement for
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<PAGE> 7
Good Reason, as defined below, by giving Employer ten days written notice of his
intention to terminate his employment. Such notice shall set forth in reasonable
detail the facts and circumstances claimed by Employee to constitute Good
Reason. Good Reason shall be defined as:
i. The assignment to the Employee of employment
responsibilities which are not of comparable responsibility and status to
the employment responsibilities described in Paragraph 3 hereof;
ii. A reduction by Employer of Employee's base salary or the
maximum percentage of his salary to be paid under Employer's annual
incentive bonus plan;
iii. Employer's requiring Employee to be based at a location
that is in excess of fifty miles from the location of Employee's principal
office at the time of the execution of this Agreement;
iv. Employer's failure to provide employee benefits as
required by Paragraph 4.B. to grant options pursuant to Paragraph 4.C. or
to pay any amount required to be paid under Sections 4.F., 4.G., 4.H. or
4.I.
In the event of termination under this Paragraph, Employee shall be entitled to
Severance Benefits as defined in Paragraph 8.D. hereof.
D. Severance Benefits Upon Termination by Employer Without
Cause or Termination by Employee with Good Reason. In the event that Employee's
employment is terminated pursuant to Paragraph 8.B. or 8.C. hereof, Employer
shall
i. Continue to pay to Employee his base salary, for the period
of 18 months following the effective date of termination. The base salary
shall be adjusted each January 1 during the 18-month period as required by
Paragraph 4.A. hereof.
ii. Continue to pay the full premiums for medical and dental
insurance for Employee and his dependents for the period of 18 months
following the effective date of termination. At the end of this 18-month
period, Employee shall have the right to elect continuation of such
insurance coverage under federal and state laws popularly known as COBRA.
iii. Pay to Employee a pro-rated portion of the annual
incentive bonus.
iv. Pay to Employee any amounts not yet paid pursuant to
Paragraphs 4.F., 4.H., and/or 4.I. hereof.
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<PAGE> 8
E. Consulting Services. In the event that Employee's
employment hereunder is terminated as a result of his election not to renew this
agreement as provided by Paragraph 2. Employee agrees to provide, for the period
of 18 months following the termination date of employment, (the "Consulting
Period") consulting services to Employer at the request of Employer for up to
eight hours per month. Such services may be provided by telephone.
Notwithstanding anything to the contrary contained herein, if Employee provides
a notice of termination and Employer elects to enter into the consulting
agreement, Employer will continue to pay Employee fifty percent of his base
salary through the Consulting Period (without duplication of payments to be made
under Paragraph 8). In the event that Employee is required to incur any expenses
in connection with the provision of such services, Employer will promptly
reimburse Employee for such expenses upon receipt of documentation therefor.
F. Employee's Death. This Agreement shall terminate in the
event of Employee's death. Employer shall pay to Employee's estate the total of
base salary to the last date of employment, annual incentive (bonus) pro-rated
to the last date of employment, unused vacation, and the amount of any expenses
under Paragraphs 4.B.v., 4.B.vi., and 4.D. incurred by Employee but not yet
reimbursed at the time of his death, and any amounts not yet paid to Employee
pursuant to Paragraphs 4.F., 4.H., and/or 4.I.. All payments shall be made
within thirty days of the date of Employee's death except that the pro-rated
portion of the annual incentive bonus shall be paid as provided in Paragraph
4.G. hereof.
G. Pro-ration of Bonus. For the purposes of this Agreement,
wherever a pro-rated portion of the annual incentive bonus is to be paid, the
amount to be paid shall be the lesser of:
i. The amount of the bonus that would be due if Employer's
books were closed and the bonus were calculated at the end of the month
preceding the termination of employment, or
ii. The amount of the bonus otherwise due for the year
multiplied by a fraction the numerator of which is the number of days in the
year Employee was employed and the denominator of which is 365.
The pro-rated portion of the bonus shall be paid at the time that the bonus for
that year would otherwise have been paid under the Annual Management Incentive
Plan then in place.
H. Payment with Respect to Supplemental Life Insurance. In all
cases where Employer is required to pay premiums for life insurance for Employee
after the termination of Employee's employment hereunder, Employer shall also be
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<PAGE> 9
obligated to pay to Employee an additional gross-up bonus to cover the
incremental additional income tax incurred by Employee with respect to the
supplemental life insurance.
I. Employee's Disability. Employer may terminate Employee's
employment in the event that Employee is disabled, that is, unable, with
reasonable accommodation, to perform a substantial portion of the duties of his
position, as a result of a mental or physical illness or injury, for ninety days
in any period of 360 consecutive days. Any dispute with regard to whether
Employee's inability is due to disability shall be determined by a physician
mutually-agreed upon by the parties. Termination shall become effective
immediately upon the Employer's written notice to Employee.
9. Miscellaneous Provisions.
A. Entire Agreement; Amendments. This Agreement and the other
agreements referred to herein and that Letter Agreement between Employer and
Employee dated November 20, 1997, attached hereto as Exhibit C, contain the
entire agreement between the parties hereto with respect to those matters which
are specifically addressed by this Agreement and supersede all prior agreements
or understandings between the parties with respect thereto. This Agreement shall
not be altered or otherwise amended except pursuant to an instrument in writing
signed by each of the parties hereto.
B. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provisions of this Agreement.
C. Notices. All notices or other communications pursuant to
this Agreement shall be in writing and shall be deemed to be sufficient if
delivered personally, telecopied, sent by nationally-recognized, overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
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<PAGE> 10
(i) if to Employer, to:
Young America Corporation
717 Faxon Road
Young America, Minnesota 55387-9481
Telecopier: (612) 467-3895;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John M. Scott, Esq.
Telecopier: (212) 408-2420; and
(ii) if to Employee, to him at:
Charles D. Weil
c/o Young America Corporation
717 Faxon Road
Young America, Minnesota 55387-9481
Telecopier: (612) 467-3895
All such notices and other communications shall be deemed to have been delivered
and received (a) in the case of personal delivery, on the date of such delivery,
(b) in the case of delivery by telecopy, on the date of such delivery, (c) in
the case of delivery by nationally-recognized, overnight courier, on the
Business Day following dispatch, and (d) in the case of mailing, on the third
Business Day following such mailing. As used herein, "Business Day" shall mean
any day that is not a Saturday, Sunday or a day on which banking institutions in
New York, New York are not required to be open.
D. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
E. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws to the State of Minnesota applicable to
contracts made and performed wholly therein.
F. Benefits of Agreement; Assignment. The terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, representatives, heirs and
estate, as applicable. Anything contained herein to the contrary
notwithstanding, this
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<PAGE> 11
Agreement shall not be assignable by the Executive without the consent of the
Corporation.
G. Waiver of Breach. The waiver by either party of a breach of
any provision of this Agreement by the other party must be in writing and shall
not operate or be construed as a waiver of any subsequent breach by such other
party.
H. Severability. In the event that any provision of this
Agreement is determined to be partially or wholly invalid, illegal or
unenforceable in any jurisdiction, then such provision shall, as to such
jurisdiction, be modified or restricted to the extent necessary to make such
provision valid, binding and enforceable, or if such provision cannot be
modified or restricted, then such provision shall, as to such jurisdiction, be
deemed to be excised from this Agreement; provided, however, that the binding
effect and enforceability of the remaining provisions of this Agreement, to the
extent the economic benefits conferred upon the parties by virtue of this
Agreement remain substantially unimpaired, shall not be affected or impaired in
any manner, and any such invalidity, illegality or unenforceability with respect
to such provisions shall not invalidate or render unenforceable such provision
in any other jurisdiction.
I. Prior Understandings. This Agreement and the other
agreements referred to herein and Exhibit C embodies the entire understanding of
the parties hereto and, at the commencement time, will supersede all other oral
or written agreements or understandings (including, without limitation, the
Employment Agreement dated as of January 1, 1997, the "Original Employment
Agreement") between Employer and Employee. Notwithstanding anything to the
contrary contained herein, if no closing occurs with respect to the transactions
contemplated by the Recapitalization Agreement, as adjusted pursuant to Article
3 thereof, then this Employment Agreement shall also terminate and the Original
Employment Agreement shall remain in full force and effect. In the event of a
conflict between this Agreement and Exhibit C, this Agreement shall control.
J. Successors. Employer shall require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Employer, to expressly assume
and agree to perform its obligations under this Agreement in the same manner and
to the same extent that Employer would be required to perform them if no
succession had taken place unless, in the opinion of legal counsel mutually
acceptable to Employer and Employee, such obligations have been assumed by the
successor as a matter of law.
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<PAGE> 12
Employee's rights under this Agreement shall inure to the benefits of, and shall
be enforceable by, Employee's legal representative or other successors in
interest, but shall not otherwise be assignable or transferable.
YOUNG AMERICA CORPORATION
Dated: November 24, 1997 By /s/ L. J. Kulas
--------------------------------
Its CFO
-----------------------------
Dated: November 24,1997 /s/ Charles D. Weil
----------------------------------
Charles D. Weil
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Agreement is effective the first day of August, 1996, by and between Young
America Corporation (hereinafter referred to as the "Company") and L. Joseph
Kulas (hereinafter referred to as "Employee").
For good and valuable consideration the parties hereto agree as follows:
1. Subject to the control of the President and the Board of Directors of the
Company, Employee shall serve in the capacity of Chief Financial Officer,
the Company agrees that the duties assigned to Employee shall not be
inconsistent therewith and Employee shall have executive powers and
authority as shall be reasonably be required to enable Employee to
discharge the duties of the Chief Financial Officer in an efficient
manner.
2. The Company employs Employee and the Employee agrees to serve the Company
for a term of 24 months commencing the first day of August, 1996, with an
automatic twelve month extension of the Agreement term on each annual
anniversary of the Agreement. The automatic term renewal clause of the
Agreement to terminate on the first day of the month after which the
Employee reaches Employee's 63rd birthday. Either the Company or the
Employee may exercise an option to cancel the automatic renewal clause of
this Agreement at any time by giving the other party 30 day written
notice.
3. So long as the Agreement and any renewal thereof shall continue in effect,
Employee shall devote Employee's full business time and energies to the
business and affairs of the Company and use the Employee's best efforts,
skills and abilities to promote the Company's best interests.
4. For all services rendered by Employee under this Agreement and any renewal
thereof the Company shall:
A. Compensate the Employee with a base salary of $150,000 per year,
payable semi-monthly. Compensation to commence August 12, 1996. The
Company will upon satisfactory performance of Employee, grant to
Employee reasonable annual increases in base salary during the
Agreement and any renewal thereof.
B. Direct that the Employee participate in the Officer's Bonus Program.
Participation will be at a level commensurate with other Officer's
at a similar level of responsibility and authority and will be based
on Company and personal performance.
C. Advance the Employee a signing bonus of $12,000. Such signing bonus
to be paid January 1, 1997. The signing bonus is to be amortized as
an addition to Employee's compensation at a rate of $1,000 per month
of employment beginning January 1997.
<PAGE> 2
EMPLOYMENT AGREEMENT
by and between
Young America Corporation and L. Joseph Kulas dated August 1, 1996 (Con't)
D. Will reimburse Employee for any and all reasonable expenses incurred
as a result of Company related activities, including but not limited
to: Entertainment and Travel, Continuing Professional Education,
Professional Associations, Telephone, Etc. The Company shall furnish
Employee a Personal Computer and Printer for use at Employee's home
with such capabilities and software that the Employee will be able
to do work at home and have access to Company systems from
Employee's home.
E. Provide Employee with medical, dental, life, disability, and other
such coverage's in accordance with the Company's practices for all
other exempt employees.
F. Carry Director's and Officer's Liability Insurance with the Employee
as a named insured.
5. Employee recognizes and acknowledges that in the position of Chief
Financial Officer that Employee will have access to certain valuable and
confidential information concerning the Company's business activities.
Employee further acknowledges that should Employee terminate employment
with the Company such termination could have serious short term effects on
the Company. Therefore, Employee agrees that for a period of twelve months
after any such termination, Employee will not work for any organization
that directly competes with the Company. This restriction will be
applicable only in the event that the Employee voluntarily terminates
employment or is terminated for cause.
6. The Company agrees that for the period August 1, 1996 through December 31,
1996, Employee will receive 10 working days paid vacation. Effective
January 1, 1997 through December 31, 1998, Employee shall receive a total
of 15 working days paid vacation per year. Effective January 1, 1999 and
thereafter, Employee will receive 20 working days of vacation per year.
The vacation time to be taken shall be at the Employee's sole discretion,
except that in determining when to take such vacation, Employee shall take
into consideration the best interests of the Company. Employee may elect
not to use the full amount of vacation time granted, in which case the
unused portion will be carried forward to the following year. Whatever
unused portion remains at the end of the carry forward year will be
forfeited. The Employee will be required to use 10 days vacation annually,
a minimum of 5 days must be consecutive.
7. This Agreement of any renewal thereof may be terminated prior to the end
of the term herein set forth if in the event that the Company shall be
dissolved in bankruptcy; Employee shall die or become totally disabled; or
Employee shall be terminated for cause as hereinafter provided:
A. In the event of Employee's death, the Company shall pay to
Employee's spouse or estate, if spouse does not survive Employee,
any accrued and unpaid salary, bonus, and vacation pay.
<PAGE> 3
EMPLOYMENT AGREEMENT
by and between
Young America Corporation and L. Joseph Kulas dated August 1, 1996 (Con't)
B. The Board of Directors may determine that Employee has become
totally disabled for purposes of this Agreement in the event that
Employee shall fail because of illness or incapacity to render for
three consecutive months or shorter periods aggregating six months
or more in any consecutive twelve monthly periods, services of the
character contemplated by this Agreement, and thereupon this
Agreement and employment of Employee hereunder shall be deemed
terminated as of the end of the calendar month in which such
determination is made. In such event, Employee shall receive for the
Company any accrued and unpaid salary, bonus, and vacation pay.
C. The Board of Directors of the Company may dismiss the Employee for
cause on two week's written notice. At the time of such dismissal,
the Company will pay Employee any accrued and unpaid vacation.
Dismissal for cause will be deemed to include neglect by Employee of
duties hereunder or willful misconduct of Employee in connection
with the performance of duties or other such acts of conduct
sufficiently detrimental to the Company to warrant dismissal of
Employee for cause under the laws of the State of Minnesota.
8. This Agreement may be modified by mutual consent of the parties hereto. If
modified the modification shall be attached and incorporated by reference
and shall be binding on all parties as if the modification had been a part
of the original Agreement.
9. This Agreement shall extend and be binding upon the Company, its
successors and assigns and upon Employee, Employee's legal representative
and heirs.
10. Waiver or breach of any section or term of this Agreement shall not be
deemed to constitute a waiver of breach of any other section or term of
the Agreement.
11. This Agreement shall be construed in accordance with the laws of the State
of Minnesota.
The parties hereto have hereby signed and agree to the provisions as set forth
herein as of the date first above written.
Young America Corporation
/s/ Charles D. Weil /s/ L. J. Kulas
- ---------------------------- ----------------------------
by: Chuck Weil, President L. Joseph Kulas
<PAGE> 1
Exhibit 10.15
YOUNG AMERICA CORPORATION
1997 MANAGEMENT RECOGNITION, TRANSITION AND
EQUITY BONUS PLAN
1. Establishment. On November 25, 1997, the Board of Directors ("Board")
of Young America Corporation, a Minnesota corporation ("Company"), approved this
1997 Management Recognition, Transition and Equity Bonus Plan ("Plan") for the
officers and certain key management employees as described herein. This Plan
shall be effective as of the Closing Date (as defined below).
2. Purpose. The purpose of this Plan is to advance the interests of the
Company and its stockholders by recognizing the valuable contribution made by
the officers and key management employees, facilitating the anticipated sale of
certain of the Company's shares by its current stockholders and facilitating the
anticipated purchase of equity in the Company by certain members of the senior
management of the Company. The Board expects the Plan to stimulate the efforts
of such officers and employees during the transition in stock ownership,
encourage such officers and employees to remain with the Company during the
transition, facilitate such equity purchase and contribute to the continued
success and growth of the business of the Company.
3. Definitions. When the following terms are used herein, they shall have
the following meanings:
"Applicable Release Effective Date" means: (i) with respect to any
Participant age forty (40) or over on the Closing Date, the date which is
seventeen (17) days after the date the Participant executes and delivers the
Agreement and Release; provided that any such Participant may not execute and
deliver the Agreement and Release until at least twenty-one (21) days after it
has first been presented to such Participant for consideration; and (ii) with
respect to any Participant under age forty (40) on the Closing Date, the date
which is seventeen (17) days after the date such Participant executes and
delivers the Agreement and Release.
"Base Salary" means the annual base salary of the Participant as of
October 7, 1997 and as reflected on Exhibit A opposite the Participant's name
under the column entitled "Annual Base Salary".
"Cause" means: (i) repeated neglect by the Participant of any of his
or her duties or his or her repeated failure, refusal or omission to carry out
lawful and reasonable orders, duties and responsibilities or comply with the
Company's employment policies and practices which, in the reasonable judgment of
the Company,
<PAGE> 2
are not cured within ten (10) days after the Participant's receipt of written
notice thereof from the Company; (ii) any act or acts of personal dishonesty by
the Participant which result in the personal enrichment of the Participant at
the expense of the Company; (iii) any willful and deliberate misconduct that is
injurious to the Company; or (iv) any criminal indictment, presentment, charge,
conviction or plea of guilty or nolo contendere of the Participant for a felony
crime, whether or not the Company is the victim of such offense.
"Certificate" means the Certificate attached hereto as Exhibit D.
"Closing Date" means the date on which the shareholders of the
Company sell or have redeemed substantially all of their capital stock of the
Company pursuant to that certain Recapitalization Agreement ("Recapitalization
Agreement") dated on or about November 25, 1997 by and between Young America
Corporation, Jay F. Ecklund, the John F. Ecklund 1995 Irrevocable Trust, the
Sheldon McKensie Ecklund 1995 Irrevocable Trust, the John F. Ecklund 1997
Irrevocable Trust, the Sheldon McKensie Ecklund 1997 Irrevocable Trust, the Jay
F. Ecklund 1997 Irrevocable Annuity Trust and BT Capital Partners, Inc.
"Disability" means a physical or mental condition by reason of an
injury, illness, disease or other condition which causes the Participant to fail
to render his or her normal, material services to the Company for a period of
ninety (90) days during any one hundred eighty (180) day period. The existence
or nonexistence of the Participant's Disability will be determined in good faith
by the Board in its sole and absolute discretion. For purposes of this Plan, a
Disability shall be deemed to have occurred as of the first day of such 180-day
period.
"Good Reason" shall mean the occurrence of any of the following
events (except for the occurrence of such an event in connection with the
termination or reassignment of the Participant's employment by the Company (i)
for Cause, (ii) due to the Participant's Disability, or (iii) due to the
Participant's death):
(a) A material adverse change in the Participant's status or
position including a material diminution in his/her duties or responsibilities
which are held by the Participant immediately prior to the Closing Date;
(b) A reduction of more than ten percent (10%) in the Participant's
Base Salary;
(c) A requirement that the Participant relocate to a principal place
of business that is more than 75 miles from the location of the Participant's
principal office immediately prior to the Closing Date; or
<PAGE> 3
(d) The failure by the Company to provide employee benefit plans,
programs, policies and practices (including, without limitation, retirement
plans and medical, dental, life and disability insurance coverage) to the
Participant and the Participant's family and dependents (if applicable) that
provide substantially similar benefits, in terms of aggregate monetary value, to
the Participant and the Participant's family and dependents (if applicable) as
the benefits provided by those plans, programs, policies and practices in effect
immediately prior to the Closing Date, unless all management personnel similarly
situated are likewise affected.
"Participant" means only a person specifically named on Exhibit A.
"Performance Period" means the period of time from and including the
Closing Date to 12-months thereafter.
"Retirement" means the date the Participant voluntarily terminates
his or her employment with the Company at or after age sixty-two (62) with the
approval of the Board.
"Senior Manager" means only a person specifically named on Exhibit
B.
4. Cash Bonuses, Time of Payments, Written Agreement.
4.1. Cash Bonuses.
(i) The Company will pay to each Participant a cash bonus
("Recognition Bonus") in the amount set forth on Exhibit A opposite the
Participant's name under the column entitled "Recognition Bonus" in two (2)
equal installments as set forth in Section 4.2; provided that the Participant
remains a full-time employee of the Company in good standing and meets all of
the requirements set forth in this Plan as of the payment dates specified in
Section 4.2. Notwithstanding the foregoing sentence, the Participant will remain
eligible for the Recognition Bonus if, prior to the payment dates provided in
Section 4.2, the Participant is terminated without Cause or terminates his or
her employment for Good Reason pursuant to Section 5.3.
(ii) The Company will pay to each Senior Manager a cash bonus
("Equity Bonus") in the amount set forth on Exhibit B opposite the Senior
Manager's name under the column entitled "Equity Bonus" in one installment on
the Closing Date; provided that (a) the Senior Manager remains a full-time
employee of the Company in good standing and meets all of the requirements set
forth in this Plan as of the Closing Date; (b) the Senior Manager invests all of
the Equity Bonus, net of all applicable withholding, in the purchase of common
stock of the Company on the Closing Date; and (c) the Senior Manager executes
and delivers to the Company the Certificate on or before the Closing Date..
<PAGE> 4
Hereinafter, the Recognition Bonus and the Equity Bonus shall be referred to
collectively as the "Cash Bonuses."
4.2. Time of Payments.
(i) Subject to Section 4.1, Section 5 and Section 6.3, the Company
shall pay the Recognition Bonus in cash as follows: (a) one-third of the
Recognition Bonus shall be paid on the Closing Date; and (b) two-thirds of the
Recognitition Bonus shall be paid to the Participant on the Participant's
Applicable Release Effective Date.
(ii) Subject to Section 4.1, Section 5 and Section 6.3, the Company
shall pay the Equity Bonus in cash on the Closing Date.
4.3. Written Documents. Notwithstanding any language in this Plan to the
contrary, (a) before becoming eligible to receive the two-thirds of the
Recognition Bonus referred to in Section 4.2(i)(b), a Participant must execute
and deliver to the Company a notarized copy of the "Agreement and Release"
attached to this Plan as Exhibit C, and (b) before becoming eligible to receive
an Equity Bonus, a Senior Manager must execute and deliver the Certificate. The
Company's obligation to pay the second installment of the Recognition Bonus and
the Equity Bonus is conditioned upon the Participant's delivery of an executed,
notarized copy of such Agreement and Release or the Certificate, as the case may
be. Failure of an employee to abide by this Section 4.3 shall result in the
complete forfeiture of any putative rights of said employee under this Plan with
respect to the benefit described in Section 4.2(i)(b) or Section 4.2(ii), as the
case may be.
4.4. Offset Right. The Company shall have the right, in addition to any
other remedy available at law or equity, to offset the amount of any loss, cost,
damage, liability or expense (including reasonable attorney's fees and expenses)
suffered or incurred by the Company or the Selling Stockholders in connection
with a breach of the representations, warranties and covenants made by the
Participant in the Agreement and Release against any Cash Bonuses payable
hereunder.
5. Termination of Employment.
5.1. Voluntary Termination. Nothing in this Plan shall prevent the
Participant from terminating his or her employment relationship at any time, for
any reason, or for no reason, except as otherwise provided by a written
employment agreement in effect between the Participant and the Company, in which
case such agreement shall govern; provided, a Participant who voluntarily
terminates his or her employment without Good Reason shall not receive any
Recognition Bonus for which he or she is otherwise eligible which is payable
after the date of such termination.
<PAGE> 5
5.2. Termination for Cause; Death; Disability.
(i) From and after the Closing Date and during the term of this
Plan, the Company shall have the right to terminate the Participant's employment
for Cause, by written notice to the Participant, specifying the basis for such
termination. This provision shall not, however, supersede the provisions of any
written employment agreement in effect between the Participant and the Company
at the time of any such termination by the Company.
(ii) In the event the Company terminates a Participant for Cause
pursuant to this Section 5.2, or in the event the Participant's employment is
terminated due to the Participant's death or Disability, and notwithstanding
anything to the contrary in this Plan, the Participant shall immediately cease
to be an eligible Participant under this Plan and shall not be entitled to
receive the Recognition Bonus installment described in Section 4.2(i)(b) which
is payable after the date of such termination, death or Disability.
5.3. Termination Without Cause or for Good Reason. From and after the
Closing Date and during the term of this Plan, the Company shall have the right
to terminate the Participant's employment immediately without Cause, at any
time. Upon the occurrence of such a termination without Cause, or upon the
voluntary termination of the Participant's employment by such Participant for
Good Reason, such Participant shall be entitled to receive the benefits provided
in Sectionu5.4. Such Participant shall evidence a voluntary termination for Good
Reason by written notice to the Company given within ten (10) days after the
date of the occurrence of the event that constitutes Good Reason. Such notice
shall identify the Participant and set forth in reasonable detail the facts and
circumstances claimed by the Participant to constitute Good Reason. Any notice
given by the Participant pursuant to this Section 5.3 shall be effective ten
(10) days after the date it is given by the Participant.
5.4. Benefits Upon Termination Under Section 5.3.
(i) In the event of the termination of the Participant's employment
pursuant to Section 5.3, the Company shall pay to the Participant his or her
remaining Recognition Bonus installment under the terms and conditions of this
Plan as if the Participant remained an employee in good standing with the
Company. Such installment shall continue to be subject to any applicable payroll
or other taxes required by law to be withheld as provided in Section 6.3 and to
the Company's offset rights as provided in Section 4.4.
(ii) Any terminated Participant shall not be required to mitigate
the amount of any payment provided for in this Section 5.4 by seeking other
employment or otherwise. The amount of any payment provided in this Section 5.4
shall not be
<PAGE> 6
reduced by any compensation earned by any terminated Participant as a result of
any employment by another employer.
6. Bonus Payments and Tax Issues.
6.1. Cash Bonuses - Time and Form of Payments. Each installment of the
Participant's Cash Bonuses shall be paid to the Participant in a lump sum cash
payment, net of all applicable withholdings, on the due date identified in
Section 4.2.
6.2. Nontransferability. Participants and beneficiaries shall not have the
right to assign, transfer, encumber or otherwise anticipate or dispose of the
payments to be made or their rights under this Plan, and the benefits provided
hereunder shall not be subject to seizure for payment of any debts or judgments
against any Participant or any beneficiary, without the Board's prior written
consent, which may be withheld or granted in its sole and absolute discretion.
6.3. Tax Withholding. In order to comply with all applicable federal or
state income, social security, payroll, withholding or other tax laws or
regulations, the Board may establish such policies as it deems appropriate with
respect to such laws and regulations, including without limitation, the
establishment of policies to ensure that all applicable federal or state income,
social security, payroll, withholding or other taxes, which are the sole and
absolute responsibility of the Participant, are withheld or collected from such
Participant.
7. Administration.
(i) The Board shall have the sole and absolute discretion to
administer this Plan and interpret and apply any of the provisions of this Plan.
(ii) The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
8. Miscellaneous.
8.1. Effective Date. This Plan shall be deemed effective as of the Closing
Date and is contingent upon a successful closing of the transactions
contemplated by the Recapitalization Agreement. In the event such transactions
have not been consummated on or before December 31, 1997, or if the
Recapitalization Agreement is terminated, this Plan shall automatically
terminate and be of no further force and effect.
8.2. Headings. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in
<PAGE> 7
any way material or relevant to the construction or interpretation of the Plan
or any provision thereof.
8.3. Applicability to Successors. This Plan shall be binding upon and
inure to the benefit of the Company and each Participant, the successors and
assigns of the Company, and the beneficiaries, personal representatives and
heirs of each Participant. If the Company becomes a party to any merger,
consolidation or reorganization, this Plan shall remain in full force and effect
as an obligation of the Company or its successors in interest.
8.4. Employment Rights and Other Benefit Programs. The provisions of this
Plan shall not give any Participant any right to be retained in the employment
of the Company. In the absence of any specific agreement to the contrary, this
Plan shall not affect any right of the Company, or of any affiliate of the
Company, to terminate, with or without Cause, any Participant's employment at
any time. This Plan shall not replace any written employment agreement or any
written change in control agreement between the Company and any Participant, but
shall be considered a supplement thereto. This Plan is in addition to, and not
in lieu of, any other employee benefit plan or program in which any Participant
may be or become eligible to participate by reason of employment with the
Company. No compensation or benefit awarded to or realized by any Participant
under the Plan shall be included for the purpose of computing such Participant's
compensation under any compensation-based retirement, disability, or similar
plan of the Company unless required by law or otherwise provided by such other
plan.
8.5. No Trust or Fund Created. This Plan shall not create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship
between the Company or any affiliate and the Participant or any other person. To
the extent that any person acquires a right to receive payments from the Company
or any affiliate pursuant to this Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company or of any affiliate.
8.6. Governing Law. The validity, construction and effect of the Plan or
any payment payable under the Plan shall be determined in accordance with the
laws of the State of Minnesota, without giving regard to the choice of law
provisions thereof.
8.7. Severability. If any provision of the Plan is or becomes or is deemed
to be invalid, illegal or unenforceable in any jurisdiction, such provision
shall be construed or deemed amended to conform to applicable laws, or if it
cannot be so construed or deemed amended without, in the determination of the
Board, materially altering the purpose or intent of the Plan, such provision
shall be stricken as to such jurisdiction, and the remainder of the Plan shall
remain in full force and effect.
<PAGE> 8
8.8. Confidential Arbitration. The Company believes that for many business
disputes, there is a less expensive, more effective method of resolution than
the traditional lawsuit. Accordingly, the alternate dispute resolution
procedures set forth in this Section 8.8 shall apply to resolve any disputes
that may arise regarding the Plan.
(a) The Company, the Board and the relevant Participant will attempt
in good faith to resolve any and all controversies or claims arising out of or
relating to this Plan promptly by negotiations between the parties.
(b) If the matter has not been resolved within thirty (30) days of
the date written notice of the dispute is first given to the parties, the
parties will attempt in good faith to resolve the controversy or claim by
mediation administered by the American Arbitration Association ("AAA") under its
commercial mediation rules.
(c) If the matter has not been resolved pursuant to the aforesaid
mediation procedure within sixty (60) days of the commencement of such
procedure, such matter shall be resolved by binding arbitration in accordance
with the terms and conditions of this Section 8.8.
(i) This agreement to arbitrate shall continue in full force
and effect despite the expiration, rescission, or termination of this Plan. All
arbitration shall be undertaken pursuant to the Federal Arbitration Act. The
parties knowingly and voluntarily waive their rights to have their dispute tried
and adjudicated by a judge or jury. The arbitrator shall apply the law of the
State of Minnesota and the arbitration shall be held in Minneapolis, Minnesota.
Judgement upon the award rendered by the arbitrator may be entered in any court
of competent jurisdiction.
(ii) Any party may demand arbitration by sending written
notice to the other party. The arbitration and the selection of the arbitrator
shall be conducted in accordance with such rules as may be agreed upon by the
parties, or, failing agreement within thirty (30) days after arbitration is
demanded, under the commercial arbitration rules of the AAA, as such rules may
be modified by this Plan. Unless the parties agree otherwise, document discovery
and/or interrogatories shall be limited to directly relevant documents
concerning the Participant. The scope of informational depositions shall be
limited to information directly relevant to the Participant. Responses or
objections to a document request shall be served twenty (20) days after receipt
of the request. The arbitrator shall resolve any discovery disputes.
(iii) The arbitrator(s) shall have the authority to award
actual money damages (with interest on unpaid amounts from the date due),
temporary injunctive relief, and reasonable attorney's fees and expenses, but
the arbitrator(s) shall not have the authority to award exemplary or punitive
damages, and the parties expressly waive any claimed right to such damages. The
arbitration shall be of each party's individual claims only, and no claim of any
other party shall be subject to
<PAGE> 9
arbitration in such proceeding. The costs of arbitration shall be borne by the
parties in accordance with the award of the arbitrator. If a party fails to
proceed with arbitration, unsuccessfully challenges the arbitration award, or
fails to comply with the arbitration award, the other party is entitled to
costs, including reasonable attorney's fees, for having to compel arbitration or
defend or enforce the award. Except as otherwise required by law, the parties
and the arbitrator agree to maintain as confidential all information, documents
and other data of any kind or nature whatsoever obtained during the arbitration
process, including the fact that such arbitration is being undertaken and the
final award of the arbitrator.
(d) All deadlines specified in this Section 8.8 may be extended by
mutual written agreement of the parties.
(e) The procedures specified in this Section 8.8 shall be the sole
and exclusive procedures for the resolution of disputes between the parties
arising out of or relating to this Plan.
8.9. Notice. All notices, requests, demands, and all other communications
required or permitted by any party of the Plan to another party of the Plan
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at (i) in the case of the Participant, the address
included in the Participant's signed, notarized copy of the Agreement and
Release, or (ii) in the event a Participant does not returned a signed,
notarized copy of Exhibit B, the address of said person as reflected in the
Participant's W-4 form on file with the Company, or (iii) in the case of the
Company, directed to the attention of the Board at the Company's Young America,
Minnesota headquarters. A party hereto may change its address for purposes of
this Section 8.9 by giving fifteen (15) days' prior written notice to the other
party.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned, the secretary of the Company,
certifies that this Plan was adopted and approved by the Board on November 25,
1997.
YOUNG AMERICA CORPORATION
By
-----------------------------
Thomas O. Moe, Secretary
<PAGE> 1
Exhibit 10.16
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into by and between Young America
Corporation, a Minnesota corporation (the "Company"), with its principal offices
at 717 Faxon Road, Young America, Minnesota 55397, and L. Joseph Kulas (the
"Employee"), residing at 8148 Lee Avenue North, Brooklyn Park, Minnesota 55443.
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon the Employee's separation
from employment with the Company under any of the circumstances described
herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interest of the Company to provide stable conditions of
employment for the Employee notwithstanding the possibility, threat, or
occurrence of certain types of changes in control, thereby enhancing the
Company's ability to attract and retain highly qualified people;
NOW, THEREFORE, in consideration of the mutual covenants, promises,
payments, and undertakings of the parties hereto, the parties agree as follows:
1. Effect of Agreement; Term. The Employee shall be employed on an at-will
basis, except to the extent otherwise provided by a written employment agreement
in effect between the Employee and the Company. This Agreement is not, and shall
not be construed as, an employment contract affecting in any way the duration of
the Employee's employment or any terms and conditions thereof except those set
forth herein. Except as set forth herein, or as otherwise provided by a written
employment agreement in effect between the Employee and the Company, the
Employee or the Company may terminate their employment relationship at any time,
for any reason, or for no reason.
This Agreement will commence on the date hereof and shall continue
in effect until the second anniversary of the date hereof; and, commencing on
the first anniversary of the date hereof and on each anniversary thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than 90 days prior to any such date of automatic extension of
this Agreement, the Company shall have given notice to the Employee that the
Agreement will not be so extended; provided, however, if a Change in Control
(as defined in section 3(a) hereof) shall have occurred during the original or
any extended term of this Agreement, this Agreement shall continue in effect for
a period of 24 months following such Change in Control (as defined in section
3(a) hereof), after which 24 month period this Agreement shall terminate.
<PAGE> 2
2. Termination of Employment.
(a) Prior to a Change in Control. (as defined in section 3(a)
hereof), the Employee or the Company may terminate their employment relationship
at any time, for any reason, or for no reason, except as otherwise provided by a
written employment agreement in effect between the Employee and the Company, in
which case such agreement shall govern.
(b) After a Change in Control.
(i) From and after the date of a Change in Control (as defined
in section 3(a) hereof) during the term of this Agreement, the Company shall not
terminate the Employee from employment with the Company except as provided in
this section 2(b), or as a result of the Employee's Disability (as defined in
section 3(d) hereof) or his death.
(ii) From and after the date of a Change in Control (as
defined in section 3(a) hereof) during the term of this Agreement, the Company
shall have the right to terminate the Employee from employment with the Company
at any time during the term of this Agreement for Cause (as defined in section
3(c) hereof), by written notice to the Employee, specifying the particulars of
the conduct of the Employee forming the basis for such termination. This
provision shall not, however, supersede the provisions of any written employment
agreement in effect between the Employee and the Company at the time of any such
termination by the Company. Rather, this Agreement and any such written
employment agreement shall each operate independently, except as provided in
section 4.
(iii) From and after the date of a Change In Control (as
defined in section 3(a) hereof) during the term of this Agreement (a) the
Company shall have the right to terminate the Employees employment without Cause
(as defined in section 3(c) hereof), at any time; and (b) the Employee shall
upon the occurrence of such termination by the Company without Cause or upon the
voluntary termination of the Employee's employment by the Employee for Good
Reason (as defined in section 3(b) hereof), be entitled to receive the benefits
provided in section 4 hereof. The Employee shall evidence a voluntary
termination for Good Reason by written notice to the Company given within ten
(10) days after the date of the occurrence of any event that the Employee knows
or should reasonably have known constitutes Good Reason for voluntary
termination. Such notice need only identify the Employee and set forth in
reasonable detail the facts and circumstances claimed by the Employee to
constitute Good Reason. Any notice given by the Employee pursuant to this
section 2 shall be effective ten (10) days after the date it is given by the
Employee.
2
<PAGE> 3
3. Definitions.
(a) A "Change in Control" shall mean any of the following
(i) A sale of all or substantially all of the assets of the
Company.
(ii) The acquisition of securities of the Company representing
more than 50% of the combined voting power of the Company's then outstanding
securities by any person or group of persons, except a Permitted Shareholder as
hereinafter defined, acting in concert. A "Permitted Shareholder" means a
holder, as of the date of this Agreement, of voting capital stock of the
Company.
(iii) A consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's outstanding capital stock are converted into cash,
securities or other property, other than a consolidation or merger of the
Company in which Company shareholders immediately prior to the consolidation or
merger have the same proportionate ownership of voting capital stock of the
surviving corporation immediately after tile consolidation or merger.
(iv) In the event that the shares of voting capital stock of
the Company are traded on an established securities market: a public
announcement that any person has acquired or has the right to acquire beneficial
ownership of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities, and for this
purpose the terms "person" and "beneficial ownership" shall have the meanings
provided in Section 13(d) of the Securities and Exchange Act of 1934, as amended
or related rules promulgated by the Securities and Exchange Commission or; the
commencement of or public announcement of an intention to make a tender offer or
exchange offer for securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities.
(v) The Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient change in the
share ownership of the Company to constitute a change of effective ownership or
control of the Company.
(b) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of the Employee's employment by the Company for
Cause (as defined in section 3(c) hereof), due to the Employee's Disability (as
defined in section 3(d) hereof), or due to the Employee's death:
3
<PAGE> 4
(i) The assignment to the Employee of employment
responsibilities which are not of comparable responsibility and status as the
employment responsibilities held by the Employee immediately prior to a Change
in Control;
(ii) a reduction by the Company in the Employees base salary
as in effect immediately prior to a Change in Control or a reduction by the
Company in the Employee's participation rate in connection with the Company's
management incentive (bonus) program as in effect immediately prior to a Change
in Control;
(iii) the Company's requiring the Employee to be based at a
location that is in excess of 50 miles from the location of the Employee's
principal office immediately prior to the Change in Control;
(iv) the failure by the Company to provide employee benefit
plans, programs, policies and practices (including, without limitation,
retirement plans and medical, dental, life and disability insurance coverage) to
the Employee and the Employee's family and dependents (if applicable) that
provide substantially similar benefits, in terms of aggregate monetary value, to
the Employee and the Employee's family and dependents (if applicable) at
substantially similar costs to the Employee as the benefits provided by those
plans, programs, policies and practices in effect immediately prior to the
Change in Control; or
(c) "Cause" shall mean:
(i) Repeated neglect by the Employee of any of his duties or
his repeated failures or omissions to carry out lawful and reasonable orders
which, in the reasonable judgment of the Company, are willful and deliberate and
which are not cured within a reasonable period after the Employee's receipt of
written notice thereof from the Company;
(ii) Any act or acts of personal dishonesty by the Employee
intended to result in the personal enrichment of the Employee at the expense of
the Company;
(iii) Any willful and deliberate misconduct that is materially
and demonstrably, injurious to the Company; or
4
<PAGE> 5
(iv) Any criminal indictment, presentment, charge or
conviction of the Employee for a felony, whether or not the Company is the
victim of such offense.
(d) "Disability" shall mean any physical or mental condition which
causes the Employee to fail to render services to the Company for a period of
ninety (90) days during any one hundred eighty (180) day period. The existence
or nonexistence of the Employee's Disability will be determined in good faith by
the Board of Directors after notice in writing given to the Employee at least
thirty (30) days prior to such determination. During such thirty (30) day
period, the Employee shall be permitted to make a presentation to the Board of
Directors for its consideration.
(e) "Company" shall mean the Company and any successor to its
business and/or assets which executes and delivers the Agreement provided for in
section 5(a) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
4. Benefits Upon Termination Under section 2(b)(iii).
(a) Upon the termination (voluntary or involuntary) of the
employment of the Employee pursuant to section 2(b)(iii) hereof, the Company
shall pay to the Employee, in lieu of any further compensation to the Employee
for periods subsequent to the date that the termination of the Employee's
employment becomes effective, as severance pay, a lump sum cash amount equal to
the Employee's annual base salary in effect at the time the notice of
termination is given or immediately prior to the Change in Control (whichever is
greater), plus a pro rata portion of the greater of (i) the amount of bonus paid
to the Employee for the prior fiscal year under the Company's management
incentive (bonus) program or (ii) the amount of bonus to which the Employee
would have been entitled under the Company's management incentive (bonus)
program for the year in which the termination of employment occurs if no such
termination had occurred. Such payment shall be subject to any applicable
payroll or other taxes required by law to be withheld. In addition, for the
12-month period after termination (voluntary or involuntary) of the employment
of the Employee pursuant to section 2(b)(iii) hereof, the Company will arrange
to provide the Employee and the Employee's dependents (if applicable) with
welfare benefits (including without limitation, medical insurance coverage),
perquisites and other employee benefits that provide substantially similar
benefits, in terms of aggregate monetary value, to the Employee and the
Employee's dependents (if applicable) at substantially similar costs to the
Employee as the welfare benefits, perquisites and other employee benefits (i) in
effect immediately prior to the Change in Control (or as in effect following the
Change in Control, if greater); but benefits otherwise receivable by the
Employee pursuant to this section shall be discontinued as of the date the
Employee obtains full-time employment during the 12-month period following the
Employee's termination.
5
<PAGE> 6
Any compensation or welfare benefits which the Employee claims or is
paid in connection with any written employment agreement between the Employee
and the Company as a result of the Company's termination of the Employee's
employment (other than amounts in respect of services rendered as of the date of
termination of employment) shall be set off against the lump sum payment and
welfare benefits provided herein; likewise, the lump sum and welfare benefits
provided herein shall be set off against any such compensation or welfare
benefits which the Employee claims or is paid in connection with any such
written employment agreement.
(b) The Employee shall not be required to mitigate the amount of any
payment provided for in this section 4 by seeking other employment or otherwise.
The amount of any payment provided in this section 4 shall not be reduced by any
compensation earned by the Employee as a result of any employment by another
employer.
5. Successors and Binding Agreement.
(a) this Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or of the assets of the Company to
expressly assume and agree to perform this Agreement.
(b) This Agreement is personal to the Employee, and the Employee may
not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding the
foregoing, this Agreement shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representative, executors, administrators,
heirs, distributees, devisees, and legatees.
6. Limitation of Damages. If for any reason the Employee believes the
severance provisions of this Agreement have not been properly adhered to by the
Company, and if it is determined that the Company has not, in fact, properly
adhered to the severance provisions of this Agreement, the sole and exclusive
remedy to which the Employee is entitled is the severance payment to which the
Employee is entitled under the provisions of this Agreement.
7. Modification: Waiver. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in a writing signed by the Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with any condition or provision of this Agreement to be performed by such other
party
6
<PAGE> 7
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written
above (directed to the attention of the Board of Directors in the case of the
Company). Either party hereto may change its address for purposes of this
section by giving fifteen (15) days' prior written notice to the other party
hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be
determined to be invalid or unenforceable, the remainder of this Agreement or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
10. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity, and performance.
11. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to the subject matter hereof and is not intended to create any
obligation on the part of either party to continue employment. This Agreement
supersedes any and all other oral or written agreements or policies made
relating to the subject matter hereof and constitutes the entire agreement of
the parties relating to the subject matter hereof; provided that this Agreement
shall not supersede or limit in any way the Employee's rights under any benefit
plan or program in accordance with its terms or under any written employment
agreement between the Employee and the Company.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement by their signatures below.
Dated: February 21, 1997 YOUNG AMERICA CORPORATION
By /s/ Charles D. Weil
---------------------
Its President
---------------------
Dated: February 21, 1997 /s/ L. Joseph Kulas
-------------------
L. Joseph Kulas
8
<PAGE> 1
Exhibit 12.1
The following illustrates the computation of the ratio of earnings to fixed
charges for the years ended December 31,
<TABLE>
<CAPTION>
Pro Forma
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges --
Interest expense $ 243 $ 163 $ 252 $ 91 $ 981 $ 9,305
Amortization of deferred financing costs 48 375
Interest component of operating leases 228 256 442 608 1,080 1,080
------- ------- ------- ------- ------- -------
II. Total Fixed Charges $ 471 $ 419 $ 694 $ 699 $ 2,109 $10,760
======= ======= ======= ======= ======= =======
Earnings --
Income before income taxes $ 279 $ 3,506 $ 1,014 $ 8,432 $(5,502) $ 6,606
Fixed charges 471 419 694 699 2,109 10,780
------- ------- ------- ------- ------- -------
I. Total Earnings $ 750 $ 3,925 $ 1,708 $ 9,131 ($3,393) $17,386
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges
(I divided by II) 1.6 9.4 2.5 13.1 (a) 1.6
======= ======= ======= ======= ======= =======
</TABLE>
The ratio of earnings to fixed charges has been calculated by dividing income
before income taxes and fixed charges by fixed charges. Fixed charges for this
purpose include cash interest expense, amortization of deferred financing costs
and one third of operating lease payments (the portion deemed to be
representative of the interest factor).
(a) Earnings were inadequate to cover fixed charges by $5,502,000. This
shortfall was attributable to the expenses incurred in connection with the
Recapitalization, including compensation charges of $17,924,000 for
bonuses and phantom stock payments and transaction fees and expenses of
$1,967,000.
<PAGE> 1
Exhibit 16.1
[LETTERHEAD OF McGLADREY & PULLEN, LLP]
BT Alex. Brown Incorporated
New York, New York 10006
We were previously the independent accountants for Young America Holdings. Inc.
(formerly Young America Corporation), and on February 14, 1997, we reported on
the financial statements of Young America Holdings, Inc. as of and for the two
years ended December 31, 1996. In connection with the Recapitalization, we were
replaced as independent accountants of Young America Holdings, Inc.
We have read Young America Holdings, Inc.'s statements included under the
Experts section in Form S-4 dated April 9, 1998, and we agree with such
statements.
McGLADREY & PULLEN, LLP
/s/ McGLADREY & PULLEN, L.L.P.
<PAGE> 1
Exhibit 21.1
Subsidiaries of Young America Corporation
None.
Subsidiaries of Young America Holdings, Inc.
Young America Corporation Minnesota corporation
<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
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 8, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to use in this Registration Statement on Form S-4 of our
report dated February 14, 1997 relating to the financial statements of Young
America Holdings, Inc. (formerly Young America Corporation), as of December 31,
1996 and for each of the two years in the period ended December 31, 1996, and to
the reference to our Firm under the caption "Experts" in the Prospectus.
Minneapolis, Minnesota McGLADREY & PULLEN, LLP
April 8, 1998
<PAGE> 1
Exhibit 25.1
Conformed Copy
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)
-----------
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer, V.P.
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
YOUNG AMERICA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1892816
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
717 Faxon Road
Young America, Minnesota 55397
(Address of principal executive offices)
<PAGE> 2
YOUNG AMERICA HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0983697
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
717 Faxon Road
Young America, Minnesota 55397
(Address of principal executive offices)
11 5/8% Series B Senior Subordinated Notes due 2006
Guarantees of the 11 5/8% Series B Senior Subordinated Notes
(Title of Indenture Securities)
<PAGE> 3
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which
it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE> 4
Item 16. List of Exhibits.
Exhibit
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31, 1993
as to the authority of Marine Midland Bank
to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank required by
Section 321(b) of the Trust Indenture Act
of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (December 31, 1997), published
pursuant to law or the requirement of its
supervisory or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange
Commission with Registration No. 33-53693 and incorporated herein by
reference thereto.
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized 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 6th day of April, 1998.
MARINE MIDLAND BANK
By: /s/ Frank J. Godino
-----------------------
Frank J. Godino
Vice President
<PAGE> 6
Exhibit T1A (vii)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- --------------------------------------------------------------------------------
---
Please refer to page i, 1
Table of Contents, for ---
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031
Report at the close of business December 31, 1997
This report is required by law; 12 U.S.C. ss.324 (State member banks); 12 U.S.C.
ss.1817 (State nonmember banks); and 12 U.S.C. ss.161 (National banks).
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
--------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
--------------------------------------------
Signature of Officer Authorized to Sign Report
1/26/98
- -----------------------------------------------
Date of Signature
(971231)
-----------
(RCRI 9999)
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Malcolm Burnett
- --------------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- --------------------------------------------
Director (Trustee)
/s/ Sal H. Alfiero
- --------------------------------------------
Director (Trustee)
Submission of Reports
Each Bank must prepare its Reports of Condition and Income either:
(a) in automated form and then file the computer data file directly with the
banking agencies' collection agent, Electronic Data System Corporation
(EDS), by modem or computer diskette; or
(b) in hard-copy (paper) form and arrange for another party to convert the
paper report to automated for. That party (if other than EDS) must
transmit the bank=s computer data file to EDS
To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page to the
hard-copy f the completed report that the bank places in its files.
- --------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
----------
(RCRI 9030)
<PAGE> 7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business December 31, 1997
<TABLE>
<CAPTION>
ASSETS
Thousands
of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin .......................................... $ 928,754
Interest-bearing balances .................................. 2,571,410
Held-to-maturity securities ................................ 0
Available-for-sale securities .............................. 3,968,837
Federal funds sold and securities purchased
under agreements to resell ................................. 497,992
Loans and lease financing receivables:
Loans and leases net of unearned
income ..................................................... 21,550,115
LESS: Allowance for loan and lease
losses ..................................................... 407,355
LESS: Allocated transfer risk reserve ...................... 0
Loans and lease, net of unearned
income, allowance, and reserve ............................. 21,142,760
Trading assets ............................................. 979,454
Premises and fixed assets (including
capitalized leases) ........................................ 225,646
Other real estate owned ....................................... 8,092
Investments in unconsolidated
subsidiaries and associated companies ......................... 0
Customers' liability to this bank on
acceptances outstanding ....................................... 24,795
Intangible assets ............................................. 479,713
Other assets .................................................. 488,168
Total assets .................................................. 31,315,621
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices ...................................... 20,072,724
Noninterest-bearing ...................................... 4,090,858
Interest-bearing ......................................... 15,981,866
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs ...................................... 3,834,827
Noninterest-bearing ...................................... 0
Interest-bearing ......................................... 3,834,827
Federal funds purchased and securities sold
under agreements to repurchase ........................... 2,007,482
Demand notes issued to the U.S. Treasury .................... 192,186
Trading Liabilities ......................................... 215,748
Other borrowed money:
With a remaining maturity of one year
or less .................................................. 1,402,449
With a remaining maturity of more than
one year through three years ............................. 63,601
With a remaining maturity of more than
three years .............................................. 61,707
Bank's liability on acceptances
executed and outstanding .................................... 24,795
Subordinated notes and debentures ........................... 497,774
Other liabilities ........................................... 719,423
Total liabilities ........................................... 29,092,716
EQUITY CAPITAL
Perpetual preferred stock and related
surplus ..................................................... 0
Common Stock ................................................ 205,000
Surplus ..................................................... 1,984,326
Undivided profits and capital reserves ...................... 8,678
Net unrealized holding gains (losses)
on available-for-sale securities ............................ 24,901
Cumulative foreign currency translation
adjustments ................................................. 0
Total equity capital ........................................ 2,222,905
Total liabilities, limited-life
preferred stock, and equity capital ......................... 31,315,621
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HISTORICAL FINANCIAL STATEMENTS SET FORTH IN THE F PAGES OF THE PROSPECTUS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1,000<F1>
<CASH> 17,940
<SECURITIES> 0
<RECEIVABLES> 11,527
<ALLOWANCES> (45)
<INVENTORY> 615
<CURRENT-ASSETS> 30,555
<PP&E> 17,556
<DEPRECIATION> (9,661)
<TOTAL-ASSETS> 41,742
<CURRENT-LIABILITIES> 19,419
<BONDS> 80,000
0
0
<COMMON> 1,920
<OTHER-SE> (59,597)
<TOTAL-LIABILITY-AND-EQUITY> 41,742
<SALES> 0
<TOTAL-REVENUES> 175,297
<CGS> 0
<TOTAL-COSTS> 160,917<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 1,029
<INCOME-PRETAX> 14,389<F3>
<INCOME-TAX> 423
<INCOME-CONTINUING> 13,966
<DISCONTINUED> 0
<EXTRAORDINARY> (19,891)<F4>
<CHANGES> 0
<NET-INCOME> (5,925)
<EPS-PRIMARY> (3.09)
<EPS-DILUTED> (3.09)
<FN>
<F1>Other than per share data
<F2>Does not include $17,924 of compensation charges related to the
Recapitalization
<F3>Does not include expenses related to the Recapitalization
<F4>Includes compensation and transaction expenses related to the
Recapitalization
</FN>
</TABLE>
