<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 333-49749
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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(3)
- ---------------------------------------------------------------------------------------------------------------------------------
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.
(3) Previously paid.
------------------------
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
Historical and Pro forma Consolidated
Financial Data; 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 JUNE 18, 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 March 31, 1998, Holdings and Young
America had approximately $0.5 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 $8.9 million as
of March 31, 1998), and its ratio of total debt to total capitalization was
approximately 400%. At such date, no indebtedness subordinated to the Notes was
outstanding. 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 or understanding 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 THAT INVOLVE RISKS AND
UNCERTAINTIES. 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 referred to are summaries of the material
terms of such contract, agreement or other document. 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 statements substantially equivalent to financial statements that would
have been included in reports filed with
i
<PAGE> 6
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 to 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 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 fiscal 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 March 31, 1998, the Company was processing approximately
1,550 client marketing programs. In each of the last three fiscal years, the
Company distributed over 60 million items to its clients' customers. Items
distributed by the Company have
1
<PAGE> 8
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 adjusted (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 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
2
<PAGE> 9
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.
RISK FACTORS
See "Risk Factors" for a discussion of risks that should be considered in
evaluating the Exchange Offer and an investment in the Notes. Such risks include
the consequences of failure to exchange the Old Notes for the New Notes, the
necessity to comply with Exchange Offer procedures, blue sky restrictions on
resale of New Notes, the lack of a public market for the New Notes, the
Company's high degree of leverage and lack of liquidity, restrictive covenants
contained in the New Credit Facility and the Indenture, the variability of the
Company's client mix and the variability of services provided by the Company,
the impact of proposed tobacco legislation on promotion marketing, the Company's
dependence on key personnel, difficulties managing growth of the Company, the
risks associated with the Company's focus on high-volume and/or complex
marketing programs, the application of state escheat laws, the Company's
vulnerability to an economic downturn, the Company's reliance on technology and
the risk of business interruption, the Company's dependence on telephone, postal
and delivery service, the Company's dependence on its labor force, the highly
competitive market in which the Company competes, risks generally associated
with acquisitions, the Company's ability to purchase the Notes upon a Change of
Control, the concentration of ownership of the
3
<PAGE> 10
Company and Holdings and the Stockholders' Agreement, the subordination of the
Notes and the Guarantees, the holding company structure of the Guarantor and the
risks under fraudulent conveyance statutes.
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
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.
4
<PAGE> 11
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
Holdings and the Company intend to pursue selective acquisitions that offer
a strong strategic fit with the Company's existing core competencies and/or
allow it to develop or strengthen partnerships with select clients. Such
acquisitions could include, among others, companies that specialize in
literature fulfillment, Internet order processing or collateral material
fulfillment and such acquisitions, either individually or in the aggregate,
could be substantial relative to the size of the Company.
THE RECAPITALIZATION
Summary of the Recapitalization
The Company experienced substantial growth and large demands on its capital
and operating structures in 1995, 1996 and 1997 including development of
business opportunities that required significant expansion of the Company's
capacity and capabilities. In addition, in recent years, the Company received
numerous inquiries from interested parties seeking to make a strategic
investment in or to acquire the Company. As a result, in February 1997, the
Company hired an investment banking firm to assist it in obtaining and
evaluating offers to acquire the Company or otherwise engage in a strategic
transaction with the Company. A group (the "Investor Group") led by BT Capital
Partners, Inc. ("BTCP") and Ontario Teachers' Pension Plan Board ("OTPPB")
proposed a transaction that contemplated a recapitalization of the Company. The
Investor Group's offer required continued equity participation by Mr. Jay F.
Ecklund, formerly the Company's controlling shareholder and Chairman and Chief
Executive Officer, and required Mr. Charles D. Weil, the current President and
Chief Executive Officer of Holdings, and 20 other officers and employees of
Holdings (collectively, the "Management Stockholders") to participate as members
of the Investor Group. Following a period of due diligence and negotiations
regarding the terms of the recapitalization and the equity participation by Mr.
Ecklund and the Management Stockholders, on November 25, 1997 (the
"Recapitalization Date"), Holdings, Mr. Ecklund, certain trusts for the benefit
of Mr. Ecklund's family (collectively with Mr. Ecklund, the "Selling
Stockholders") and the Investor Group executed definitive agreements relating to
a recapitalization of Holdings (the "Recapitalization") and management's
interest in Holdings and simultaneously consummated the Recapitalization. As a
result of the Recapitalization, approximately 93% of the capital stock of
Holdings is held by the Investor Group.
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
5
<PAGE> 12
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 $15.0 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. Holdings expects to
conduct substantially all its business and operations through Young America and
any future subsidiaries it may form. However, if the covenants contained in the
New Credit Facility and/or the Indenture for the Notes would prohibit the
Company from making an acquisition (see "Business Strategy -- Pursue Selective
Acquisitions in Related Businesses" above), Holdings may make such acquisition
directly or through a newly formed subsidiary of Holdings rather than through
the Company.
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 the Company 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 or
understanding 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
such beneficial owner is an "affiliate," as
defined under Rule 405
7
<PAGE> 14
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."
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
8
<PAGE> 15
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 are not redeemable at the option of
Young America prior to February 15, 2002,
except as described below. Thereafter, the
Notes are 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; 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."
9
<PAGE> 16
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 are unconditionally guaranteed on a
senior subordinated basis by Holdings and
will be guaranteed on a senior subordinated
basis by any Subsidiary Guarantors organized
by Young America in the future.
RANKING......................... The Notes are general unsecured obligations
of Young America and are 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 rank pari passu in
right of payment with any future senior
subordinated indebtedness of the Company and
rank senior in right of payment to all other
subordinated obligations of the Company. The
Guarantees are general unsecured obligations
of Holdings and the Subsidiary Guarantors and
are subordinated in right of payment to all
existing and future Guarantor Senior Debt.
The Guarantees rank pari passu with any
future senior subordinated indebtedness of
Holdings and the Subsidiary Guarantors and
rank senior in right of payment to all other
subordinated obligations of Holdings and the
Subsidiary Guarantors. As of March 31, 1998,
the Company had approximately $0.5 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 $8.9 million as of March 31,
1998). At such date, no indebtedness
subordinated to the Notes was outstanding.
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
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.
Pursuant to the Indenture, the Company will
be permitted to incur Indebtedness if on the
date of the occurrence of such Indebtedness,
after giving effect to such incurrence, the
Consolidated Fixed Charge Coverage Ratio (as
defined) of the Company is greater than (x)
2.0:1 if the date of such incurrence is on or
prior to March 1, 1999, or (y) 2.5:1, if the
date of such incurrence is after March 1,
1999, subject to the right of the Company to
incur certain Permitted Indebtedness (as
defined). The Indenture also restricts 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."
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 and for the three month periods
ended March 31, 1998 and 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
summary financial data for the three month periods ended March 31, 1998 and 1997
are derived from the unaudited financial statements of Holdings and the related
notes thereto included elsewhere in this Prospectus. In the opinion of
management of Holdings, the unaudited condensed financial data reflect all
adjustments (which include reclassifications and normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
the unaudited periods. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of operating results for the full
year.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 1997 and the three months ended March 31, 1998 assumes
that the Recapitalization and the offering of the Notes occurred on January 1,
1997. The unaudited pro forma consolidated financial data do not purport to
represent what Holdings' or the Company's 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
results of operation for any future period.
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>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
----- ---- ---- ----- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 50,630 $ 50,630 $ 52,646 $175,297 $175,297 $135,716 $116,268 $103,758 $ 78,414
Cost of Revenues
Rebates, postage and
freight................. 34,893 34,893 32,166 105,212 105,212 84,191 80,635 70,747 52,895
Processing and
servicing............... 11,296 11,296 10,376 40,447 40,447 31,393 24,920 20,346 16,682
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit................ 4,441 4,441 10,104 29,638 29,638 20,132 10,713 12,665 8,837
Selling expenses............ 1,424 1,424 1,393 5,403 5,504 4,610 3,493 2,927 3,244
General and administrative
expenses.................. 1,178 1,178 2,900 8,987 9,754 7,140 5,949 6,127 5,079
Compensation charges
attributable to
Recapitalization.......... -- -- -- -- 17,924 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 1,839 1,839 5,811 15,248 (3,544) 8,382 1,271 3,611 514
Interest expense............ (2,336) (2,385) -- (9,305) (981) (91) (252) (163) (243)
Amortization of deferred
financing costs........... (94) (3,329) -- (375) (48) -- -- -- --
Interest income............. 236 236 258 1,038 1,038 201 10 28 6
Transaction costs
attributable to
Recapitalization.......... -- -- -- -- (1,967) -- -- -- --
Other income (expense)...... (15) (15) -- -- -- (60) (15) 30 2
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... (370) (3,654) 6,069 6,606 (5,502) 8,432 1,014 3,506 279
Provision for income
taxes..................... (137) (1,352) -- 2,444 423 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ (233) $ (2,302) $ 6,069 $ 4,162 $ (5,925) $ 8,432 $ 1,014 $ 3,506 $ 279
======== ======== ======== ======== ======== ======== ======== ======== ========
UNAUDITED PRO FORMA INCOME
TAX DATA:
Income (loss) before income
taxes..................... $ (370) $ (3,654) $ 6,069 $ 6,606 $ (5,502) $ 8,432 $ 1,014 $ 3,506 $ 279
Provision (benefit) for
income taxes(a)........... (137) (1,352) 2,246 2,444 (1,308) 3,120 375 1,297 103
-------- -------- -------- -------- -------- -------- -------- -------- --------
Pro forma net income
(loss).................... $ (233) $ (2,302) $ 3,823 $ 4,162 $ (4,194) $ 5,312 $ 639 $ 2,209 $ 176
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
----- ---- ---- ----- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as adjusted(b)...... $ 2,301 $ 2,301 $ 6,136 $ 16,836(d) $ (1,956) $ 9,578 $ 2,238 $ 4,561 $ 1,476
EBITDA, as adjusted,
margin(c)................. 4.5% 4.5% 11.7% 9.6% (1.1%) 7.1% 1.9% 4.4% 1.9%
Capital expenditures........ $ 1,576 $ 1,576 $ 492 $ 3,330 $ 3,330 $ 1,739 $ 1,061 $ 1,142 $ 1,084
Depreciation and
amortization(e)........... 462 462 325 1,588 1,588 1,196 967 950 962
Cash interest expense(f).... 2,336 2,385 0 9,305 981 91 252 163 243
Ratio of EBITDA, as
adjusted, to cash interest
expense(g)................ 1.0x 1.0x 1.8x
Ratio of EBITDA, as
adjusted, minus capital
expenditures to cash
interest expense(g)....... 0.3x 0.3x 1.5x
Ratio of earnings to fixed
charges(h)................ -- -- 28.7x 1.6x -- 13.1x 2.5x 9.4x 1.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
---------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,003
Working capital............................................. 6,716
Total assets................................................ 40,531
Total debt.................................................. 80,000
Stockholders' deficit....................................... (59,955)
</TABLE>
12
<PAGE> 19
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) For periods ended on or prior to December 31, 1997 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, as adjusted, represents earnings before interest expense, other
income(expense), income taxes, depreciation and amortization. Data for
EBITDA, as adjusted, 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, as adjusted, 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, as adjusted, 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, as adjusted, margin represents EBITDA, as adjusted, as a percentage
of revenues.
(d) Pro Forma EBITDA, as adjusted, for the year ended December 31, 1997
represents historical EBITDA, as adjusted, 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>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA, as adjusted......................................... $ (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, as adjusted............................... $ 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, as adjusted 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 three months
ended March 31, 1998 and the year ended December 31, 1997, earnings were
inadequate to cover fixed charges by $3,654 ($370 on a pro forma basis) and
$5,502 respectively. The shortfall for the three months ended March 31, 1998
(actual) was largely attributable to the write-off of deferred financing
costs relating to the Bridge Facility, and the shortfall for the year ended
December 31, 1997 (actual) was attributable to fees and expenses incurred in
connection with the Recapitalization, including compensation charges of
$17,924 for bonuses and phantom stock payments and transaction fees and
expenses of $1,967.
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 or understanding 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
March 31, 1998, the Company's indebtedness was approximately $80.0 million, it
had a stockholders' deficit of $60.0 million and its ratio of total debt to
total capitalization was approximately 400%. 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; on a pro forma basis interest
expense on the Notes represented 55.2% of the Company's EBITDA, as adjusted, for
the year ended December 31, 1997 and 101.0% of the Company's EBITDA, as
adjusted, for the three months ended March 31, 1998; (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.
15
<PAGE> 22
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.
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Three Months Ended March 31, 1998
Compared With Three Months Ended March 31, 1997." 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."
16
<PAGE> 23
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
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 maintains 'key man' life insurance on the
life of Mr. Weil in the amount of $5 million.
The Company has employment agreements with Mr. Weil and L. Joseph Kulas,
the Chief Financial Officer of the Company. 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
17
<PAGE> 24
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.
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.
18
<PAGE> 25
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."
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. In May 1998, the USPS announced proposed price increases.
The Company believes that any such increase can be recovered through increased
pricing and will not 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."
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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 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."
The Change of Control provision may not necessarily afford the Holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the Holders, because such transaction may not
involve a shift in voting power or beneficial ownership, or, even if they do,
may not involve a shift of the magnitude required under the definition of Change
of Control to trigger such provisions. Except as described under "Description of
the Notes -- Change of Control", the Indenture does not contain provisions that
permit the Holders of the Notes to require the Company to repurchase or redeem
the Notes in the event of a takeover, recapitalization or similar transaction.
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.
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BTCP owns interests in two other direct marketing services companies,
National Catalog Corporation, a third party fulfillment company for direct mail
catalogs and Genesis Teleserv Corporation (d/b/a Dakotah Direct), an inbound and
outbound teleservices company, and may acquire interests in other direct
marketing services companies. No assurance can be given that a merger or other
transaction involving the Company and/or Holdings and one or more of such BTCP
owned companies will not be considered in the future.
SUBORDINATION OF NOTES AND THE GUARANTEES; HOLDING COMPANY STRUCTURE OF THE
GUARANTOR
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 March 31, 1998, the aggregate outstanding principal amount of
all Senior Debt was approximately $0.5 million (consisting of obligations under
undrawn letters of credit) under a commitment for up to $10 million under the
New Credit Facility (subject to availability under the terms of the New Credit
Facility). At such date, no indebtedness subordinated to the Notes was
outstanding. 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 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.
As of the date of this Prospectus, all of the operations of Holdings are
conducted through the Company and Holdings has no material assets other than the
stock of the Company. Accordingly, the Guarantor's cash flow and, consequently,
its ability to service debt, including the Guarantee, will depend upon the
Company's operations.
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
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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 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, together with approximately
$5.4 million of additional cash, was distributed by Young America to Holdings.
The aggregate amount of such loan and distribution were used to repay the $80.0
million principal amount outstanding under the Bridge Facility, together with
accrued interest thereon. 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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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 no-action 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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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> 34
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.
28
<PAGE> 35
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
29
<PAGE> 36
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 (as defined) 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.
The term "Agents Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from each of its participants that such
participants have received the Letter of Transmittal and agree to be bound by
the terms thereof and that Holdings may enforce such agreement against such
participants.
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
30
<PAGE> 37
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 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.
31
<PAGE> 38
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.
32
<PAGE> 39
THE RECAPITALIZATION
The Company experienced substantial growth and large demands on its capital
and operating structures in 1995, 1996 and 1997 including development of
business opportunities that required significant expansion of the Company's
capacity and capabilities. In addition, in recent years, the Company received
numerous inquiries from interested parties seeking to make a strategic
investment in or to acquire the Company. As a result, in February 1997, the
Company hired an investment banking firm to assist it in obtaining and
evaluating offers to acquire the Company or otherwise engage in a strategic
transaction with the Company. The Investor Group proposed a transaction that
contemplated a recapitalization of the Company. The Investor Group's offer
required continued equity participation by Mr. Jay F. Ecklund, formerly the
Company's controlling shareholder and Chairman and Chief Executive Officer, and
required Mr. Charles D. Weil, the current President and Chief Executive Officer
of Holdings, and 20 other officers and employees of Holdings to participate as
members of the Investor Group. Following a period of due diligence and
negotiations regarding the terms of the recapitalization and the equity
participation by Mr. Ecklund and the Management Stockholders, on the
Recapitalization Date Holdings, the Selling Stockholders and the Investor Group
executed definitive agreements relating to the Recapitalization and management's
interest in Holdings and simultaneously consummated the Recapitalization. As a
result of the Recapitalization, approximately 93% of the capital stock of
Holdings is 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
33
<PAGE> 40
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."
34
<PAGE> 41
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
Holdings at March 31, 1998. 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>
MARCH 31,
1998
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Senior Subordinated Notes................................. $ 80,000
Borrowings under the New Credit Facility(1)............... --
--------
Total long-term debt................................... 80,000
--------
Total stockholders' deficit............................ (59,955)
--------
Total capitalization.............................. $ 20,045
========
</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. As of March 31, 1998, there was one letter of credit with a
face amount of approximately $0.5 million outstanding under the New Credit
Facility out of total availability under the borrowing base formula of
approximately $8.9 million as of March 31, 1998.
35
<PAGE> 42
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 statements of operations for the
three months ended March 31, 1998 and the year ended December 31, 1997 (the "Pro
Forma Consolidated Statements of Operations").
The Pro Forma Consolidated Statements of Operations are based on the
audited and unaudited statements of operations of Holdings for the year ended
December 31, 1997 and the three months ended March 31, 1998, respectively, and
are 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 Statements of
Operations reflect 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 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 results of
operations for any future period or date.
36
<PAGE> 43
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues.................................................. $ 50,630 $ -- $ 50,630
Cost of revenues
Rebates, postage and freight............................ 34,893 -- 34,893
Processing and servicing................................ 11,296 -- 11,296
-------- ---------- --------
Gross profit.............................................. 4,441 -- 4,441
-------- ---------- --------
Operating Expenses:
Selling................................................. 1,424 -- 1,424
General and administrative.............................. 1,178 -- 1,178
-------- ---------- --------
2,602 -- 2,602
-------- ---------- --------
Operating income.......................................... 1,839 -- 1,839
-------- ---------- --------
Other income (expense):
Interest expense........................................ (2,385) (1,350)(e) (2,336)
1,399(e)
Amortization of deferred financing costs................ (3,329) (57)(f) (94)
3,292(f)
Interest income......................................... 236 -- 236
Other expense........................................... (15) -- (15)
-------- ---------- --------
(5,493) 3,284 (2,209)
-------- ---------- --------
(Loss) income before provision for income taxes........... (3,654) 3,284 (370)
Provision for income taxes................................ (1,352) 1,215(h) (137)
-------- ---------- --------
Net (loss) income......................................... $ (2,302) $ 2,069 $ (233)
======== ========== ========
Other data:
Depreciation and amortization(i)........................ $ 462 $ 462
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
37
<PAGE> 44
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
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:
Depreciation and amortization(i).................... $ 1,588 $ 1,588
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
38
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) For the year ended December 31, 1997 the pro forma adjustments do not
reflect a deduction for the deferred financing costs of $3,292 relating to
the Bridge Facility written-off in connection with the offering of the
Notes. Such amount was written-off in the first quarter of 1998. See Note
(f) below.
(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 of management bonuses paid at the Recapitalization
Date, (ii) $4,221 of increases to phantom stock provisions, (iii) $66 of
estimated compensation charges remaining to be paid related to (i) above,
and (iv) $269 of estimated payroll taxes related to all of the above. Does
not reflect (i) the payment of approximately $700 which is expected to be
paid pursuant to the terms of the Recapitalization Agreement in the second
quarter of 1998 to Mr. Ecklund, certain trusts for the benefit of the
members of Mr. Ecklund's family and certain employees of the Company or (ii)
payments (up to $15 million) in an amount equal to 20% of Cumulative Excess
Free Cash Flow (as defined in the Recapitalization Agreement) of the Company
for the four-year period ending December 31, 2001 in excess of $93 million,
which payments may be made to the Selling Shareholders (and pursuant to
separate agreements among Mr. Weil, Mr. Stinchfield, Mr. Ferguson and the
Selling Stockholders, may be made, in part, to Mr. Weil, Mr. Stinchfield and
Mr. Ferguson).
(e) Reflects (i) interest on the Notes at an interest rate of 11.625% per annum
of $1,350 for the three months ended March 31, 1998, representing additional
interest for the period from January 1, 1998 to the date of issuance
(February 23, 1998), and $9,300 for the year ended December 31, 1997, and
(ii) the elimination of interest recorded in the historical financial
statements attributable to the Bridge Facility of $1,399 and $976 for three
months ended March 31, 1998 and the year ended December 31, 1997,
respectively.
(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) For the three months ended March 31, 1998, reflects the adjustment to income
before provision for income taxes at an assumed rate of 37%. For the year
ended December 31, 1997, 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) Excludes amortization of deferred financing costs.
39
<PAGE> 46
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 and for the three month periods
ended March 31, 1998 and 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
selected financial data for the three month periods ended March 31, 1998 and
1997 are derived from the unaudited financial statements of Holdings and the
related notes thereto included elsewhere in this Prospectus. In the opinion of
management of Holdings, the unaudited condensed financial data reflect all
adjustments (which include reclassifications and normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
the unaudited periods. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of operating results for the full
year.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 1997 and the three months ended March 31, 1998 assumes
that the Recapitalization and the offering of the Notes occurred on January 1,
1997. The unaudited pro forma consolidated financial data do not purport to
represent what Holdings' or the Company's 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
results of operation for any future period.
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>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
----- ---- ---- ----- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 50,630 $ 50,630 $ 52,646 $175,297 $175,297 $135,716 $116,268 $103,758 $ 78,414
Cost of Revenues
Rebates, postage and
freight................. 34,893 34,893 32,166 105,212 105,212 84,191 80,635 70,747 52,895
Processing and
servicing............... 11,296 11,296 10,376 40,447 40,447 31,393 24,920 20,346 16,682
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit................ 4,441 4,441 10,104 29,638 29,638 20,132 10,713 12,665 8,837
Selling expenses............ 1,424 1,424 1,393 5,403 5,504 4,610 3,493 2,927 3,244
General and administrative
expenses.................. 1,178 1,178 2,900 8,987 9,754 7,140 5,949 6,127 5,079
Compensation charges
attributable to
Recapitalization.......... -- -- -- -- 17,924 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 1,839 1,839 5,811 15,248 (3,544) 8,382 1,271 3,611 514
Interest expense............ (2,336) (2,385) -- (9,305) (981) (91) (252) (163) (243)
Amortization of deferred
financing costs........... (94) (3,329) -- (375) (48) -- -- -- --
Interest income............. 236 236 258 1,038 1,038 201 10 28 6
Transaction costs
attributable to
Recapitalization.......... -- -- -- -- (1,967) -- -- -- --
Other income (expense)...... (15) (15) -- -- -- (60) (15) 30 2
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... (370) (3,654) 6,069 6,606 (5,502) 8,432 1,014 3,506 279
Provision for income
taxes..................... (137) (1,352) -- 2,444 423 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ (233) $ (2,302) $ 6,069 $ 4,162 $ (5,925) $ 8,432 $ 1,014 $ 3,506 $ 279
======== ======== ======== ======== ======== ======== ======== ======== ========
UNAUDITED PRO FORMA INCOME
TAX DATA:
Income (loss) before income
taxes..................... $ (370) $ (3,654) $ 6,069 $ 6,606 $ (5,502) $ 8,432 $ 1,014 $ 3,506 $ 279
Provision (benefit) for income taxes(a)... (137) (1,352) 2,246 2,444 (1,308) 3,120 375 1,297 103
-------- -------- -------- -------- -------- -------- -------- -------- --------
Pro forma net income
(loss).................... $ (233) $ (2,302) $ 3,823 $ 4,162 $ (4,194) $ 5,312 $ 639 $ 2,209 $ 176
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
40
<PAGE> 47
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------------
PRO PRO
FORMA FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
----- ---- ---- ----- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as adjusted(b)...... $ 2,301 $ 2,301 $ 6,136 $ 16,836(d) $ (1,956) $ 9,578 $ 2,238 $ 4,561 $ 1,476
EBITDA, as adjusted,
margin(c)................. 4.5% 4.5% 11.7% 9.6% (1.1%) 7.1% 1.9% 4.4% 1.9%
Capital expenditures........ $ 1,576 $ 1,576 $ 492 $ 3,330 $ 3,330 $ 1,739 $ 1,061 $ 1,142 $ 1,084
Depreciation and
amortization(e)........... 462 462 325 1,588 1,588 1,196 967 950 962
Cash interest expense(f).... 2,336 2,385 0 9,305 981 91 252 163 243
Ratio of EBITDA, as
adjusted, to cash interest
expense(g)................ 1.0x 1.0x 1.8x
Ratio of EBITDA, as
adjusted, minus capital
expenditures to cash
interest expense(g)....... 0.2x 0.3x 1.5x
Ratio of earnings to fixed
charges(h)................ -- -- 28.7x 1.6x -- 13.1x 2.5x 9.4x 1.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
---------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,003
Working capital............................................. 6,716
Total assets................................................ 40,531
Total debt.................................................. 80,000
Stockholders' deficit....................................... (59,955)
</TABLE>
41
<PAGE> 48
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) For periods ended on or prior to December 31, 1997 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, as adjusted, represents earnings before interest expense, other
income(expense), income taxes, depreciation and amortization. Data for
EBITDA, as adjusted, 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, as adjusted, 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, as adjusted, 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, as adjusted, margin represents EBITDA, as adjusted, as a percentage
of revenues.
(d) Pro Forma EBITDA, as adjusted, for the year ended December 31, 1997
represents historical EBITDA, as adjusted, 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>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA, as adjusted......................................... $ (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, as adjusted............................... $ 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, as adjusted was negative for such periods. 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 three months
ended March 31, 1998 and the year ended December 31, 1997, earnings were
inadequate to cover fixed charges by $3,654 ($370 on a pro forma basis) and
$5,502, respectively. The shortfall for the three months ended March 31,
1998 (actual) was largely attributable to the write-off of deferred
financing costs relating to the Bridge Facility, and the shortfall for the
year ended December 31, 1997 (actual) was attributable to fees and expenses
incurred in connection with the Recapitalization, including compensation
charges of $17,924 for bonuses and phantom stock payments and transaction
fees and expenses of $1,967.
42
<PAGE> 49
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 may be delayed
in performing a portion of its services and recognizing the related revenue. In
such situations,
43
<PAGE> 50
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
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
Revenues. Revenues for the quarter ended March 31, 1998 decreased by
$2,016 or 3.8% to $50,630 from $52,646 for the quarter ended March 31, 1997. The
decrease in revenues was comprised of (i) a decrease in postage and freight
revenues ('PFR') of $12,038 and (ii) a decrease in servicing revenues of $3,748,
offset in part by (iii) an increase in rebate revenues of $13,770. PFR and
servicing revenues declined in the first quarter of 1998 compared with the first
quarter of 1997 because a decline in such revenues from a single client that
conducted high-volume premium programs during 1996 and 1997 more than offset
increases in such revenues from other clients. That client ran a large program
in the second half of 1996 that carried over into the first quarter of 1997
resulting from consumer response that was higher than forecasted. The same
client ran a similar, although relatively smaller program in 1997, with the 1997
program revenues concentrated in the third and fourth quarters, resulting in
significantly less revenue carrying over to the first quarter of 1998. While
that same client continues to place its business with the Company, the client
has elected not to run a similar large-scale program in 1998. Servicing Revenue
from other clients increased 42.3%, to $7,591 in the first quarter of 1998, from
$5,335 in the same period in 1997. The increase in rebate revenues was largely
attributable to the addition of new clients that conducted high-dollar value
rebate programs in the first quarter of 1998.
Gross Profit. The Company's gross profit declined to $4,441 or 8.8% of
revenues for the quarter ended March 31, 1998. Gross profit for the quarter
ended March 31, 1997 was $10,104 or 18.7% of revenues. A significant portion of
the decrease is attributable to a change in the mix of revenues. Servicing
revenues and PFR, which carry higher gross margins, decreased from the first
quarter of 1997, while rebate revenues, which
44
<PAGE> 51
carry lower margins, increased. In addition, the Company experienced an increase
in processing and servicing costs related to increased processing capacity. This
ramp up in processing capacity was primarily associated with technical
improvements along with capability and capacity advances in computer equipment,
software and telemarketing systems including Interactive Voice Response, and, to
a lesser extent, limited facility expansion related to a new call center in
Oklahoma City. The Company's efforts to expand its processing capabilities and
capacity began in 1996 as part of its emphasis on high-volume programs including
new programs and servicing concepts, which involve significant technology
investment. Approximately $500 of the growth in expenses in 1998 related to
costs incurred in anticipation of a large program processing consumer responses
to a major class action lawsuit that was initially projected to begin in the
first quarter of 1998 but has been delayed. Although the Company has been able
to delay a portion of the expenses related to that program, commitments relating
to those $500 of expenses had already been made prior to the Company's receiving
the notification that the program would not commence until the third quarter of
1998.
Operating Income. Operating income for the quarter ended March 31, 1998
decreased by $3,972 to $1,839 from $5,811 for the same period in 1997. As a
percentage of revenues, operating income was 3.6% in the quarter ended March 31,
1998 compared with 11% in the same period of 1997. The reduction in operating
income was due to the decrease in gross profit, which was only partially offset
by a reduction in selling, general and administrative expenses. Selling, general
and administrative expenses in the first quarter of 1997 included $1,729 of
expense accruals associated with profit sharing and management bonuses. No such
accruals are included in the first quarter of 1998 reflecting first quarter
operating results. On a comparative basis, excluding profit sharing and
management bonuses expensed in the first quarter of 1997, selling, general and
administrative expenses in the first quarter of 1998 increased by $38 from the
same period in 1997.
Interest Expense. Interest expense of $2,385 represents interest on a
senior bridge credit facility ('Bridge Facility') through the date of issuance
of the Company's Senior Subordinated Notes due 2006 (the 'Notes') and on the
Notes thereafter. Amortization of deferred financing costs includes $3,292 of
costs associated with obtaining the Bridge Facility, which costs were fully
amortized upon repayment of the Bridge Facility with the proceeds of the Notes,
and the partial amortization of costs associated with the issuance of the Notes.
With no financed debt in the first quarter of 1997, the Company had no interest
expense.
Income Taxes. The Company recorded an income tax benefit of $1,352 for the
first quarter of 1998. Prior to the Recapitalization, the Company was an S
corporation for income tax purposes. Accordingly, the Company did not accrue
income tax expense on its historical financial statements. The statement of
income for the quarter ended March 31, 1997 includes proforma net income (loss)
information reflecting a pro forma provision for taxes in 1997 of $2,246,
calculated 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 1997.
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.
45
<PAGE> 52
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.
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.
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 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
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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 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." During the first quarter of 1998,
the Company completed the refinancing of the Bridge Facility through the
issuance by the Old Notes and finalized the new credit facility of $10.0 million
referred to
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below. As result of the Recapitalization, the Company's total indebtedness has
increased substantially. See "Risk Factors -- Leverage and Liquidity." At March
31, 1998, no amounts were outstanding under the New Credit Facility and the
Company had a stockholders' deficit of $60.0 million, indebtedness of $80.0
million and net working capital of $6.7 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 as a result of the Company being an S corporation prior to the
Recapitalization. For the three months ended March 31, 1998 and 1997 and the
years ended December 31, 1996 and 1995, the Company's operations generated cash
flows of $0.6 million, $1.8 million, $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 reflect (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. There were no
distributions to shareholders in the first quarter of 1998. Distributions to
shareholders for the three months ended March 31, 1997 and in the years ended
December 31, 1997, 1996 and 1995 were $0.5 million, $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 was
not 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. This 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 three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995 were $1.6 million,
$0.5 million, $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 changed 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 purchased various equipment and leasehold
improvements aggregating $0.5 million. The Company has also acquired a telephone
switch for the Oklahoma call center with a cost of $0.6 million. Furthermore,
the Company acquired or committed to acquire additional IVR equipment and
computer hardware equipment with an aggregate cost of $5.9 million. The Company
financed and intends to finance the remaining committed amounts for such
telephone switch and equipment through operating leases.
Prior to the Recapitalization, all of the capital stock of the Company was
owned by J.F. Ecklund, its then Chairman and Chief Executive Officer, and
certain trusts for the benefit of members of his family. Pursuant to the terms
of the agreements relating to the Recapitalization, the Company expects to make
a payment of approximately $700,000 to Mr. Ecklund, such trusts, and certain
employees of the Company during the second quarter of 1998. In addition,
following December 31, 2001, the Company is obligated to make additional
payments, not to exceed $15 million, to Mr. Ecklund, such trusts and certain
employees of the Company, 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 each of the Management
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 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) and has a final maturity
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date of March 31, 2001. The New Credit Facility does not have any commitment
reductions scheduled before maturity. Borrowings under the New Credit Facility
will accrue interest, at the option of the Company, at either the bank'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 2.5%. The New Credit
Facility is secured by a first priority interest in accounts receivable and
related general intangibles of the Company. See "Description of New Credit
Facility."
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 believes that the
cash flow from operations together with existing cash and cash equivalents and
available borrowings under the New Credit Facility will be adequate to meet its
liquidity requirements, including interest payments with respect to the Notes,
for at least the next 12 months.
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.
YEAR 2000 ISSUES
Many computer systems used today may be unable to interpret data correctly
after December 31, 1999 because they allow only two digits to indicate the year
in a date. The Company has been assessing this Year 2000 issue as it relates to
its business, including interactions with vendors, clients, and others. The
Company has formed a Year 2000 committee to coordinate and oversee the project.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," issued in March 1998,
is effective for fiscal years beginning after December 15, 1998. This statement
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. The Company is currently analyzing the implementation
of SOP 98-1 and does not believe it will have a material impact on the Company's
financial condition or results of operations when the Company adopts it in the
first quarter of 1999.
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income," effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display in the
financial statements of total net income and the components of all other
nonowner changes in equity, referred
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to as comprehensive income. The Company adopted SFAS No. 130 in the first
quarter of 1998 and the impact on the disclosures in the financial statements
was not significant.
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information," effective
for fiscal years beginning after December 15, 1997. SFAS No. 131 requires
disclosure of business geographic segments in the consolidated financial
statements of the Company. The Company adopted SFAS No. 131 in the first quarter
of 1998 and the impact on the disclosures in its financial statements was not
significant.
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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BUSINESS
GENERAL
Young America is a provider of a wide range of CIP services to large
consumer product and consumer service companies. The services the Company has
historically provided include the handling and processing of consumer responses
to client marketing programs (especially rebates and premium programs). The
Company's clients utilize various programs to establish relationships with their
customers and contract with the Company to handle the interactions. These
communications or interactions take on many forms but are all targeted at
satisfying the client's consumers' needs and requests in a manner that achieves
the highest degree of customer satisfaction. The interactions include inbound
and outbound communications, through mail, tele-communication and electronic
formats.
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 fiscal 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 March 31, 1998, the Company was processing approximately
1,550 client marketing programs. In each of the last three fiscal years, the
Company distributed over 60 million items to its clients' customers. Items
distributed by the Company have
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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.
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 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.
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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 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,
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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 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
Holdings and the Company intend to pursue selective acquisitions that offer
a strong strategic fit with the Company's existing core competencies and/or
allow it to develop or strengthen partnerships with select clients. Such
acquisitions could include, among others, companies that specialize in
literature fulfillment,
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<PAGE> 61
Internet order processing or collateral material fulfillment and such
acquisitions, whether individually or in the aggregate, could be substantial
relative to the size of the Company.
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
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<PAGE> 62
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 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.
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<PAGE> 63
TECHNOLOGY
Young America strives to incorporate technology and automation into every
appropriate aspect of its business.
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.
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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
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>
- ---------------
* The Company has entered into an agreement with an independent employment
agency pursuant to which the Company obtains services of hourly pool employees
through such agency, and the Company has contracted with the agency for its
temporary employment needs. Accordingly, by the end of the first quarter of
1998, the Company had no hourly pool employees.
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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.
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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<PAGE> 66
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.................. 54 President, Chief Executive Officer
and Director
Robert Marakovits................ 39 Chairman of the Board of Directors
L. Joseph Kulas.................. 51 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> 67
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> 68
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.
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<PAGE> 69
(2) Includes director's fees received by Mr. Ecklund prior to the
Recapitalization Date and sales commissions earned by Mr. Stinchfield.
(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. At March 31, 1998, the amount payable (in
addition to benefits continuation and without giving effect to withholding
taxes) to Mr. Weil pursuant to the foregoing would have been approximately
$500,000 in the aggregate. At such date, no portion of the annual incentive
bonus under such Plan would have been payable based on the Company's operating
results through such date.
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
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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.
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
(except that in the case of Mr. Kulas, the Company will pay the amount due under
the Kulas Employment Agreement, if longer). As of the date of this Prospectus,
the Company had not made any payments under the Change in Control Agreements.
Had a Change in Control (as so defined) occurred as of March 31, 1998, the
minimum aggregate amount payable (in addition to benefits continuation and
without giving effect to withholding taxes) to Messrs. Larson, Kulas, Ferguson,
Beaudoin, Stinchfield and Clark and Ms. Spiess and Wagner would have been
approximately $1.7 million. Such amount may increase based on the operating
results of the Company.
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 (as defined in the Annual
Management Incentive Plans) 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.
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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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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. BTCP is
the private equity investing arm of, and a wholly owned subsidiary of,
Bankers Trust Corporation. BTCP is not an obligor on the Notes. See "Risk
Factors -- Ownership of the Company; Stockholders Agreement."
(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
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A Common Stock, it would hold approximately 37.3% of the outstanding voting
capital stock of Holdings. 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
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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 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
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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 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.
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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.
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
Stockholders 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
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(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 and is a party to the Equity Registration Rights Agreement
with BTCP, OTPPB and Mr. Ecklund. See "Principal Stockholders -- Registration
Rights Agreement; Put Rights of Jay F. Ecklund."
Holdings intends to adopt 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 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 has
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 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 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 accrues at the rate of 11 5/8% per annum and is 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.
At March 31, 1998, the aggregate amount of Senior Debt was approximately
$0.5 million, consisting of obligations under undrawn letters of credit. At such
date, no indebtedness subordinated to the Notes was outstanding.
HOLDINGS 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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<PAGE> 82
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 all material 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
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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
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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 below 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.
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 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
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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 or
understanding 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 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
102
<PAGE> 109
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 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. as to matters of Minnesota law, O'Sullivan Graev & Karabell,
LLP, has relied on the opinion of Kaplan, Strangis and Kaplan, P.A.,
Minneapolis, Minnesota.
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, on the Recapitalization Date
McGladrey & Pullen, LLP was dismissed and Arthur Andersen LLP was engaged 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 ended
December 31, 1996 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 and for the period January
1, 1997 through the Recapitalization Date, 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.
103
<PAGE> 110
INDEX TO FINANCIAL STATEMENTS
YOUNG AMERICA HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Financial Statements
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997.......................... F-2
Consolidated Balance Sheets as of March 31, 1998, and
December 31, 1997...................................... F-3
Consolidated Statements of Cash Flow for the Three Months
Ended March 31, 1998 and 1997.......................... F-4
Notes to Consolidated Financial Statements................ F-5
Audited Financial Statements
Report of Independent Public Accountants.................. F-9
Report of Independent Public Accountants.................. F-10
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-11
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-12
Consolidated Statements of Changes in Stockholders'
(Deficit) Equity....................................... F-13
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-14
Notes to Consolidated Financial Statements................ F-15
</TABLE>
F-1
<PAGE> 111
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Revenues.................................................... $50,630 $52,646
Cost of revenues:
Rebates, postage and freight.............................. 34,893 32,166
Processing and servicing.................................. 11,296 10,376
------- -------
Gross profit...................................... 4,441 10,104
------- -------
Operating expenses:
Selling................................................... 1,424 1,393
General and administrative................................ 1,178 2,900
------- -------
2,602 4,293
------- -------
Operating income.................................. 1,839 5,811
------- -------
Other income (expense):
Interest expense.......................................... (2,385) --
Amortization of deferred financing costs.................. (3,329) --
Interest income........................................... 236 258
Other..................................................... (15) --
------- -------
(5,493) 258
------- -------
(Loss) income before benefit from income taxes.............. (3,654) 6,069
Benefit from income taxes................................... (1,352) --
------- -------
Net (loss) income................................. $(2,302) $ 6,069
======= =======
Unaudited pro forma net (loss) income:
(Loss) Income before provision for income taxes........... $(3,654) $ 6,069
Pro forma income tax (benefit) provision.................. (1,352) 2,246
------- -------
Pro forma net income (loss)....................... $(2,302) $ 3,823
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 112
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 14,003 $ 17,940
Trade receivables, net.................................... 12,067 11,482
Supplies inventory........................................ 510 615
Prepaid expenses.......................................... 622 518
-------- --------
Total current assets.............................. 27,202 30,555
Property and equipment, at cost............................. 19,132 17,556
Less accumulated depreciation............................. (10,123) (9,661)
-------- --------
9,009 7,895
Deferred financing costs.................................... 2,968 3,292
Deferred income taxes....................................... 1,352 --
-------- --------
TOTAL ASSETS...................................... $ 40,531 $ 41,742
======== ========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities:
Non-cleared rebate items.................................... $ 9,060 $ 4,526
Accounts payable.......................................... 2,409 2,331
Collections due to and advances from clients.............. 4,242 3,548
Deferred income taxes..................................... 411 417
Accrued expenses
Compensation........................................... 1,720 5,860
Other.................................................. 2,644 2,737
-------- --------
Total current liabilities......................... 20,486 19,419
Bridge facility............................................. -- 80,000
Senior subordinated notes (Note 2).......................... 80,000 --
Commitments and Contingencies (Note 3)
Stockholders' Deficit:
Class A common stock, par value $1 per share; 3,000,000
shares authorized,
1,303,930 shares issued and outstanding................... 1,304 1,304
Class B common stock, par value $1 per share; 1,500,000
shares authorized,
442,884 shares issued and outstanding..................... 443 443
Class C common stock, par value $1 per share; 1,500,000
shares authorized,
172,727 shares issued and outstanding..................... 173 173
Additional paid-in capital................................ 37,089 37,065
Retained deficit.......................................... (98,964) (96,662)
-------- --------
(59,955) (57,677)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT....... $ 40,531 $ 41,742
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 113
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Operating Activities
Net (loss) income......................................... $(2,302) $ 6,069
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 462 325
Amortization of deferred financing costs............... 3,329
Deferred income taxes.................................. (1,358) --
Changes in operating assets and liabilities:
Trade receivables.................................... (585) (4,823)
Supplies inventory................................... 105 400
Prepaid expenses..................................... (104) (304)
Non-cleared rebate items............................. 4,534 4,347
Accounts payable..................................... 78 256
Collections due to and advances from clients......... 694 (4,488)
Accrued expenses..................................... (4,233) 78
------- -------
Net cash provided by operating activities............ 620 1,860
------- -------
Investing Activities
Purchases of property and equipment....................... (1,576) (492)
------- -------
Net cash used in investing activities................ (1,576) (492)
------- -------
Financing Activities:
Repayments of Bridge Facility............................. (80,000) --
Proceeds of senior subordinated debt, net of transaction
costs.................................................. 76,995 --
Proceeds from stock subscriptions......................... 24 --
Distributions paid to stockholders........................ -- (516)
------- -------
Net cash used in financing activities................ (2,981) (516)
------- -------
Change in cash and cash equivalents.................. (3,937) 852
Cash and Cash Equivalents:
Beginning of period....................................... 17,940 20,573
------- -------
End of period............................................. $14,003 $21,425
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash payments for interest................................ $ 2,375 $ --
======= =======
Supplemental Schedule of Non-cash Financing Activities:
Distributions payable at period-end....................... $ -- $ 3,387
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 114
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNAUDITED)
1. BASIS OF PRESENTATION -- PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared by
Young America Holdings, Inc. ("Holdings") and include the accounts of Holdings
and its wholly-owned subsidiary Young America Corporation ("YAC"), collectively,
the "Company". All significant intercompany items have been eliminated. In the
opinion of management, all adjustments (which include reclassifications and
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1998, and for all
periods presented, have been made.
2. DEBT
On February 23, 1998, YAC issued $80,000 of 11 5/8% Senior Subordinated
Notes due 2006 (the "Notes"). Interest on the Notes is payable semiannually in
arrears on February 15 and August 15 of each year, beginning August 15, 1998.
The net proceeds of the offering of the Notes, along with $5,391 in cash, were
transferred to Holdings and used to repay, in full, amounts outstanding under
the Bridge Facility. In connection with the repayment of the Bridge Facility,
the Company wrote off the $3,292 of the Deferred Financing Costs reflected on
the December 31, 1997, balance sheet.
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. Separate financial statements of YAC have not been presented as
management has determined that they would not be material to investors given
that YAC is a wholly-owned subsidiary of Holdings, and represents substantially
all of the assets, liabilities, and operations of the consolidated entity, and
that Holdings has provided a full and unconditional guarantee of the Notes. The
Notes are not redeemable prior to February 15, 2002, except as provided below.
On or after such date, the Notes are redeemable, in whole or in part, at the
option of YAC at the following redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption set forth below:
<TABLE>
<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 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 (as defined),
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 sinking fund requirements. The Notes are
general unsecured obligations of the Company and are subordinated in right of
payment to all existing and future senior indebtedness of the Company, including
obligations under the New Credit Facility referred to below.
The indenture under which the Notes were issued contains certain covenants
with respect to YAC and any future subsidiaries that 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.
F-5
<PAGE> 115
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, UNAUDITED)
The Company has recently entered into a new revolving credit facility ("New
Credit Facility") with Norwest Bank Minnesota, N.A. ("Norwest"), 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) and has a
final maturity date of March 31, 2001. The New Credit Facility does not have any
commitment reductions scheduled before maturity. Borrowings under the New Credit
Facility will accrue interest, at the option of the Company, 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 2.5%. The
New Credit Facility is secured by a first priority interest in accounts
receivable and related general intangibles of YAC.
3. CONTINGENCIES
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........................................... $4,670
1999........................................... $4,770
2000........................................... $3,966
2001........................................... $1,741
2002........................................... $ 731
</TABLE>
Guarantees
Sweepstakes performance bonds are guaranteed for clients based on certain
financial criteria. Holdings had guaranteed approximately $7,600 and $6,200 in
performance bonds for various clients, as of March 31, 1998 and December 31,
1997, respectively.
The Company also obtains an indemnity agreement from these clients
indemnifying the Company from obligations under the performance bonds.
Prior to November 25, 1997, 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 Shareholders"). 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. The following table presents summarized Statement
of Operations information for Holdings and YAC for the three months ended March
31, 1998 and on a pro forma basis for the three months ended March 31, 1997 as
if the guarantee structure had been in effect for such period; and summarized
Balance Sheet information as of March 31, 1998 and December 31, 1997. The only
substantial asset retained by Holdings in the Recapitalization was certain real
property, which is leased to YAC, at cost, for use in its operations.
F-6
<PAGE> 116
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ------------
<S> <C> <C>
Revenues:
Holdings........................................... $ 72,425 $ --
YAC................................................ 50,630 52,646
Intercompany elimination........................... (72,425) --
-------- -------
Consolidated............................... $ 50,630 $52,646
======== =======
Gross Profit:
Holdings........................................... $ -- $ --
YAC................................................ 4,402 10,104
Intercompany elimination........................... 39 --
-------- -------
Consolidated............................... $ 4,441 $10,104
======== =======
Net (loss) Income:
Holdings........................................... $ -- $ --
YAC................................................ (2,302) 6,069
-------- -------
Consolidated............................... $ (2,302) $ 6,069
======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Current Assets:
Holdings........................................... $ 400 $ 357
YAC................................................ 26,841 30,198
Intercompany elimination........................... (39) --
-------- -------
Consolidated............................... $ 27,202 $30,555
======== =======
Noncurrent Assets:
Holdings........................................... $ 2,628 $ 2,667
YAC................................................ 20,701 8,520
Intercompany elimination........................... (10,000) --
-------- -------
Consolidated............................... $ 13,329 $11,187
======== =======
Current Liabilities:
Holdings........................................... $ -- $ --
YAC................................................ 20,525 19,419
Intercompany elimination........................... (39) --
-------- -------
Consolidated............................... $ 20,486 $19,419
======== =======
Noncurrent Liabilities:
Holdings........................................... $ 10,000 $ --
YAC................................................ 80,000 80,000
Intercompany elimination........................... (10,000) --
-------- -------
Consolidated............................... $ 80,000 $80,000
======== =======
</TABLE>
F-7
<PAGE> 117
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, UNAUDITED)
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 therein) of Holdings as of October 31, 1997 and Holdings' profits or
losses (as defined) for the period ended on the date of Recapitalization. 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, subject to a maximum amount payable of
$15,000. Under separate agreements with certain 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.
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.
4. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," issued in March 1998, is
effective for fiscal year, beginning after December 15, 1998. This statement
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. The Company is currently analyzing the implementation
of SOP 98-1 and does not believe it will have a material impact on the Company's
financial condition or results of operations when the Company adopts it in the
first quarter of 1999.
During June 1997, the Financial Accounting Standards Board released SFAS
No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for reporting and
display in the financial statements of total net income and the components of
all other nonowner changes in equity, referred to as comprehensive income. The
Company adopted SFAS No. 130 in the first quarter of 1998 and the impact on the
disclosures in the financial statements was not significant.
During June 1997, the Financial Accounting Standards Board released SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires disclosure of business and geographic segments in the consolidated
financial statements of the Company. The Company adopted SFAS No. 131 in the
first quarter of 1998 and the impact on the disclosures in its financial
statements was not significant.
F-8
<PAGE> 118
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
operations, 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-9
<PAGE> 119
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 operations, 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-10
<PAGE> 120
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 financial
statements.
F-11
<PAGE> 121
YOUNG AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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-12
<PAGE> 122
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-13
<PAGE> 123
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-14
<PAGE> 124
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 realizes a margin on such rebate revenues because when
the Company agrees to fund rebate programs 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 that percentage of rebate checks issued that are not expected,
based upon historical experience, to be cashed.
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.
F-15
<PAGE> 125
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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.
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
F-16
<PAGE> 126
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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).
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.
Set forth below is revenue information for the years 1997, 1996 and 1995
for each client that accounted for 5% or more of the Company's total revenue
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Client A.................................... $42,836 (24.4%) $28,420 (20.9%) *
Client B.................................... $11,572 (6.6%) $11,418 (8.4%) $18,697 (9.2%)
Client C.................................... $ 9,448 (5.4%) * *
Client D.................................... * * $13,885 (11.9%)
Client E.................................... * * $ 6,325 (5.4%)
</TABLE>
* less than 5% of total revenue.
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
F-17
<PAGE> 127
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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 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.
F-18
<PAGE> 128
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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 the Recapitalization Date, Holdings effected (i) a 1,000 for
1 stock split of its common stock in the form of a stock dividend and (ii) 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 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.
F-19
<PAGE> 129
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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, 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
F-20
<PAGE> 130
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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 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.
F-21
<PAGE> 131
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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 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 through 2017. 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.
F-22
<PAGE> 132
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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, 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
F-23
<PAGE> 133
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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
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.
F-24
<PAGE> 134
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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 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
F-25
<PAGE> 135
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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.
<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.................................................. 30,198 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
======== ========
</TABLE>
F-26
<PAGE> 136
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>
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 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
F-27
<PAGE> 137
YOUNG AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
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-28
<PAGE> 138
======================================================
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....................... 23
The Recapitalization.................. 33
Capitalization........................ 35
Unaudited Pro Forma Consolidated
Financial Data...................... 36
Selected Historical and Pro Forma
Consolidated Financial Data......... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 43
Business.............................. 51
Management............................ 60
Security Ownership of Certain
Beneficial Owners and Management.... 66
Certain Transactions.................. 70
Description of the New Credit
Facility............................ 72
Description of the Notes.............. 73
Certain Federal Income Tax
Considerations...................... 99
Book-Entry; Delivery and Form......... 101
Plan of Distribution.................. 102
Legal Matters......................... 103
Experts............................... 103
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> 139
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 is 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 are 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 rank pari passu in right of payment
with any future senior subordinated indebtedness of Young America and 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 are general unsecured obligations of Holdings and
the Subsidiary Guarantors and are subordinated in right of payment to all
existing and future Guarantor Senior Debt (as defined herein). The Guarantees
rank pari passu with any future senior subordinated indebtedness of Holdings and
the Subsidiary Guarantors and rank senior in right of payment to all other
subordinated obligations of Holdings and the Subsidiary Guarantors. As of March
31, 1998, Young America and Holdings would have had approximately $0.5 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 $8.9 million as of March 31, 1998) and its ratio of
total debt total capitalization was approximately 400%. 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> 140
[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> 141
[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> 142
[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."
As of the date of this Prospectus, affiliates of BTAB 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> 143
[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....................... 23
The Recapitalization.................. 33
Capitalization........................ 35
Unaudited Pro Forma Consolidated
Financial Data...................... 36
Selected Historical and Pro Forma
Consolidated Financial Data......... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 43
Business.............................. 51
Management............................ 60
Security Ownership of Certain
Beneficial Owners and Management.... 66
Certain Transactions.................. 70
Description of the New Credit
Facility............................ 72
Description of the Notes.............. 73
Certain Federal Income Tax
Considerations...................... 99
Book-Entry; Delivery and Form......... 101
Plan of Distribution.................. 102
Legal Matters......................... 103
Experts............................... 103
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> 144
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
*5.2 Opinion of Kaplan, Strangis and Kaplan, P.A.
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
</TABLE>
II-1
<PAGE> 145
<TABLE>
<C> <S>
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.
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 Intentionally omitted.
*10.18 Credit Agreement dated April 7, 1998 between Young America
and Norwest Bank Minnesota, National Association
*10.19 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Frederick H. Stinchfield
*10.20 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and David Q. Ferguson
*10.21 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Robert J. Beaudoin
*10.22 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Bruce W. Clark
*10.23 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Michael Larson
*10.24 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Barbara Spiess.
*10.25 Change-in-Control Agreement dated as of February 21, 1997
between Holdings and Sharon Wagner
*10.26 Senior Credit Agreement dated as of November 25, 1997 among
Young America, Holdings, the Lenders names therein and
Bankers Trust Company
*10.27 Non-Competition Agreement dated as of November 25, 1997
among Holdings, Ecklund and the other individuals listed on
the signature pages thereto
*10.28 Release and Indemnity Agreement dated as of November 21,
1997 among Holdings, Ecklund, the Ecklund Trusts, Albert O.
Foster, Jerome J. Jenko, Thomas O. Moe, and R. Gary St.
Marie
*10.29 Form of Exchange Agent Agreement among Holdings, the Company
and Marine Midland Bank
</TABLE>
II-2
<PAGE> 146
<TABLE>
<C> <S>
*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
*23.4 Consent of Kaplan, Strangis and Kaplan, P.A. (included in
Exhibit 5.2)
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>
- ---------------
* Filed herewith.
(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 (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.
II-3
<PAGE> 147
(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-4
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment No. 1 to the 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 18th day of June, 1998.
Young America Corporation
By: /s/ CHARLES D. WEIL
------------------------------------
Name: Charles D. Weil
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed as of the 18th day of June,
1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Charles D. Weil
* Vice President of Finance, Treasurer,
- ----------------------------------------------------- Secretary and Chief Financial Officer
L. Joseph Kulas (principal financial and accounting officer)
* Chairman of the Board
- -----------------------------------------------------
Robert Marakovits
Director
- -----------------------------------------------------
Jay F. Ecklund
* Director
- -----------------------------------------------------
Richard D. Gersten
* Director
- -----------------------------------------------------
J. Mark A. MacDonald
</TABLE>
*By: /s/ CHARLES D. WEIL
-------------------------------
Attorney-in-Fact
II-5
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment No. 1 to the 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 18th day of June, 1998.
Young America Holdings, Inc.
By: /s/ CHARLES D. WEIL
------------------------------------
Name: Charles D. Weil
Title: President
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>
* President and Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Charles D. Weil
* Vice President of Finance, Treasurer,
- ----------------------------------------------------- Secretary and Chief Financial Officer
L. Joseph Kulas (principal financial and accounting officer)
* Chairman of the Board
- -----------------------------------------------------
Robert Marakovits
Director
- -----------------------------------------------------
Jay F. Ecklund
* Director
- -----------------------------------------------------
Richard D. Gersten
* Director
- -----------------------------------------------------
J. Mark A. MacDonald
</TABLE>
*By: /s/ CHARLES D. WEIL
-------------------------------
Attorney-in-Fact
II-6
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF O'SULLIVAN GRAEV & KARABELL, LLP]
June 3, 1998
Young America Corporation and
Young American Holdings, Inc.
717 Faxon Road
Young America, Minnesota 55397-9481
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 (THE "NEW NOTES")
____________________________________________________________________
Ladies and Gentlemen:
We have acted as counsel to Young America Corporation (the "Company") and
Young America Holdings, Inc. ("Holdings"), in connection with the preparation
and filing with the Securities and Exchange Commission (the "Commission") of
the Registration Statement of the Company and Holdings on Form S-4, as amended
(File No. 333-49749) (as so amended, the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary for the
purposes of rendering the opinions set forth below including, without
limitation, (i) the Registration Statement, (ii) the Indenture dated as of
February 23, 1998 (the "Indenture"), among the Company, Holdings, as guarantor,
and Marine Midland Bank, as trustee, (iii) the Articles of Incorporation of the
Company and the Amended and Restated Articles of Incorporation of Holdings,
each as amended through the date hereof, (iv) the By-laws of the Company and
the By-Laws of Holdings, each as amended through the date hereof, (v) the form
of New Notes and the Guarantee of Holdings (the "Holdings Guarantee"), each as
set forth in the Indenture and (vi) the resolutions adopted by the Executive
Committee of the Board of Directors of the Company and the resolutions adopted
by the Executive Committee of the Board of Directors of Holdings, each by
unanimous written consent dated February 23, 1998. As to certain questions of
fact material to the opinions contained herein, we have relied upon certificates
or statements of officers of the Company and certificates of public officials.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to authentic originals of all documents submitted to us as certified or
photostatic copies. In making our examination of documents executed by parties
other than the Company and Holdings, we have
s:\7271\002\116470a.doc
<PAGE> 2
Young America Corporation and
Young America Holdings, Inc.
June 3, 1998
Page 2
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and we have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof.
Based upon the foregoing, we are of the opinion as follows:\
1. The Company is a validly existing corporation under the laws of the
State of Minnesota.
2. Holdings is a validly existing corporation under the laws of the State
of Minnesota.
3. The New Notes have been duly authorized and, when duly executed,
authenticated and delivered in accordance with the Indenture in
exchange for the Old Notes (as defined in the Registration Statement),
upon consummation of the Exchange offer as contemplated by the
Registration Statement and the Indenture, the New Notes will
constitute valid and binding obligation of the Company, enforceable
against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights and
remedies generally and general principles of equity.
4. The Holdings Guarantee has been duly authorized and, upon due
execution of the Holdings Guarantee attached to the New Notes and due
execution, authentication and delivery of the New Notes in accordance
with the Indenture in exchange for the Old Notes, upon consummation of
the Exchange Offer as contemplated by the Registration Statement and
the Indenture, the Holdings Guarantee will constitute a valid and
binding obligation of Holdings, enforceable against Holdings in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights and remedies generally and
general principles of equity.
The opinions expressed herein are limited to the laws of the State of New
York and Minnesota, and we express no opinion as to the laws of any other
jurisdiction. In addition, we have relied with respect to matters of Minnesota
law, with your consent, on the opinion of Kaplan, Strangis and Kaplan, P.A.
s:\7271\002\11647a.doc
<PAGE> 3
Young America Corporation and
Young America Holdings, Inc.
June 3, 1998
Page 3
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ O'Sullivan Graev & Karabell, LLP
<PAGE> 1
Exhibit 5.2
[LETTERHEAD OF KAPLAN, STRINGIS AND KAPLAN, P.A.]
June 3, 1998
Young America Corporation
Young American Holdings, Inc.
717 Faxon Road
Young America, MN 55397-9481
Ladies and Gentlemen:
We have acted as special Minnesota counsel to Young American Corporation, a
Minnesota corporation (the "Company"), and Young America Holdings, Inc., a
Minnesota corporation ("Holdings"), in connection with the issuance by the
Company of its 11 5/8% Series B Senior Subordinated Notes due 2006 (the
"Notes"). This opinion is being furnished in connection with the filing with
the Securities and Exchange Commission (the "Commission") of the Registration
Statement on Form S-4, as amended, of the Company and Holdings (File No.
333-49749) (the "Registration Statement") with respect to the Notes.
We have examined such documents, including without limitation, the
Indenture dated February 23, 1998 (the "Indenture") pursuant to which the Notes
will be issued, and have reviewed such questions of law as we have considered
necessary and appropriate for the purposes of this opinion.
In rendering our opinion set forth below, we have assumed the authenticity
of all documents submitted to us as originals, the genuineness of all
signatures and the conformity to authentic originals of all documents submitted
to us as copies. We have also assumed the legal capacity for all purposes
relevant hereto of all natural persons. As to questions of fact material to our
opinion, we have relied upon the representations of or certificates from
officers of the Company and Holdings and upon certificates of public officials.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Minnesota.
2. Holdings is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Minnesota.
30D6/1
<PAGE> 2
Young America Corporation
Young America Holdings, Inc.
June 3, 1998
Page 2
3. The Notes have been duly authorized for the issuance by the Company.
4. The Holdings Guarantee (as such term is defined in the Indenture) has
been duly authorized by Holdings.
The opinions set forth above are subject to the following qualifications:
1. We are qualified to practice law only in the State of Minnesota and do
not purport to be expert in the laws of any other state. This opinion
is limited to the laws of the State of Minnesota.
2. Our opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date of this
letter.
The foregoing opinions are being furnished to you solely for your benefit
and may not be relied upon by, not may copies be delivered to, any other person
without our prior written consent, except that O'Sullivan, Graev & Karabell,
LLP may rely upon the foregoing opinions as to matters of Minnesota law in
rendering their opinion to you of even date herewith.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving this consent, we do not admit
that we are included in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Commission.
Best regards,
/s/ Kaplan, Strangis and Kaplan, P.A.
JCM/kmh
30D6/1
<PAGE> 1
Exhibit 10.18
CREDIT AGREEMENT
between
YOUNG AMERICA CORPORATION
as Borrower;
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Bank
Closing Date: April 7, 1998
=================================================
$10,000,000 Revolving Credit Facility
=================================================
[LOGO]
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I Definitions.........................................................1
Section 1.1 Definitions...................................................1
ARTICLE II Amount and Terms of the Loans; Letters of Credit...................9
Section 2.1 Advances......................................................9
Section 2.2 Interest.....................................................10
Section 2.3 Amount and Date of Payments..................................11
Section 2.4 Letters of Credit............................................11
Section 2.5 Collateral...................................................12
Section 2.6 Termination or Reduction of the Commitment...................13
Section 2.7 Computation of Interest and Fees.............................13
Section 2.8 Fees.........................................................13
Section 2.9 Prepayments..................................................13
Section 2.10 Payments.....................................................14
Section 2.11 Increased Costs; Capital Adequacy; Funding Exceptions........15
Section 2.12 Funding Losses...............................................18
Section 2.13 Discretion of Bank as to Manner of Funding...................18
Section 2.14 Conclusiveness of Statements; Survival of Provisions.........19
ARTICLE III Conditions Precedent.............................................19
Section 3.1 Initial Conditions Precedent.................................19
Section 3.2 Conditions Precedent to All Advances and Letters of Credit..20
ARTICLE IV Representations and Warranties....................................21
Section 4.1 Corporate Existence and Power................................21
Section 4.2 Authorization of Borrowing; No Conflict as to Law or
Agreements...................................................21
Section 4.3 Legal Agreements.............................................21
Section 4.4 Subsidiaries.................................................21
Section 4.5 Financial Condition..........................................21
Section 4.6 Adverse Change...............................................22
Section 4.7 Litigation...................................................22
Section 4.8 Hazardous Substances.........................................22
Section 4.9 Regulation U.................................................22
Section 4.10 Taxes........................................................22
Section 4.11 Capitalization...............................................22
Section 4.12 Titles and Liens.............................................23
Section 4.13 ERISA........................................................23
ARTICLE V Affirmative Covenants..............................................23
Section 5.1 Financial Statements.........................................23
Section 5.2 Books and Records; Inspection and Examination................25
Section 5.3 Compliance with Laws.........................................25
Section 5.4 Payment of Taxes and Other Claims............................25
<PAGE> 3
Section 5.5 Maintenance of Properties....................................26
Section 5.6 Insurance....................................................26
Section 5.7 Preservation of Corporate Existence..........................26
Section 5.8 Deposit Accounts.............................................26
Section 5.9 Interest Coverage Ratio.....................................26
Section 5.10 Current Ratio................................................27
ARTICLE VI Negative Covenants................................................27
Section 6.1 Liens........................................................27
Section 6.2 Indebtedness.................................................28
Section 6.3 Guaranties...................................................29
Section 6.4 Investments..................................................29
Section 6.5 Dividends....................................................30
Section 6.6 Sale of Assets...............................................31
Section 6.7 Transactions with Affiliates.................................31
Section 6.8 Consolidation and Merger.....................................32
Section 6.9 Subordinated Debt............................................32
Section 6.10 Hazardous Substances.........................................32
Section 6.11 Restrictions on Nature of Business...........................32
ARTICLE VII Events of Default, Rights and Remedies...........................32
Section 7.1 Events of Default............................................32
Section 7.2 Rights and Remedies..........................................35
Section 7.3 Pledge of Cash Collateral Account............................36
ARTICLE VIII Miscellaneous...................................................36
Section 8.1 No Waiver; Cumulative Remedies...............................36
Section 8.2 Amendments, Etc..............................................36
Section 8.3 Notice.......................................................37
Section 8.4 Participations...............................................37
Section 8.5 Disclosure of Information....................................37
Section 8.6 Costs and Expenses...........................................38
Section 8.7 Indemnification by Borrower..................................38
Section 8.8 Execution in Counterparts....................................38
Section 8.9 Binding Effect, Assignment...................................38
Section 8.10 Governing Law................................................39
Section 8.11 Waiver of Jury Trial.........................................40
Section 8.12 Severability of Provisions...................................40
Section 8.13 Prior Agreements.............................................40
Section 8.14 Headings.....................................................40
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<PAGE> 4
CREDIT AGREEMENT
Dated as of April 6, 1998
Young America Corporation, a Minnesota corporation (the "Borrower"),
and Norwest Bank Minnesota, National Association, a national banking association
(the "Bank"), agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means, as to any Person, the aggregate unpaid obligations
of customers and other account debtors to such Person arising out of the
sale or lease of goods or rendition of services by such Person on an open
account or deferred payment basis.
"Advance" means an advance by the Bank to the Borrower pursuant to
Article II.
"Affiliate" means any Person who directly or indirectly (through one
or more intermediaries) controls, is controlled by, or is under common
control with, the Borrower. 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.
"Agreement" means this Credit Agreement.
"Base Rate" means the rate of interest publicly announced from time
to time by the Bank as its "prime" or "base" rate or, if the Bank ceases
to announce a rate so designated, any similar successor rate designated by
the Bank.
"Borrowing Base" means, at any time, the lesser of the Commitment
Amount, or 85% of the Eligible Accounts of the Borrower, computed on the
basis of the most recent Borrowing Base Certificate furnished to the Bank
as required by Section 3.1(i) or 5.1(d).
<PAGE> 5
"Borrowing Base Certificate" means a certificate in the form of
Exhibit C hereto correctly setting forth the Accounts, the Eligible
Accounts and the Borrowing Base of the Borrower as of a particular date.
"Bridge Facility" means the outstanding indebtedness of Holdings
under the Senior Credit Agreement dated as of November 25, 1997 among
Holdings, Bankers Trust Company, as agent, and Bankers Trust New York
Corporation, as initial lender.
"Business Day" means a day other than a Saturday, Sunday, United
States national holiday or other day on which banks in Minnesota are
permitted or required by law to close. Whenever the context relates to a
Eurodollar Rate Funding or the fixing of a Eurodollar Rate, "Business Day"
means a day that (i) meets the foregoing definition, and (ii) on which
dealings in U.S. dollar deposits are carried on in the London interbank
eurodollar market.
"Cash Collateral Account" means an account maintained with the Bank
in which funds are deposited pursuant to Section 2.4(f), 2.9(b) or 7.2(c).
"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 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.
"Commitment" means the Bank's commitment to make Advances and issue
Letters of Credit pursuant to Article II.
"Commitment Amount" means $10,000,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which said
amount is reduced.
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<PAGE> 6
"Commitment Termination Date" means March 31, 2001, or the earlier
date of termination in whole of the Commitment pursuant to Section 2.6 or
7.2(a).
"Compliance Certificate" means a certificate in substantially the
form of Exhibit B, or such other form as the Borrower and the Bank may
from time to time agree upon in writing, executed by the chief financial
officer of the Borrower, stating (i) that any financial statements
delivered therewith have been prepared in accordance with GAAP, subject
(in the case of interim statements) to year-end adjustments and the
omission of footnotes, (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto and (iii) if such financial statements
relate to the end of a calendar quarter, all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the Financial Covenants.
"Current Assets" of any Person means the aggregate amount of assets
of such Person which in accordance with GAAP may be properly classified as
current assets.
"Current Liabilities" of any Person means (i) all Debt of such
Person due on demand or within one year from the date of determination
thereof, and (ii) all other items (including taxes accrued as estimated)
which, in accordance with GAAP, may be properly classified as current
liabilities of such Person.
"Debt" of any Person means, 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 (with the amount thereof
being the principal amount thereof as determined in accordance with GAAP),
(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) guaranties and other contingent obligations in respect
of obligations of other Persons of the type referred to in clauses (i)
through (v) above, and (vii) all obligations 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. Debt 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 Borrower that are indemnified by the Borrower's customer.
For purposes hereof, obligations under operating leases shall not
constitute Debt.
"Default" means an event that, with the giving of notice, the
passage of time or both, would constitute an Event of Default.
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"EBITDA" means, for any period, the sum of (a) Net Income of the
Borrower for such period, (b) Interest Expense, taxes, depreciation,
depletion, amortization and other non-cash items for such period to the
extent deducted in determining Net Income, (c) fees, expenses or charges
relating to any equity or debt issuances, asset or stock acquisitions or
investments permitted by the terms of this Agreement (whether or not
successful) to the extent deducted in determining Net Income, (d) payments
made under the Recapitalization Agreement and related documents (not
exceeding $19,000,000 in aggregate) to the extent deducted in determining
Net Income, and (e) with respect to any period occurring in whole or in
part prior to the consummation of the Recapitalization, any applicable
Expense Reduction Amount, all determined in accordance with GAAP. Unless
otherwise stated, EBITDA as of any month-end means the Borrower's EBITDA
during the period of 12 calendar months ending on that month-end.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, along with the Borrower, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in sections 414(b) and 414(c), respectively, of the Internal
Revenue Code of 1986, as amended.
"Eligible Accounts" means the amount of the Accounts of the Borrower
in which the Bank holds a first perfected security interest reduced
(without duplication) by:
(a) the amount of any Account which is more than 89 days past
due;
(b) the amount of any Account as to which the account debtor
disputes liability or makes any claim with respect to the Account,
but only to the extent of such amount disputed or claimed;
(c) the amount of any Account as to which the Borrower has
knowledge that a petition in bankruptcy or other application for
relief under any insolvency law has been filed with respect to the
account debtor owing the Account or as to which the account debtor
on the Account has made an assignment for the benefit of creditors,
or failed, suspended or gone out of business;
(d) the amount of any Account which is owed by a Person that
does not have its principal place of business in the United States
or Canada unless supported by a letter of credit in the amount of
the Account issued by a financial institution reasonably
satisfactory to the Bank;
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<PAGE> 8
(e) the amount of any Account which is owed by any account
debtor if 10% or more of such account debtor's Accounts are more
than 89 days past due;
(f) the amount of any Account which arises from a sale to any
governmental agency or other unit;
(g) the amount of any Account as to which the account debtor
is an Affiliate; and
(h) the amount of any contra accounts and creditor balances,
including, to the extent that a corresponding Account has been
included above, any outstanding advances by the Borrower's clients
to the Borrower and any collections due or other amounts held by the
Borrower for remittance to the Borrower's clients; provided,
however, that the amount deducted for all contra accounts and
creditor balances for any account debtor shall not exceed the
aggregate amount of the accounts owing by such account debtor
included above, reduced by any other deductions therefrom as
provided above.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1252 et seq., the Clean Water Act, 33
U.S.C. ss. 1321 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq.,
and any other federal, state, county, municipal, local or other statute,
law, ordinance or regulation which may relate to or deal with human health
or the environment, all as may be from time to time amended.
"Eurodollar Base Rate" means the annual rate equal to the rate
obtained by dividing (i) the rate (rounded up to the nearest 1/16 of 1%)
determined by the Bank to be the average rate at which U.S. dollar
deposits are offered to the Bank by major banks in the London interbank
market for funds to be made available on the first day of any Interest
Period in an amount approximately equal to the amount for which a
Eurodollar Rate quotation has been requested and maturing at the end of
such Interest Period, by (ii) a percentage equal to 100% minus the Federal
Reserve System reserve requirement (expressed as a percentage) applicable
to such deposits.
"Eurodollar Rate" means the annual rate equal to the sum of (i) the
Eurodollar Base Rate, and (ii) the Eurodollar Rate Margin.
"Eurodollar Rate Funding" means any Advance, or any portion thereof,
bearing interest at a Eurodollar Rate.
"Eurodollar Rate Margin" means 250 basis points (2.50%).
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<PAGE> 9
"Event of Default" has the meaning specified in Section 7.1.
"Expense Reduction Amount" means, with respect to any period prior
to the consummation of the Recapitalization, an amount equal to the
expenses incurred during such period that, based on the anticipated effect
of positive and verifiable actions taken or identified and to be taken by
the Borrower, are not expected to recur or continue following the
Recapitalization; provided, however, that in no event shall the Expense
Reduction Amount with respect to the 12-month period immediately preceding
the Recapitalization exceed $1,500,000.
"Financial Covenant" means any of the Borrower's obligations set
forth in Sections 5.9 and 5.10 of this Agreement
"Floating Rate" means an annual rate equal to the Base Rate.
"Floating Rate Funding" means any Advance, or any portion thereof,
bearing interest at the Floating Rate.
"Funding" means a Eurodollar Rate Funding or a Floating Rate
Funding.
"GAAP" means, as of the date of any determination with respect
thereto, generally accepted accounting principles as set forth in the
opinions, statements and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board or successor organizations, and which
are applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 4.5, except that
any accounting principle or practice required to be changed in order to
continue as a generally accepted accounting principle or practice may be
so changed so long as such change has been fully disclosed in notes to the
Borrower's financial statements delivered to the Bank pursuant to Section
4.5 or 5.1. Notwithstanding the foregoing, for purposes of the Financial
Covenants and the related definitions, except as provided in the
immediately following sentence, determinations shall be made in accordance
with GAAP as in effect on the date hereof. If at any time GAAP shall have
changed materially from GAAP as in effect on the date hereof, the Bank and
the Borrower shall negotiate in good faith to modify such Financial
Covenants in a neutral manner to reflect such change and, if the parties
agree to any such modifications, then determinations with respect to such
Financial Covenants shall thereafter be made based on GAAP in effect as of
the date of such modifications.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law.
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"Holdings" means Young America Holdings, Inc., a Minnesota
corporation formerly known as Young America Corporation.
"Indenture" means the Indenture dated as of February 23, 1998, among
the Borrower, Holdings, and Marine Midland Bank, as trustee, as the same
may be amended, modified or supplemented from time to time to the extent
permitted by this Agreement.
"Interest Coverage Ratio" means, as of the end of any calendar
quarter, the ratio of the EBITDA of the Borrower during the period of 4
successive calendar quarters ending on that quarter-end to the Interest
Expense of the Borrower during that same period.
"Interest Expense" means, for any period of calculation and without
duplication, (i) all interest, whether paid in cash, accrued as a
liability or capitalized, on indebtedness during such period, less the sum
of (ii) (A) amortization or write-off of deferred financing costs included
in the amount referred to in clause (i) of this definition, and (B)
interest income, all calculated in accordance with GAAP.
"Interest Period" means, with respect to any Advance bearing
interest at a Eurodollar Rate, a period of one, two, three or six months
beginning on a Business Day, as elected by the Borrower.
"Investment" means any stock or other securities or evidence of
indebtedness of any Person, any loan or advance to any Person, or any
other investment or interest in any Person.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit, plus (ii) amounts drawn under
Letters of Credit for which the Bank has neither been reimbursed nor made
any Advance.
"L/C Sublimit" means $1,000,000.
"Letter of Credit" has the meaning set forth in Section 2.4.
"Lien" means any mortgage, deed of trust, lien, pledge, security
interest or other charge or encumbrance, of any kind whatsoever, including
but not limited to the interest of the lessor or titleholder under any
capitalized lease, title retention contract or similar agreement.
"Loan Documents" means this Agreement, the Note and the Security
Agreement.
"Material Adverse Effect" means a material adverse effect on the
business, condition (financial or otherwise) or operations of the
Borrower.
"Moody's" means Moody's Investors Service, Inc. and its successors.
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<PAGE> 11
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Income" means the net earnings of the Borrower after excluding
(i) any gain or loss resulting from the sale or abandonment of any capital
assets or any reserves relating thereto other than in the ordinary course
of business, (ii) any extraordinary, non-recurring or unusual gain, loss
or charge, and any tax effects related thereto, (iii) any gain resulting
from any write-up of assets, and (iv) any income or loss attributable to
discontinued operations (including but not limited to operations disposed
of during such period, whether or not such operations were classified as
discontinued), all determined in accordance with GAAP.
"Note" has the meaning set forth in Section 2.1.
"Outstandings" means, at any time, the sum of the principal balance
of the Note and the then-applicable L/C Amount.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any ERISA Affiliate and covered by Title IV
of ERISA.
"Recapitalization" means the recapitalization of Holdings effected
pursuant to the Recapitalization Agreement.
"Recapitalization Agreement" means the Recapitalization Agreement
dated as of November 25, 1997 among Holdings, Jay F. Ecklund, certain
trusts related to Mr. Ecklund, and BT Capital Partners, Inc., as the same
may be amended, modified or supplemented from time to time to the extent
permitted by this Agreement.
"Reportable Event" means (i) a "reportable event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) a
withdrawal from any Plan, as described in Section 4063 of ERISA, (iii) an
action to terminate a Plan for which a notice is required to be filed
under Section 4041 of ERISA, (iv) any other event or condition that might
constitute grounds for termination of, or the appointment of a trustee to
administer, any Plan, or (v) a complete or partial withdrawal from a
Multiemployer Plan as described in Sections 4203 and 4205 of ERISA.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., and its successors.
"Security Agreement" means a security agreement of the Borrower in
favor of the Bank, granting the Bank a security interest in property
generally described as
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<PAGE> 12
all of the Borrower's accounts and general intangibles to the extent
relating to such accounts.
"Senior Subordinated Notes" means the Senior Subordinated Notes due
2006 issued by the Borrower under the Indenture.
"Subordinated Debt" means Debt of the Borrower which is subordinated
in right of payment to all indebtedness of the Borrower to the Bank, on
terms that have been approved in writing by the Bank and that have been
noted by appropriate legend on all instruments evidencing the Subordinated
Debt, including but not limited to the Senior Subordinated Notes.
"Subsidiary" means (i) any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries, (ii) any partnership of which 50% or
more of the partnership interests therein are directly or indirectly owned
by the Borrower, by the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries, and (iii) any limited liability company or
other form of business organization the effective control of which is held
by the Borrower, the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of
ERISA.
ARTICLE II
Amount and Terms of the Loans; Letters of Credit
Section 2.1 Advances.
(a) Amount. The Bank agrees, on the terms and subject to the
conditions hereinafter set forth, to make Advances to the Borrower from
time to time during the period from the date hereof to and including the
Commitment Termination Date in an aggregate amount not to exceed at any
time outstanding the Borrowing Base. The proceeds of each Advance shall be
used for the Borrower's general corporate purposes. Each Advance shall be
in the amount of $100,000 or a multiple thereof. Within the limits of the
Borrowing Base, the Borrower may borrow, prepay Advances pursuant to
Section 2.9, and reborrow under this Section 2.1. The Advances shall be
evidenced by a single promissory note of the Borrower (the "Note") payable
to the order of the Bank, substantially in the form of Exhibit A hereto,
dated the date hereof.
(b) Procedure. Each Advance shall be made on prior written notice
from the Borrower to the Bank or telephonic request from any person that
the Bank reasonably believes to be authorized to request Advances on
behalf of the Borrower,
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<PAGE> 13
which notice or request shall specify the date of the requested Advance,
the amount thereof, and, if any portion of such Advance is to bear
interest at a Eurodollar Rate, the amount of such portion and the Interest
Period applicable thereto. Such notice or request must be received by the
Bank not later than 1:00 p.m. (Minneapolis time) on the day on which such
Borrowing is to occur or, if all or any portion of the Advance will bear
interest at a Eurodollar Rate, not later than three Business Days prior to
the date on which such Advance is to occur. Upon fulfillment of the
applicable conditions set forth in Article III, the Bank shall disburse
the amount of the requested Advance by crediting the same to the
Borrower's demand deposit account maintained with the Bank. The Borrower
shall promptly confirm each telephonic request for an Advance by executing
and delivering an appropriate confirmation certificate to the Bank. The
Borrower shall be obligated to repay all Advances notwithstanding the
failure of the Bank to receive such confirmation and notwithstanding the
fact that the person requesting same was not in fact authorized to do so.
Any request for an Advance, whether written or telephonic, shall be deemed
to be a representation that the statements set forth in Section 3.2 are
correct.
Section 2.2 Interest.
(a) Floating Rate Fundings. Unless the Borrower elects a Eurodollar
Rate pursuant to this Section, the principal balance of the Note shall
bear interest at the Floating Rate.
(b) Eurodollar Rate Fundings. So long as no Default or Event of
Default exists, the Borrower may request that a portion of any requested
Advance constitute a Eurodollar Funding, or may convert all or any part of
any outstanding Floating Rate Funding into a Eurodollar Rate Funding, or
may request that a Eurodollar Rate Funding be converted at the end of the
applicable Interest Period to another Eurodollar Rate Funding, by giving
notice to the Bank of such conversion not later than 10:30 a.m.
(Minneapolis time) on a Business Day which is at least three Business Days
prior to the date of the requested Advance or conversion. Each such notice
shall be effective upon receipt by the Bank, shall be in writing or by
telephone or telecopy transmission, shall specify the date and amount of
such Advance or conversion, and the Interest Period therefor. The Interest
Period applicable to each Eurodollar Rate Funding shall begin on a
Business Day, and the amount of each Eurodollar Rate Funding shall be
equal to an integral multiple of $100,000. Unless the Borrower requests a
new Eurodollar Rate Funding in accordance with the procedures set forth
above, or prepays the principal of an outstanding Eurodollar Rate Funding
at the expiration of an Interest Period, the Bank shall automatically and
without request of the Borrower convert each Eurodollar Rate Funding to a
Floating Rate Funding on the last day of the relevant Interest Period.
(c) Setting of Eurodollar Rates. The applicable Eurodollar Rate for
each Interest Period shall be determined by the Bank between the opening
of business and 12:00 Noon, Minneapolis, Minnesota time, on the second
Business Day prior to the
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<PAGE> 14
beginning of such Interest Period, whereupon notice thereof (which may be
by telephone) shall be given by the Bank to the Borrower. Each such
determination of the applicable Eurodollar Rate shall be conclusive and
binding upon the parties hereto, in the absence of demonstrable error. The
Bank, upon written request of the Borrower, shall deliver to the Borrower
a statement showing the computations used by the Bank in determining the
applicable Eurodollar Rate hereunder.
(d) Limitations on Eurodollar Rate Fundings. In no event shall more
than three Eurodollar Rate Fundings be outstanding at any one time. In no
event may the Borrower request a Eurodollar Rate Funding having an
Interest Period ending after the Commitment Termination Date.
(e) Default Rate. From and after the occurrence of any Default or
Event of Default and continuing thereafter until such Default or Event of
Default shall be remedied to the written satisfaction of the Bank, the
outstanding principal balance of each Note shall bear interest, until paid
in full, at an annual rate equal to the sum of (i) the interest rate
otherwise in effect with respect to each Funding and (ii) 200 basis points
(2.00%) (the "Default Rate"). Calculation of interest at the Default Rate
shall not be deemed a waiver or excuse of any such Default or Event of
Default.
Section 2.3 Amount and Date of Payments.
(a) Interest. Interest accruing on the principal balance of the Note
each month shall be due and payable on the last day of that month,
commencing on the last day of the month hereof.
(b) Principal. The principal balance of the Note shall be due and
payable in full on the Commitment Termination Date.
Section 2.4 Letters of Credit.
(a) The Borrower may from time to time request that the Bank issue
one or more irrevocable standby or documentary letters of credit (each, a
"Letter of Credit") for the account of the Borrower. No Letter of Credit
shall be issued if, after the issuance of such Letter of Credit, (i) the
L/C Amount would exceed the L/C Sublimit, or (ii) the Outstandings would
exceed the Borrowing Base. Each Letter of Credit shall be used for the
Borrower's general corporate purposes.
(b) At least five days prior to the issuance of each Letter of
Credit, the Borrower shall execute a letter of credit application and
reimbursement agreement in such form (consistent with the terms of this
Agreement) as the Bank may reasonably require.
(c) Each Letter of Credit shall be issued in a form acceptable to
the Bank. Unless otherwise approved by the Bank, no Letter of Credit shall
have an initial or
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any renewal term of more than one year or a term (including renewals
thereof) extending beyond the Commitment Termination Date.
(d) A fee shall be due and payable to the Bank upon issuance of each
Letter of Credit. The amount of the fee shall be set by the Bank based on
its then-prevailing customary fees at the time that the Letter of Credit
is requested. An additional examination fee shall be due and payable upon
any draw under any Letter of Credit. The examination fee shall be equal to
the sum of (i) one quarter of one percent (.25%) of the amount so drawn,
and (ii) $50; provided, however, that the amount of that examination fee
is subject to review and adjustment by the Bank based on its
then-prevailing customary fees at any time and from time to time.
(e) Whenever a draft is submitted under a Letter of Credit, the Bank
shall make an Advance in the amount of the draft. The Bank shall apply
such Advance to the payment of the Borrower's obligation to reimburse the
Bank for the applicable draw, and such Advance shall be repayable in
accordance with and be treated in all other respects as an Advance
hereunder. If a draft is submitted under a Letter of Credit at a time when
the Borrower is unable, because an Event of Default has occurred and is
continuing or for any other reason, to obtain an Advance to reimburse the
Bank for such draft, the Borrower shall pay to the Bank on demand the
amount disbursed under the Letter of Credit, together with interest from
the date of disbursement until payment in full at a rate equal to the
Floating Rate.
(f) Unless otherwise agreed by the Bank in writing, the Borrower
shall deposit in the Cash Collateral Account, on the Commitment
Termination Date, an amount equal to the aggregate face amount of all
Letters of Credit then outstanding, less the balance (if any) then
outstanding in the Cash Collateral Account.
(g) For purposes of this Agreement, the term "Letter of Credit"
shall include all letters of credit issued by the Bank for the account of
the Borrower on or before the date hereof and outstanding on the date
hereof.
Section 2.5 Collateral. Payment of the Note and all other amounts
now or hereafter owing by the Borrower to the Bank shall be secured by the Liens
granted under the Loan Documents, and may also now or hereafter be secured by
one or more other Liens. Each such Lien shall be prior to all other Liens of any
kind whatsoever, subject only to such exceptions as the Bank may expressly
approve in writing.
Section 2.6 Termination or Reduction of the Commitment. The Borrower
may at any time and from time to time upon three Business Days' prior notice to
the Bank permanently terminate the Commitment in whole or permanently reduce the
Commitment Amount in part, provided that (i) the Commitment may not be
terminated while any Advances and Letters of Credit remain outstanding, (ii)
each partial reduction of the Commitment Amount shall be in the amount of
$1,000,000 or a multiple thereof, and (iii) no reduction shall reduce the
Commitment Amount to an amount less than the Outstandings.
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Section 2.7 Computation of Interest and Fees. Interest accruing on
the Note and all fees described in Section 2.8 shall be computed on the basis of
the actual number of days elapsed in a year of three hundred sixty (360) days.
Section 2.8 Fees. So long as the Note remains outstanding, and in
any event at all times prior to the Commitment Termination Date, the Borrower
shall pay fees to the Bank in accordance with the following:
(a) Transaction Fee. Concurrent with the execution hereof, the
Borrower shall pay the Bank a transaction fee in the amount of $30,000,
less the portion thereof previously paid by the Borrower to the Bank in
the amount of $15,000.
(b) Non-Usage Fees. The Borrower shall pay the Bank a non-usage fee
at the rate of 0.375% per annum on the average daily unused amount of the
Commitment Amount from the date hereof to and including the Commitment
Termination Date, payable quarterly on the last day of each calendar
quarter. Any non-usage fee remaining unpaid on the Commitment Termination
Date shall be due and payable on that date.
(c) Audit Fees. The Borrower shall pay to the Bank, on written
demand, reasonable fees charged by the Bank in connection with any audits
or inspections by the Bank of any Collateral or the operations or
businesses of the Borrower, together with actual out-of-pocket costs and
expenses incurred in conducting any such audit or inspection; provided,
however, that the Borrower shall have no obligation to pay or reimburse
the Bank for more than three such audits or examinations in any single
fiscal year of the Borrower so long as no Default or Event of Default has
occurred and is continuing at the time of such audit or examination.
Section 2.9 Prepayments.
(a) Voluntary Prepayments. Subject to the conditions set forth
herein, the Borrower from time to time may voluntarily prepay the Note in
whole or in part; provided that (i) the Borrower may not prepay any
Eurodollar Rate Funding in part, and (ii) each partial prepayment shall be
in an aggregate amount equal to an integral multiple of $50,000.
(b) Mandatory Prepayment: Borrowing Base Imbalance. If the
Outstandings shall on any date exceed the Borrowing Base, the Borrower
shall on that date deliver to the Bank immediately available funds (the
"Funds") equal to such excess. The Funds shall be applied to the
prepayment of the Note. If any Funds remain after the prepayment of the
Note in full (that is, if the remaining Funds are attributable to the L/C
Amount), the remaining Funds shall be deposited in the Cash Collateral
Account and shall secure the Borrower's obligations and otherwise be
treated as set forth in Section 7.3.
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<PAGE> 17
(c) Prepayments Generally. All prepayments hereunder (whether
voluntary or mandatory) shall be applied, first, to the principal balance
of the Note, and second, to interest and fees with respect thereto. Any
prepayment of a Eurodollar Rate Funding shall be accompanied by accrued
interest on such prepayment through the date of prepayment and additional
compensation calculated in accordance with Section 2.12.
Section 2.10 Payments.
(a) Making of Payments. All payments of principal of and interest
due under the Note shall be made to the Bank at its office in Minneapolis,
Minnesota, not later than 2:00 p.m., Minneapolis, Minnesota, time, on the
date due, in immediately available funds, and funds received after that
hour shall be deemed to have been received by the Bank on the next
following Business Day. The Borrower hereby authorizes the Bank to charge
the Borrower's demand deposit account maintained with the Bank for the
amount of any such payment on its due date, or (at the Bank's option) to
make an Advance in such amount, all without receipt of any request for
such charge or Advance and whether or not an Event of Default has occurred
and is continuing, but the Bank's failure to so charge such account or
make such an Advance shall in no way affect the obligation of the Borrower
to make any such payment.
(b) Setoff. The Borrower agrees that the Bank shall have all rights
of setoff and bankers' lien provided by applicable law, and in addition
thereto, the Borrower agrees that if at any time any amount is due and
owing by the Borrower under this Agreement to the Bank at a time when an
Event of Default has occurred and is continuing hereunder, the Bank may
apply any and all balances, credits, and deposits, accounts or moneys of
the Borrower then or thereafter in the possession of the Bank (excluding,
however, any trust or escrow accounts held by the Borrower for the benefit
of any third party) to the payment thereof.
(c) Due Date Extension. If any payment of principal of or interest
on any Floating Rate Funding or any fees payable hereunder falls due on a
day which is not a Business Day, then such due date shall be extended to
the next following Business Day, and (in the case of principal) additional
interest shall accrue and be payable for the period of such extension.
(d) Application of Payments. Except as otherwise provided herein, so
long as no Default or Event of Default has occurred and is continuing
hereunder, each payment received from the Borrower shall be applied to
such obligation as the Borrower shall specify by notice received by the
Bank on or before the date of such payment, or in the absence of such
notice, as the Bank shall determine in its discretion. Except as otherwise
provided herein, after the occurrence of a Default or Event of Default,
the Bank shall have the right to apply all payments received by the Bank
from the Borrower as the Bank may determine in its discretion. The
Borrower
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agrees that the amount shown on the books and records of the Bank as being
the principal balance of the Note shall be prima facie evidence of the
amount thereof.
Section 2.11 Increased Costs; Capital Adequacy; Funding Exceptions.
(a) Increased Costs on Eurodollar Rate Fundings. If Regulation D of
the Board of Governors of the Federal Reserve System or after the date of
this Agreement the adoption of any applicable law, rule or regulation, or
any change in any existing law, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive (whether
or not having the force of law) of any such authority, central bank or
comparable agency, shall:
(i) subject the Bank to or cause the withdrawal or termination of
any exemption previously granted to the Bank with respect to,
any tax, duty or other charge with respect to its Eurodollar
Rate Fundings or its obligation to make Eurodollar Rate
Fundings, or shall change the basis of taxation of payments to
the Bank of the principal of or interest under this Agreement
in respect of its Eurodollar Rate Fundings or its obligation
to make Eurodollar Rate Fundings (except for changes in the
rate of tax on the overall net income of the Bank imposed by
the jurisdictions in which the Bank's principal executive
office is located); or
(ii) impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System, but excluding any
reserve included in the determination of interest rates
pursuant to Section 2.2), special deposit or similar
requirement against assets of, deposits with or for the
account of, or credit extended by, the Bank; or
(iii) impose on the Bank any other condition affecting its making,
maintaining or funding of its Eurodollar Rate Fundings or its
obligation to make Eurodollar Rate Fundings;
and the result of any of the foregoing is to increase the cost to the Bank
of making or maintaining any Eurodollar Rate Funding, or to reduce the
amount of any sum received or receivable by the Bank under this Agreement
or under the Note with respect to a Eurodollar Rate Funding, then the Bank
will notify the Borrower of such increased cost and within fifteen (15)
days after demand by the Bank (which demand shall be accompanied by a
statement setting forth the basis of such demand and representing that the
Bank has made similar demand on one or more other commercial borrowers
with revolving or term loans in excess of $500,000) the Borrower shall pay
to the Bank such additional amount or amounts as will compensate the Bank
for such increased cost or such reduction; provided, however,
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that no such increased cost or such reduction shall be payable by the
Borrower for any period longer than ninety (90) days prior to the date on
which notice thereof is delivered to the Borrower. The Bank will promptly
notify the Borrower of any event of which it has knowledge which will
entitle the Bank to compensation pursuant to this Section 2.11. If the
Borrower receives notice from the Bank of any event which will entitle the
Bank to compensation pursuant to this Section 2.11, the Borrower may
prepay any then outstanding Eurodollar Rate Fundings or notify the Bank
that any pending request for a Eurodollar Rate Funding shall be deemed to
be a request for a Floating Rate Funding, in each case subject to the
provisions of Section 2.12.
(b) Capital Adequacy. If the Bank determines at any time that its
Return has been reduced as a result of any Capital Adequacy Rule Change,
the Bank may require the Borrower to pay to the Bank the amount necessary
to restore the Bank's Return to what it would have been had there been no
Capital Adequacy Rule Change. For purposes of this 2.11, the following
definitions shall apply:
(i) "Return", for any calendar quarter or shorter period, means
the percentage determined by dividing (A) the sum of interest
and ongoing fees earned by the Bank under this Agreement
during such period by (B) the average capital the Bank is
required to maintain during such period as a result of its
being a party to this Agreement, as determined by the Bank
based upon its total capital requirements and a reasonable
attribution formula that takes account of the Capital Adequacy
Rules then in effect. Return may be calculated for the Bank
for each calendar quarter and for the shorter period between
the end of a calendar quarter and the date of termination in
whole of this Agreement.
(ii) "Capital Adequacy Rule" means any law, rule, regulation or
guideline regarding capital adequacy that applies to the Bank,
or the interpretation thereof by any governmental or
regulatory authority. Capital Adequacy Rules include rules
requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding
loan commitments and letters of credit.
(iii) "Capital Adequacy Rule Change" means any change in any Capital
Adequacy Rule occurring after the date of this Agreement, but
does not include any changes in applicable requirements that
at the date hereof are scheduled to take place under the
existing Capital Adequacy Rules or any increases in the
capital that the Bank is required to maintain to the extent
that the increases are required due to a regulatory
authority's assessment of the Bank's financial condition.
The initial notice sent by the Bank shall be sent as promptly as
practicable after the Bank learns that its Return has been reduced, shall
include a demand for payment of the amount necessary to restore the Bank's
Return for the quarter in which the notice
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is sent, shall state in reasonable detail the cause for the reduction in
the Bank's Return and the Bank's calculation of the amount of such
reduction, and shall include the Bank's representation that the Bank has
made similar demand on one or more other commercial borrowers with
revolving or term loans in excess of $500,000. Thereafter, the Bank may
send a new notice during each calendar quarter setting forth the
calculation of the reduced Return for that quarter and including a demand
for payment of the amount necessary to restore the Bank's Return for that
quarter. The Bank's calculation in any such notice shall be conclusive and
binding absent demonstrable error.
(c) Basis for Determining Interest Rate Inadequate or Unfair. If
with respect to any Interest Period:
(i) the Bank determines that deposits in U.S. dollars (in the
applicable amounts) are not being offered in the London
interbank eurodollar market for such Interest Period; or
(ii) the Bank otherwise determines that by reason of circumstances
affecting the London interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable
Eurodollar Rate; or
(iii) the Bank determines that the Eurodollar Rate as determined by
the Bank will not adequately and fairly reflect the cost to
the Bank of maintaining or funding a Eurodollar Rate Funding
for such Interest Period, or that the making or funding of
Eurodollar Rate Fundings has become impracticable as a result
of an event occurring after the date of this Agreement which
in the opinion of the Bank materially affects such Eurodollar
Rate Fundings;
then the Bank shall promptly notify the Borrower and (A) upon the
occurrence of any event described in the foregoing clause (i) the Borrower
shall enter into good faith negotiations with the Bank in order to
determine an alternate method to determine the Eurodollar Rate for the
Bank, and during the pendency of such negotiations with the Bank, the Bank
shall be under no obligation to make any new Eurodollar Rate Fundings, and
(B) upon the occurrence of any event described in the foregoing clauses
(ii) or (iii), for so long as such circumstances shall continue, the Bank
shall be under no obligation to make any new Eurodollar Rate Fundings.
(d) Illegality. If any change in (including the adoption of any new)
applicable laws or regulations, or any change in the interpretation of
applicable laws or regulations by any governmental authority, central
bank, comparable agency or any other regulatory body charged with the
interpretation, implementation or administration thereof, or compliance by
the Bank with any request or directive (whether or not having the force of
law) of any such authority, central bank, comparable agency or other
regulatory body, should make it or, in the good faith
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<PAGE> 21
judgment of the Bank, shall raise a substantial question as to whether it
is unlawful for the Bank to make, maintain or fund Eurodollar Rate
Fundings, then (i) the Bank shall promptly notify the Borrower and the
Bank, (ii) the obligation of the Bank to make, maintain or convert into
Eurodollar Rate Fundings shall, upon the effectiveness of such event, be
suspended for the duration of such unlawfulness, and (iii) for the
duration of such unlawfulness, any notice by the Borrower requesting the
Bank to make or convert into Eurodollar Rate Fundings shall be construed
as a request to make or to continue making Floating Rate Fundings.
Section 2.12 Funding Losses. Upon demand by the Bank (which demand
shall be accompanied by a statement setting forth the basis for the calculations
of the amount being claimed), the Borrower shall indemnify the Bank against any
loss or expense which the Bank may have sustained or incurred (including,
without limitation, any net loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Bank to
fund or maintain Eurodollar Rate Fundings) or which the Bank may be deemed to
have sustained or incurred, as reasonably determined by the Bank, (i) as a
consequence of any failure by the Borrower to make any payment when due of any
amount due hereunder in connection with any Eurodollar Rate Fundings, (ii) due
to any failure of the Borrower to borrow or convert any Eurodollar Rate Fundings
on a date specified therefor in a notice thereof or (iii) due to any payment or
prepayment of any Eurodollar Rate Funding on a date other than the last day of
the applicable Interest Period for such Eurodollar Rate Funding. For this
purpose, all notices under Section 2.2(b) shall be deemed to be irrevocable.
Section 2.13 Discretion of Bank as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Bank shall
be entitled to fund and maintain all or any part of its Eurodollar Rate Fundings
in any manner it deems fit, it being understood, however, that for the purposes
of this Agreement (specifically including, without limitation, Section 2.12
hereof) all determinations hereunder shall be made as if the Bank had actually
funded and maintained each Eurodollar Rate Funding during each Interest Period
for such Eurodollar Rate Funding through the purchase of deposits having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the appropriate Eurodollar Base Rate for such Interest Period.
Section 2.14 Conclusiveness of Statements; Survival of Provisions.
Determinations and statements of the Bank pursuant to Section 2.11 and 2.12
shall be conclusive absent demonstrable error. Without limiting the generality
of the foregoing, the Borrower shall have no right to review any records of the
Bank or its other customers to determine the accuracy of any statement by the
Bank under Section 2.11(a) or 2.11(b) regarding the Bank's demands upon other
customers of the Bank. The Bank may use reasonable averaging and attribution
methods in determining compensation pursuant to such Sections 2.11 and 2.12 and
the provisions of Sections 2.11 and 2.12 shall survive termination of this
Agreement.
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ARTICLE III
Conditions Precedent
Section 3.1 Initial Conditions Precedent. The obligation of the Bank
to make any Advance or to issue any Letter of Credit is subject to the condition
precedent that the Bank shall have received on or before the day of the first
Advance or Letter of Credit all of the following, each dated (unless otherwise
indicated) as of the date hereof, in form and substance satisfactory to the
Bank:
(a) The Note, properly executed on behalf of the Borrower.
(b) The Security Agreement, properly executed on behalf of the
Borrower.
(c) A financing statement or statements sufficient when filed to
perfect the security interests granted under the Security Agreement to the
extent such security interests are capable of being perfected by filing.
(d) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower, and (ii) no financing statements have been filed and remain
in effect against the Borrower except financing statements perfecting only
Liens permitted under Section 6.1.
(e) A certificate of the secretary of the Borrower (i) certifying
that the execution, delivery and performance of the Loan Documents and
other documents contemplated hereunder to which such corporation is a
party have been duly approved by all necessary action of the Board of
Directors of the Borrower, and attaching true and correct copies of the
applicable resolutions granting such approval, (ii) certifying that
attached to such certificate are true and correct copies of the articles
of incorporation and bylaws of the Borrower, together with such copies,
and (iii) certifying the names of the officers of the Borrower that are
authorized to sign the Loan Documents and other documents contemplated
hereunder, including requests for Advances and Letters of Credit, together
with the true signatures of such officers. The Bank may conclusively rely
on such certificate until it shall receive a further certificate of the
Secretary or Assistant Secretary of the Borrower canceling or amending the
prior certificate and submitting the signatures of the officers named in
such further certificate.
(f) A certificate of good standing of the Borrower, dated not more
than ten days before such date.
(g) A signed copy of an opinion of counsel for the Borrower,
addressed to the Bank as to matters referred to in Sections 4.1, 4.2, 4.3
and 4.7, and as to such other matters as the Bank may reasonably request,
with that opinion being acceptable to the Bank's counsel. In the case of
Section 4.7, the opinion may be to the best knowledge of such counsel,
and, in the case of Section 4.3, insofar as it relates to enforcement of
remedies, it may be subject to applicable bankruptcy, insolvency,
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reorganization or similar laws affecting the rights of creditors generally
from time to time, and to usual equity principles.
(h) Such evidence as the Bank may reasonably require that the
Indenture has been executed and delivered by all parties thereto and that
the Senior Subordinated Notes have been issued, in each case in form and
substance acceptable to the Bank.
(i) A Borrowing Base Certificate as of a date not more than 45 days
before that date.
(j) The transaction fee required under paragraph 2.8(a). Such
transaction fee shall be deemed fully earned by the Bank upon entering
into this Agreement.
Section 3.2 Conditions Precedent to All Advances and Letters of
Credit. The obligation of the Bank to make any Advance (including the initial
Advance ) or to issue any Letter of Credit shall be subject to the further
conditions precedent that on the date of such Advance or Letter of Credit:
(a) the representations and warranties contained in Article IV are
correct on and as of the date of such Advance or Letter of Credit as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance or Letter of Credit, which constitutes a Default or an Event
of Default.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Bank as follows:
Section 4.1 Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Minnesota, and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect. The Borrower has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents.
Section 4.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the stockholders of the Borrower, or any
authorization, consent or approval by any governmental
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<PAGE> 24
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect
having applicability to the Borrower or of the Articles of Incorporation or
Bylaws of the Borrower, (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or its properties may
be bound or affected if such breach or default would have a Material Adverse
Effect, or (iv) result in, or require, the creation or imposition of any Lien or
other charge or encumbrance of any nature (other than those in favor of the
Bank) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 4.3 Legal Agreements. This Agreement and the other Loan
Documents constitute, the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.
Section 4.4 Subsidiaries. The Borrower has no Subsidiaries.
Section 4.5 Financial Condition. The Borrower has heretofore
furnished to the Bank the audited consolidated financial statements of Holdings
as of December 31, 1997, and the unaudited interim consolidated financial
statement of Holdings as of January 31, 1998. Those financial statements fairly
present the financial condition of the Borrower in all material respects on the
dates thereof and the results of its operations and cash flows for the periods
then ended, and were prepared in accordance with GAAP.
Section 4.6 Adverse Change. There has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower since the date of the latest financial statement referred to in Section
4.5.
Section 4.7 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or the properties of the Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which could reasonably be expected to have a Material Adverse Effect.
Section 4.8 Hazardous Substances. To the best of the Borrower's
knowledge after reasonable inquiry, neither the Borrower nor any other Person
has ever caused or permitted any Hazardous Substance to be disposed of in any
manner which might result in any material liability to the Borrower on, under or
at any real property which is operated by the Borrower or in which the Borrower
has any interest; and no such real property has ever been used (either by the
Borrower or by any other Person) as a dump site or permanent or temporary
storage site for any Hazardous Substance, except for storage in compliance in
all material respects with all applicable Environmental Laws.
Section 4.9 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning
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of Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
Section 4.10 Taxes. The Borrower has paid or caused to be paid to
the proper authorities when due all federal, state and local taxes required to
be withheld by it. The Borrower has filed all federal, state and local tax
returns which to the knowledge of the officers of the Borrower are required to
be filed, and the Borrower has paid or caused to be paid to the respective
taxing authorities all taxes as shown on said returns or on any assessment
received by it to the extent such taxes have become due, other than taxes whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which the Borrower has provided adequate
reserves in accordance with GAAP.
Section 4.11 Capitalization. Schedule 4.11 constitutes a correct and
complete list of all authorized stock of the Borrower, including the amount
thereof that is issued and outstanding, the class thereof, and the record holder
thereof.
Section 4.12 Titles and Liens. The Borrower has good title to each
of the properties and assets reflected in the latest balance sheet referred to
in Section 4.5 (other than any sold, as permitted by Section 6.6), free and
clear of all Liens and encumbrances, except for Liens permitted by Section 6.1
and covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the business or operations of the
Borrower as presently conducted. No financing statement naming the Borrower as
debtor is on file in any office except to perfect only Liens permitted by
Section 6.1.
Section 4.13 ERISA. No Plan established or maintained by the
Borrower or any ERISA Affiliate that is subject to Part 3 of Subtitle B of Title
I of ERISA had an accumulated funding deficiency (as such term is defined in
Section 302 of ERISA) in excess of $1,000,000 as of the last day of the most
recent fiscal year of such Plan ended prior to the date hereof, and no liability
to the Pension Benefit Guaranty Corporation or the Internal Revenue Service in
excess of such amount has been, or is expected by the Borrower or any ERISA
Affiliate to be, incurred with respect to any Plan of the Borrower or any ERISA
Affiliate. The Borrower has no contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Subtitle B of Title I of ERISA.
ARTICLE V
Affirmative Covenants
So long as the Note shall remain unpaid or the Commitment shall be
outstanding, the Borrower will comply with the following requirements, unless
the Bank shall otherwise consent in writing:
Section 5.1 Financial Statements. The Borrower will deliver to the
Bank:
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(a) As soon as available, and in any event within 100 days after the
end of each fiscal year of Holdings, a copy of the annual audit report of
Holdings with the unqualified opinion of Arthur Andersen, LLP, or other
independent certified public accountants selected by Holdings and
acceptable to the Bank, which annual report shall include the consolidated
balance sheet of Holdings as at the end of such fiscal year and the
related consolidated statements of income, shareholders' equity and cash
flows of Holdings for the fiscal year then ended, together with the
unaudited consolidating schedules used to prepare such consolidated
balance sheet and statements, all in reasonable detail and all prepared in
accordance with GAAP, together with (A) a report signed by such
accountants stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any
Default or Event of Default hereunder and all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the Financial Covenants; (B) a copy of such
accountants' management letter (if any) issued to the Borrower or Holdings
for such year; and (C) a statement of such accountants stating that they
understand that the Bank is relying on such audit report.
(b) As soon as available and in any event within 30 days after the
end of each calendar month, consolidated balance sheets of Holdings as at
the end of such month and related consolidated statements of earnings and
cash flows of Holdings for such month and for the year to date, in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous year, all prepared in
accordance with GAAP, and certified by the chief financial officer of the
Borrower, subject to year-end audit adjustments and the omission of
footnotes.
(c) Concurrent with the delivery of any financial statements under
paragraph (a) or (b), a Compliance Certificate, duly executed by the chief
financial officer of the Borrower.
(d) Within 30 days after the end of each calendar month, a Borrowing
Base Certificate as at the end of such calendar month, properly executed
by the chief financial officer of the Borrower, together with such agings
of accounts receivable and other supporting documentation as the Bank may
require.
(e) Not more than 30 days after the beginning of each fiscal year of
the Borrower, projections for the Borrower's financial performance during
that fiscal year, including projections of income, cash flows and balance
sheets, all presented on a month-by-month basis in such detail as the Bank
may reasonably request and certified by the chief financial officer of the
Borrower as being identical to the budget used by the Borrower for
internal planning purposes.
(f) Promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower or Holdings
shall have sent to its stockholders.
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(g) Promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities
exchange.
(h) Promptly after an executive officer of the Borrower obtains
actual knowledge of the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 4.7 or
which seek a monetary recovery against the Borrower in excess of $50,000.
(i) As promptly as practicable (but in any event not later than five
Business Days) after an executive officer of the Borrower obtains actual
knowledge of the occurrence of any Default or Event of Default, notice of
such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure
the effect of such event.
(j) Promptly upon an executive officer of the Borrower obtaining
actual knowledge of any Reportable Event or any prohibited transaction (as
defined in Section 4975 of the Internal Revenue Code or Section 406 of
ERISA) in connection with any Plan or any trust created thereunder, a
written notice specifying the nature thereof, what action the Borrower has
taken, is taking or proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue Service, the
Pension Benefit Guaranty Corporation or the Department of Labor with
respect thereto.
(k) Promptly upon their receipt or filing, copies of (i) all notices
received by the Borrower or any ERISA Affiliate of the Pension Benefit
Guaranty Corporation's intent to terminate any Plan or to have a trustee
appointed to administer any Plan, and (ii) all notices received by the
Borrower or any ERISA Affiliate from a Multiemployer Plan concerning the
imposition or amount of withdrawal liability pursuant to Section 4202 of
ERISA.
(l) Upon request of the Bank, copies of the most recent annual
report (Form 5500 Series), including any supporting schedules, filed by
the Borrower or any ERISA Affiliate with the Internal Revenue Service with
respect to any Plan.
(m) Such other information respecting the financial condition and
results of operations of the Borrower as the Bank may from time to time
reasonably request.
Section 5.2 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself in which true
and complete entries will be made in accordance with GAAP and, upon request of
the Bank, will give any representative of the Bank access to, and permit such
representative to examine, copy or make extracts from, any and all books,
records and documents in its possession, to inspect any of its properties and to
discuss its affairs, finances and accounts with any of its principal
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officers, all at such times during normal business hours and as often as the
Bank may reasonably request.
Section 5.3 Compliance with Laws. The Borrower will comply with the
requirements of applicable laws and regulations, the noncompliance with which
would have a Material Adverse Effect.
Section 5.4 Payment of Taxes and Other Claims. The Borrower will
pay, discharge or withhold, as the case may be, when due, (a) all material
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, (b) all material federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which the Borrower has provided adequate reserves in
accordance with GAAP. For purposes of this Section, an unpaid, undischarged or
unwithheld tax, assessment or governmental charge shall be deemed material if
the aggregate amount of all such unpaid, undischarged or unwithheld taxes,
assessments and governmental charges exceeds $50,000.
Section 5.5 Maintenance of Properties. The Borrower will keep and
maintain all of its properties necessary or useful in its business in good
condition, repair and working order; provided, however, that nothing in this
Section shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the judgment
of the Borrower, desirable in the conduct of its business and not
disadvantageous in any material respect to the Bank as holder of the Note.
Section 5.6 Insurance. The Borrower will obtain and maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as is usually carried by
companies engaged in similar business and owning similar properties in the same
general areas in which the Borrower operates. All liability policies required
hereunder shall name the Bank as an additional insured.
Section 5.7 Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises; provided, however, that the Borrower shall not be required to
preserve any of its rights, privileges and franchises if its Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower and that the loss thereof is not
disadvantageous in any material respect to the Bank as a holder of the Note.
Section 5.8 Deposit Accounts. The Borrower shall maintain all of its
deposit accounts of any type (whether for working capital, payroll or other
purposes, and whether held jointly or individually) with the Bank, except that
the foregoing shall not prohibit the Borrower from maintaining (i) its consumer
depository account at National City Bank through the 45th day following the date
hereof, (ii) its payroll distribution account at another
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<PAGE> 29
bank, (iii) its cash receipts account at another bank, so long as the aggregate
balance maintained in that account does not at any time exceed $50,000, and (iv)
its rebate check process account at another bank, so long as the Borrower does
not at any time maintain a material positive balance in such account for a
period of more than five consecutive business days.
Section 5.9 Interest Coverage Ratio. The Borrower will at all times
maintain its Interest Coverage Ratio, determined at the end of each calendar
quarter designated below, at not less than the amount set forth below opposite
the period in which such calendar quarter ends:
<TABLE>
<CAPTION>
Quarters Ending Ratio
--------------- -----
<S> <C>
On or before June 30, 1999 1.50 to 1
On or after July 1, 1999 1.75 to 1
</TABLE>
Section 5.10 Current Ratio. The Borrower will maintain the ratio of
its Current Assets to Current Liabilities, determined as of the end of each
calendar quarter, at not less than 1.10 to 1.
ARTICLE VI
Negative Covenants
So long as the Note shall remain unpaid or the Commitment shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Bank:
Section 6.1 Liens. The Borrower will not create, incur, assume or
suffer to exist any Lien or other charge or encumbrance of any nature on any of
its assets, now owned or hereafter acquired, or assign or otherwise convey any
right to receive income, or give its consent to the subordination of any right
or claim of the Borrower with respect to any accounts to any right or claim of
any other Person with respect to such accounts; excluding, however, from the
operation of the foregoing:
(a) Liens for taxes or assessments or other governmental charges to
the extent not required to be paid by Section 5.4.
(b) Materialmen's, merchants', carriers' worker's, repairer's,
landlord's or other like liens arising in the ordinary course of business
to the extent not required to be paid by Section 5.4.
(c) Pledges or deposits to secure (directly or indirectly)
obligations under worker's compensation laws, unemployment insurance and
social security laws, or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases or to
secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business.
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<PAGE> 30
(d) Zoning restrictions, easements, rights of way, licenses,
restrictions on the use of real property, other similar charges or
encumbrances, or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the
business of the Borrower or the value of such property for the purpose of
such business.
(e) Purchase money Liens (which term for purposes of this subsection
shall include conditional sale agreements or other title retention
agreements and leases in the nature of title retention agreements) upon or
in property acquired after the date hereof, or Liens existing in such
property at the time of acquisition thereof, provided that:
(i) the aggregate principal amount of all Debt of the Borrower
secured by all Liens described in this subsection shall not
exceed $5,000,000 at any one time outstanding; and
(ii) the aggregate principal amount of Debt secured by Liens
described in this subsection (e) at the time of acquisition of
the property subject thereto shall not exceed 100% of the cost
of such property (so long as such cost, as determined at the
time of acquisition, is not unreasonable).
(f) Any interest or title of a lessor under any operating lease, so
long as such interest or title does not extend to any property other than
the subject of that lease or another lease with such lessor.
(g) Licenses of patents, trademarks and other intellectual property
rights granted by the Borrower in the ordinary course of its business and
not interfering in any material respect with the ordinary conduct of the
business of the Borrower.
(h) Liens on any property of the Borrower (other than those
described in subsection (e)) securing any indebtedness for borrowed money
in existence on the date hereof and listed in Schedule 6.1 hereto.
(i) Liens in favor of the Bank
(j) Liens arising out of a judgment against the Borrower for the
payment of money not exceeding $50,000 with respect to which an appeal is
being prosecuted and a stay of execution pending such appeal has been
secured, but only so long as all such Liens are subordinate in all respect
to all Liens in favor of the Bank.
(k) Other Liens securing obligations not exceeding $10,000,000 at
any time outstanding.
Section 6.2 Indebtedness. The Borrower will not incur, create,
assume or permit to exist any Debt other than:
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<PAGE> 31
(a) Indebtedness to the Bank.
(b) Subordinated Debt.
(c) Debt of the Borrower in existence on the date hereof and listed
in Schedule 6.2 hereto, but not including any extensions or renewals
thereof.
(d) Purchase money indebtedness of the Borrower secured by Liens
permitted by subsection 6.1(e).
(e) Debt 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, so long as such Debt is extinguished
within two business days of its incurrence.
(f) Debt of the Borrower on account of letters of credit for the
account of the Borrower issued provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business.
(g) Additional Debt of the Borrower in an aggregate principal amount
not exceeding $10,000,000 at any one time outstanding.
(h) Any Debt deemed to have been incurred pursuant to any agreement
entered into in connection with the Recapitalization.
Section 6.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) The endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business.
(b) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.3 hereto.
(c) Contingent 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 Borrower that are
indemnified by the Borrower's customer.
(d) Guaranties and other contingent obligations incurred by the
Borrower in an aggregate amount not exceeding $1,000,000 at any time
outstanding.
Section 6.4 Investments. The Borrower will not purchase, hold, make
or permit to exist any Investment in any other Person, except:
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<PAGE> 32
(a) Investments in Cash Equivalents.
(b) Travel advances to officers and employees of the Borrower in the
ordinary course of business.
(c) Other loans and advances to employees and officers of the
Borrower in the ordinary course of business for bona fide business
purposes, so long as the aggregate amount of all such loans and advances
outstanding at any one time does not exceed $1,000,000.
(d) Advances in the form of progress payments, prepaid rent or
security deposits.
(e) 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.
(f) Other Investments, so long as the aggregate outstanding amount
of all such Investments permitted only under this paragraph (f) does not
at any one time exceed $50,000.
(g) Evidence of indebtedness of Holdings to the Borrower arising out
of loans made by the Borrower before the date hereof to Holdings to
facilitate repayment of the Bridge Facility.
Section 6.5 Dividends. The Borrower will not declare or pay any
dividend (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly, except that the foregoing shall not
prohibit:
(a) Any payment expressly permitted under Section 6.7.
(b) 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.
(c) So long as no Default or Event of Default has occurred and is
continuing, the distribution of any stock of the Borrower either (i)
solely in exchange for equity interests of the Borrower, or (ii) through
the application of net proceeds of a substantially concurrent sale for
cash (other than to a Subsidiary of the Borrower) of stock of the
Borrower.
(d) So long as no Default or Event of Default has occurred and is
continuing, payments by the Borrower to redeem or repurchase, or to enable
Holdings to redeem or repurchase, stock of Holdings or the Borrower issued
to or on behalf of
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<PAGE> 33
directors, officers and employees of the Borrower pursuant to any policy
of the Borrower with respect to directors, officers and employees of the
Borrower who have died or become disabled, or whose employment or other
relationship with the Borrower has been terminated, or pursuant to the
terms of employment contracts, other agreements or employee stock option
or stock benefit plans of Holdings or the Borrower; provided, however,
that the aggregate amount paid under this paragraph (d) after the date
hereof shall not as of any date exceed the sum of (i) $1,000,000, and (ii)
the product of (A) $1,000,000, and (B) the number of full calendar years
ending on or after December 31, 1998 and before the date of such
determination.
(e) Payments by the Borrower to Holdings on account of operating and
administrative expenses of Holdings, including but not limited to
directors' fees and expenses, legal and audit expenses, and corporate
franchise and other taxes, so long as the aggregate amount so paid in any
single calendar year does not exceed $500,000.
(f) Payments made or to be made in connection with the
Recapitalization or to Holdings to enable Holdings to make such payments,
so long as the aggregate amount of such payments does not exceed
$19,000,000.
(g) Payments to Holdings in an amount not in excess of, and for the
purpose of enabling Holdings' payment of, the then-current tax liability
of Holdings in respect of the taxable income of the Borrower imputed to
Holdings.
Section 6.6 Sale of Assets. The Borrower will not sell, lease,
assign, transfer or otherwise dispose of all or a substantial part of its assets
(whether in one transaction or in a series of transactions) to any other Person
other than in the ordinary course of business. For purposes of this Section, the
assets subject to a sale, lease, assignment, transfer or other disposition shall
be deemed "a substantial part" of the Borrower's assets if the greater of the
aggregate proceeds paid on account of such sale, lease, assignment, transfer or
other disposition or the fair market value of such assets exceeds $500,000
Section 6.7 Transactions with Affiliates. The Borrower will not make
any loan or capital contribution to, or any other investment in, any Affiliate,
or pay any dividend to any Affiliate, or make any other cash transfer to any
Affiliate; provided, however, that so long as no Default or Event of Default has
occurred and is continuing at the time thereof or would result therefrom, the
foregoing shall not prohibit:
(a) Transactions with any Affiliate to the extent that such
transactions are on terms no less favorable to the Borrower than would be
obtainable if no such relationship existed.
(b) Reasonable fees and compensation paid to and indemnity provided
on behalf of officers, directors, employees and consultants of the
Borrower.
(c) Payments permitted by Section 6.5.
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(d) Payments of customary annual management, consulting and advisory
fees and related expenses to BT Capital Partners, Inc., Ontario Teachers'
Pension Plan Board and their respective affiliates, so long as the
aggregate amount so paid in any single calendar year does not exceed
$250,000.
(e) Loans to employees of the Borrower that are not prohibited by
Section 6.4.
Section 6.8 Consolidation and Merger. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all of the assets of any other
Person.
Section 6.9 Subordinated Debt. The Borrower will not (i) make any
payment of, or acquire, any Subordinated Debt except as expressly permitted by
the subordination provision thereof; (ii) give security for all or any part of
such Subordinated Debt; (iii) amend or cancel the subordination provisions of
such Subordinated Debt; (iv) take or omit to take any action whereby the
subordination of such Subordinated Debt or any part thereof to the Note would
reasonably be expected to be terminated, impaired or adversely affected; or (v)
omit to give the Bank prompt written notice of any default under any agreement
or instrument relating to such Subordinated Debt by reason whereof such
Subordinated Debt would reasonably be expected to become or be declared to be
immediately due and payable.
Section 6.10 Hazardous Substances. The Borrower will not cause or
permit any Hazardous Substance to be disposed of, in any manner which might
result in any material liability to the Borrower, on, under or at any real
property which is operated by the Borrower or in which the Borrower has any
interest.
Section 6.11 Restrictions on Nature of Business. The Borrower will
not engage in any line of business that is not the same, similar or reasonably
similar, ancillary or related to, or a reasonable extension, development or
expansion of, the businesses in which the Borrower is engaged on the date
hereof.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any principal of the Note when it
becomes due and payable.
(b) Default in the payment of any interest on the Note when it
becomes due and payable and the continuance of such default for a period
of five calendar days.
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<PAGE> 35
(c) Default in the payment of any fees required under Section 2.8
when the same become due and payable and the continuance of such default
for a period of five calendar days after notice thereof from the Bank to
the Borrower.
(d) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Section 2.9(b), 5.1(d)
or in any Financial Covenant.
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and the continuance of such default
or breach for a period of 30 days after the Bank has given notice to the
Borrower specifying such default or breach and requiring it to be
remedied.
(f) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or any of its officers) in any certificate,
instrument, or written statement contemplated by or made or delivered
pursuant to or in connection with this Agreement, shall prove to have been
incorrect or misleading in any material respect when made.
(g) A default under the Senior Subordinated Notes or any other bond,
debenture, note or other evidence of indebtedness of the Borrower (other
than to the Bank) or under the Indenture or any other indenture or other
instrument under which any such evidence of indebtedness has been issued
or by which it is governed and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture or
other instrument; provided, however, that no Event of Default shall be
deemed to have occurred under this paragraph if the aggregate amount owing
as to all such indebtedness as to which such defaults have occurred and
are continuing is less than $500,000; provided further that if such
default shall be cured by the Borrower, or waived by the holders of such
indebtedness, in each case prior to the commencement of any action under
Section 7.2 and as may be permitted by such evidence of indebtedness,
indenture or other instrument, then the Event of Default hereunder by
reason of such default shall be deemed likewise to have been thereupon
cured or waived.
(h) An event of default shall occur under the Security Agreement or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement directly or indirectly securing any
obligations of the Borrower hereunder or under the Note or any guaranty of
such obligations.
(i) Default in the payment of any amount owed by the Borrower to the
Bank other than hereunder or under the Note and the continuance of such
default for a period of five calendar days after notice thereof from the
Bank to the Borrower.
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<PAGE> 36
(j) The Borrower shall be adjudicated a bankrupt or insolvent, or
admit in writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for
or consent to the appointment of any receiver, trustee, or similar officer
for it or for all or any substantial part of its property; or such
receiver, trustee or similar officer shall be appointed without the
application or consent of the Borrower and such appointment shall continue
undischarged for a period of 60 days; or the Borrower shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower; or any judgment,
writ, warrant of attachment or execution or similar process shall be
issued or levied against a substantial part of the property of the
Borrower and such judgment, writ, or similar process shall not be
released, vacated or fully bonded within 60 days after its issue or levy.
(k) A petition shall be filed by the Borrower under the United
States Bankruptcy Code naming the Borrower as debtor; or an involuntary
petition shall be filed against the Borrower under the United States
Bankruptcy Code, and such petition shall not have been dismissed within 60
days after such filing; or an order for relief shall be entered in any
case under the United States Bankruptcy Code naming the Borrower as
debtor.
(l) Without the prior written consent of the Bank, either (i)
Holdings shall cease to hold the legal and beneficial ownership of at
least a majority of the voting stock of the Borrower, (ii) BT Capital
Partners, Inc. shall cease to hold the legal and beneficial ownership of
at least 30% of the voting stock of Holdings, or (iii) BT Capital
Partners, Inc. and the existing management of the Borrower shall together
cease to hold the legal and beneficial ownership of at least a majority of
the voting stock of Holdings.
(m) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $50,000 and the continuance
of such judgment, decree or order unsatisfied and in effect for any period
of 30 consecutive days without a stay of execution.
(n) A writ of attachment, garnishment, levy or similar process shall
be issued against or served upon the Bank with respect to (i) any property
of the Borrower in the possession of the Bank, or (ii) any indebtedness of
the Bank to the Borrower.
(o) Any Plan shall have been terminated, or a trustee shall have
been appointed by an appropriate United States District Court to
administer any Plan, or the Pension Benefit Guaranty Corporation shall
have instituted proceedings to terminate any Plan or to appoint a trustee
to administer any Plan, or withdrawal
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<PAGE> 37
liability shall have been asserted against the Borrower or any ERISA
Affiliate by a Multiemployer Plan; or the Borrower or any ERISA Affiliate
shall have incurred liability to the Pension Benefit Guaranty Corporation,
the Internal Revenue Service, the Department of Labor or Plan participants
in excess of $1,000,000 with respect to any Plan; or any Reportable Event
that the Bank may determine in good faith might constitute grounds for the
termination of any Plan, for the appointment by the appropriate United
States District Court of a trustee to administer any Plan or for the
imposition of withdrawal liability with respect to a Multiemployer Plan,
shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Bank.
Section 7.2 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Bank, the Bank may exercise any or all of the
following rights and remedies:
(a) The Bank may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate.
(b) The Bank may, by notice to the Borrower, declare the entire
unpaid principal amount of the Note then outstanding, all interest accrued
and unpaid thereon, and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Note, all such accrued
interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower.
(c) If any Letter of Credit remains outstanding, the Bank may, by
notice to the Borrower, require the Borrower to deposit in the Cash
Collateral Account immediately available funds equal to the L/C Amount,
less the balance (if any) then outstanding in the Cash Collateral Account.
(d) The Bank may, without notice to the Borrower and without further
action, apply any and all money owing by the Bank to the Borrower to the
payment of the Note then outstanding, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder.
(e) The Bank may exercise and enforce its rights and remedies under
the Security Agreement.
(f) The Bank may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.1(k) or 7.1(n) hereof, the entire unpaid principal amount
of the Note then outstanding, all interest accrued and unpaid thereon, and all
other amounts payable under this
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<PAGE> 38
Agreement shall be immediately due and payable without presentment, demand,
protest or notice of any kind.
Section 7.3 Pledge of Cash Collateral Account. The Borrower hereby
pledges, and grants the Bank a security interest in, all sums held in the Cash
Collateral Account from time to time and all proceeds thereof as security for
the payment of all amounts due and to become due from the Borrower to the Bank
pursuant to this Agreement, including but not limited to both principal of and
interest on the Note and all renewals, extensions and modifications thereof and
any notes issued in substitution therefor, and specifically including the
Borrower's obligation to reimburse the Bank for any amount drawn under any
Letter of Credit, whether such reimbursement obligation arises directly under
this Agreement or under a separate reimbursement agreement. Upon request of the
Borrower, the Bank shall permit the Borrower to withdraw from the Cash
Collateral Account the lesser of (i) the Excess Balance (as defined below), or
(ii) the balance of the Cash Collateral Account. As used herein, "Excess
Balance" means (i) at any time following the Commitment Termination Date or the
occurrence of a Default or Event of Default (unless each such Default or Event
of Default has been waived by the Bank in writing), the amount by which the
balance of the Cash Collateral Account exceeds the aggregate amount secured by
the sums held in the Cash Collateral Account, and (ii) at all other times, the
amount by which the sum of the Borrowing Base and the balance of the Cash
Collateral Account exceeds the L/C Amount. The Bank shall have full ownership
and control of the Cash Collateral Account, and, except as set forth above, the
Borrower shall have no right to withdraw the funds maintained in the Cash
Collateral Account.
ARTICLE VIII
Miscellaneous
Section 8.1 No Waiver; Cumulative Remedies. No failure or delay on
the part of the Bank in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall the Bank's acceptance of
payments while any Default or Event of Default is outstanding operate as a
waiver of such Default or Event of Default, or any right, power or remedy under
the Loan Documents; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy under the Loan Documents. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
Section 8.2 Amendments, Etc. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom shall be effective unless the same shall be in writing
and signed by the Bank and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No notice
to or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances.
-35-
<PAGE> 39
Section 8.3 Notice. Except as otherwise expressly provided herein,
all notices and other communications hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by registered mail, postage prepaid,
(iii) sent by Federal Express or similar expedited delivery service, or (iv)
transmitted by telecopy, in each case addressed to the party to whom notice is
being given at its address as set forth by its signature below, or, if
telecopied, transmitted to that party at its telecopier number set forth by its
signature below; or, as to each party, at such other address or telecopier
number as may hereafter be designated in a notice by that party to the other
party complying with the terms of this Section. All such notices or other
communications shall be deemed to have been given on (i) the date received if
delivered personally or by mail, (ii) the date of receipt, if delivered by
Federal Express or similar expedited delivery service, or (iii) the date of
transmission if delivered by telecopy, except that notices or requests to the
Bank pursuant to any of the provisions of Article II shall not be effective
until received.
Section 8.4 Participations. The Bank may grant participations in the
Note and the Commitment to any institutional investor without the consent of the
Borrower. The Borrower shall assist the Bank in granting any such
participations. No holder of any such participation shall be entitled to require
the Bank to take or omit to take any action hereunder, except that the Bank may
agree with such participant that the Bank will not, without such participant's
consent, (i) forgive any indebtedness of the Borrower under this Agreement or
the Note, (ii) agree to reduce the rate of interest charged under this
Agreement, (iii) agree to extend the final maturity of any indebtedness
evidenced by the Note, or (iv) agree to release any collateral securing payment
of the Note.
Section 8.5 Disclosure of Information. The Bank shall keep
confidential (and cause its officers, directors, employees, agents and
representatives to keep confidential) all information, materials and documents
furnished by the Borrower to the Bank (the "Disclosed Information").
Notwithstanding the foregoing, the Bank may disclose Disclosed Information (i)
to any affiliate of the Bank; (ii) to legal counsel, accountants and other
professional advisors to the Bank, so long as such counsel, accountants or other
advisors have been advised of the terms of this Section 8.5 and are bound
hereby; (iii) to any regulatory body having jurisdiction over the Bank; (iv) to
the extent required by applicable laws and regulations or by any subpoena or
similar legal process, or requested by any governmental agency or authority; (v)
to the extent such Disclosed Information (A) becomes publicly available other
than as a result of a breach of this Agreement, (B) becomes available to the
Bank on a non-confidential basis from a source other than the Borrower, or (C)
was available to the Bank on a non-confidential basis prior to its disclosure to
the Bank by the Borrower; (vi) to the extent the Borrower shall have consented
to such disclosure in writing; (vii) to the extent reasonably deemed necessary
by the Bank in the enforcement of the remedies of the Bank provided under the
Loan Documents; or (viii) in connection with any potential assignment or
participation in the interest granted hereunder, provided that any such
potential assignee or participant shall have executed a confidentiality
agreement imposing on such potential assignee or participant substantially the
same obligations as are imposed on the Bank under this Section.
-36-
<PAGE> 40
Section 8.6 Costs and Expenses. In addition to its obligations under
Section 2.8(c), the Borrower agrees to pay on demand all reasonable costs and
expenses incurred by the Bank in connection with the negotiation, preparation,
execution, amendment or enforcement of the Loan Documents and the other
instruments and documents to be delivered hereunder and thereunder, including
the reasonable fees and reasonable out-of-pocket expenses of counsel for the
Bank with respect thereto, whether paid to outside counsel or reasonably
allocated to the Bank by in-house counsel.
Section 8.7 Indemnification by Borrower. The Borrower hereby agrees
to indemnify the Bank and each officer, director, employee and agent thereof
(herein individually each called an "Indemnitee" and collectively called the
"Indemnitees") from and against any and all losses, claims, damages, reasonable
expenses (including, without limitation, reasonable attorneys' fees) and
liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an Indemnitee in connection with or arising out of the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the use of the proceeds of any Advance or Letter of
Credit hereunder (including but not limited to any such loss, claim, damage,
expense or liability arising out of any claim in which it is alleged that any
Environmental Law has been breached with respect to any activity or property of
the Borrower), except for any portion of such losses, claims, damages, expenses
or liabilities incurred solely as a result of the gross negligence or willful
misconduct of the applicable Indemnitee or the Bank's breach of any of its
obligation hereunder. If and to the extent that the foregoing indemnity may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. All obligations provided
for in this Section shall survive any termination of this Agreement.
Section 8.8 Execution in Counterparts. This Agreement and the other
Loan Documents may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement or such other Loan Document, as the case may be,
taken together, shall constitute but one and the same instrument.
Section 8.9 Binding Effect, Assignment. The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that (i) the Borrower shall not have
the right to assign its rights thereunder or any interest therein without the
prior written consent of the Bank, and (ii) if the Bank assigns part, but not
all, of its interest hereunder, this Agreement shall be amended to include terms
customary to multi-bank credit facilities, including provisions for
decision-making by lenders holding a majority of the interests hereunder.
Section 8.10 Governing Law. The Loan Documents shall be governed by,
and construed in accordance with, the laws of the State of Minnesota.
-37-
<PAGE> 41
Section 8.11 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE NOTE OR
THE RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 8.12 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.13 Prior Agreements. This Agreement and the other Loan
Documents and related documents described herein restate and supersede in their
entirety any and all prior agreements and understandings, oral or written,
between the Bank and the Borrower.
Section 8.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
YOUNG AMERICA CORPORATION
Address:
717 Faxon Road
Young America, Minnesota 55397-9481
Attention: L. Joseph Kulas By /s/ L. J. Kulas
Telecopier: 612-467-3895 -----------------------------------
Its Vice President
-------------------------------
Address: NORWEST BANK MINNESOTA, NATIONAL
Sixth Street and Marquette Avenue ASSOCIATION
Minneapolis, Minnesota 55479-0089
Attention: James W. Rikkers
Telecopier: 612-667-7266
By /s/ James W. Rikkers
-----------------------------------
Its Vice President
-------------------------------
-38-
<PAGE> 42
EXHIBITS AND SCHEDULES
Exhibit A Note
Exhibit B Form of Compliance Certificate
Exhibit C Borrowing Base Certificate
-----------------------------------------
Schedule 4.11 Capitalization
Schedule 6.1 Permitted Liens
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Permitted Guaranties
<PAGE> 43
Exhibit A
PROMISSORY NOTE
$10,000,000 Minneapolis, Minnesota
April 7, 1998
For value received, Young America Corporation, a Minnesota
corporation (the "Borrower"), promises to pay to the order of Norwest Bank
Minnesota, National Association, a national banking association (the "Bank"), at
its main office in Minneapolis, Minnesota, or at such other place in the United
States of America as the holder hereof may hereafter from time to time designate
in writing, in lawful money of the United States of America and in immediately
available funds, the principal sum of Ten Million Dollars ($10,000,000), or so
much thereof as is advanced by the Bank to the Borrower pursuant to Section 2.1
of the Credit Agreement of even date herewith between the Borrower and the Bank
(together with all amendments, modifications and restatements thereof, the
"Credit Agreement"), and to pay interest on the principal balance of this Note
outstanding from time to time at the rate or rates determined pursuant to the
Credit Agreement.
This Note is issued pursuant to, and is subject to, the Credit
Agreement, which provides (among other things) for the amount and date of
payments of principal and interest required hereunder, for the acceleration of
the maturity hereof upon the occurrence of an Event of Default (as defined
therein) and for the voluntary and mandatory prepayment hereof.
The Borrower shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses, if this Note is not paid when due, whether
or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
YOUNG AMERICA CORPORATION
By
-----------------------------------
Its
-------------------------------
<PAGE> 44
Exhibit B
Compliance Certificate
--------------------------, ------
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0085
Ladies and Gentlemen:
Reference is made to the Credit Agreement (the "Credit Agreement")
dated April 7, 1998 entered into between Norwest Bank Minnesota, National
Association and Young America Corporation (the "Borrower").
All terms defined in the Credit Agreement and not otherwise defined
herein shall have the meanings given them in the Credit Agreement.
This is a Compliance Certificate submitted in connection with the
Borrower's financial statements (the "Statements") as of _____________________,
_______ (the "Effective Date").
I hereby certify to you as follows:
1. I am the _________________________ of the Borrower, and I am
familiar with the financial statements and financial affairs of the
Borrower.
2. The Statements, and the computations (if any) below, have been
prepared in accordance with generally accepted accounting principles
applied on a basis that is consistent with the accounting practices
reflected in the annual financial statements of the Borrower
previously delivered to you.
3. If the Effective Date is the last day of a calendar quarter, the
following computations set forth the Borrower's compliance or
non-compliance with the requirements set forth in the Financial
Covenants as of the Effective Date:
<PAGE> 45
<TABLE>
<CAPTION>
Actual Required
Section 5.9 Interest Coverage Ratio
<S> <C> <C> <C>
EBITDA
Net Income $___________
+ Interest
Expense, etc. $___________
+ Issuance fees $___________
+ Recap payments $___________
Total EBITDA
Interest Expense
Interest $___________
- Deferred $___________
financing costs
- Interest income $___________
Total Interest
Expense $___________
__________________ Through 6/30/98: >= 1.50:1
After 6/30/98: >= 1.75:1
EBITDA : Interest Expense
Section 5.10 Current Ratio
Current Assets $___________
Current Liabilities $___________
Current Assets : Current Liabilities __________________ >= 1.10:1
</TABLE>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of, the financial covenants referred
to above.
4. I have no knowledge of the occurrence of any Default or Event of
Default, except as set forth in the attachments, if any, hereto.
Very truly yours,
YOUNG AMERICA CORPORATION
By
-----------------------------------
Its
-------------------------------
-2-
<PAGE> 46
Exhibit C
Borrowing Base Certificate
To: Norwest Bank Minnesota, National Association (the "Bank")
Effective Date: _______________________
This Certificate is a Borrowing Base Certificate delivered pursuant to the
Credit Agreement dated April 7, 1998 among the undersigned, Norwest Bank
Minnesota, National Association, as Agent, and the Banks parties thereto. All
terms defined in the Credit Agreement shall have the meanings given them
therein.
The undersigned certifies that the following accurately sets forth the
undersigned's Accounts and Eligible Accounts as of the Effective Date stated
above.
<TABLE>
<S> <C> <C>
1. Accounts
Current $_________________ ____%
30-59 days $_________________ ____%
60-89 days $_________________ ____%
Over 89 days $_________________ ____%
Total Accounts $_________________
2. Ineligible Accounts:
(a) Accounts over 89 days past due $_________________
(b) Disputed portions of Accounts $_________________
(c) Insolvent, etc. Accounts $_________________
(d) Foreign Accounts $_________________
(e) 10% rule $_________________
(f) Government Accounts $_________________
(g) Affiliate Accounts $_________________
(h) Contra Accounts $_________________
(i) Creditor balances $_________________
Total Ineligible Accounts $_________________
3. Eligible Accounts (1 - 2) $_________________
4. Borrowing Base (3 * 85%) $_________________
5. Outstandings
(a) Borrowings $_________________
(b) Letters of Credit $_________________
Total Outstandings $_________________
6. Available: Borrowing Base - Outstandings $_________________
</TABLE>
The undersigned further certifies that all Accounts reflected above have been
properly invoiced to the applicable account debtors as of the date hereof
(whether or not such Accounts were billed as of the Effective Date).
YOUNG AMERICA CORPORATION
By
-----------------------------------
Its
-------------------------------
<PAGE> 1
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 Frederick H. Stinchfield
(the "Employee"), residing at 2255 Abingdon Way, Orono, Minnesota 55356.
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. 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, 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.
2. Termination of Employment.
(a) Prior to a Change in Control. 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.
<PAGE> 2
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 Employee's base salary
as in effect immediately prior to a Change in Control;
(iii) the reduction by the Company in the Employee's
commission rate in effect immediately prior to a Change in Control;
(iv) 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;
3
<PAGE> 4
(v) 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
(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
<PAGE> 5
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 the total commissions earned by the Employee during the twelve
months preceding the notice of termination. 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.
(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 representatives, executors, administrators,
heirs, distributees, devisees, and legatees.
5
<PAGE> 6
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 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
6
<PAGE> 7
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.
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 20, 1997 /s/ Frederick H. Stinchfield
-------------------------------
Frederick H. Stinchfield
7
<PAGE> 1
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 David Q. Ferguson (the
"Employee"), residing at 5150 Meadville Street, Excelsior, Minnesota 55331.
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. 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, 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.
2. Termination of Employment.
(a) Prior to a Change in Control. 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.
<PAGE> 2
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 Employee's base salary
as in effect immediately prior to a Change in Control;
(iii) the reduction by the Company in the Employee's
commission rate in effect immediately prior to a Change in Control;
(iv) 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;
3
<PAGE> 4
(v) 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
(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
<PAGE> 5
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 the total commissions earned by the Employee during the twelve
months preceding the notice of termination. 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.
(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 representatives, executors, administrators,
heirs, distributees, devisees, and legatees.
5
<PAGE> 6
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 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
6
<PAGE> 7
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.
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 20, 1997 /s/ David Q. Ferguson
-------------------------------
David Q. Ferguson
7
<PAGE> 1
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 Robert J. Beaudoin (the
"Employee"), residing at 3121 Humboldt Avenue South, Minneapolis, Minnesota
55408.
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. 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, 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.
2. Termination of Employment.
(a) Prior to a Change in Control. 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.
<PAGE> 2
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 Employee's base salary
as in effect immediately prior to a Change in Control;
(iii) the reduction by the Company in the Employee's
commission rate in effect immediately prior to a Change in Control;
(iv) 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;
3
<PAGE> 4
(v) 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
(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
<PAGE> 5
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 the total commissions earned by the Employee during the twelve
months preceding the notice of termination. 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.
(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 representatives, executors, administrators,
heirs, distributees, devisees, and legatees.
5
<PAGE> 6
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 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
6
<PAGE> 7
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.
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 20, 1997 /s/ Robert J. Beaudoin
-------------------------------
Robert J. Beaudoin
7
<PAGE> 1
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into by and between Young America
Corporation, a Minnesota corporation (as further defined herein, the "Company"),
with its principal offices at 717 Faxon Road, Young America, Minnesota 55397,
and Bruce Clark (the "Employee"), residing at 3246 County Road 10, Watertown,
Minnesota 55388.
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. 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, 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. 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.
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 employee's 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
3
<PAGE> 4
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
(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.
4
<PAGE> 5
(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.
(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
5
<PAGE> 6
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 representatives, 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 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.
6
<PAGE> 7
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.
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 20, 1997 /s/ Bruce Clark
-------------------------------
Bruce Clark
7
<PAGE> 1
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into by and between Young America
Corporation, a Minnesota corporation (as further defined herein, the "Company"),
with its principal offices at 717 Faxon Road, Young America, Minnesota 55397,
and Michael Larson (the "Employee"), residing at 8580 N. Fairway Pt., Victoria,
Minnesota 55386.
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. 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, 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. 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.
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 employee's 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
3
<PAGE> 4
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
(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.
4
<PAGE> 5
(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.
(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
5
<PAGE> 6
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 representatives, 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 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.
6
<PAGE> 7
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.
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 20, 1997 /s/ Michael Larson
-------------------------------
Michael Larson
7
<PAGE> 1
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into by and between Young America
Corporation, a Minnesota corporation (as further defined herein, the "Company"),
with its principal offices at 717 Faxon Road, Young America, Minnesota 55397,
and Barbara Spiess (the "Employee"), residing at 6610 Arlington Court,
Chanhassen, Minnesota 55317.
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. 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, 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. 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.
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 employee's 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
3
<PAGE> 4
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
(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.
4
<PAGE> 5
(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.
(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
5
<PAGE> 6
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 representatives, 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 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.
6
<PAGE> 7
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.
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/ Barbara Spiess
-------------------------------
Barbara Spiess
7
<PAGE> 1
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into by and between Young America
Corporation, a Minnesota corporation (as further defined herein, the "Company"),
with its principal offices at 717 Faxon Road, Young America, Minnesota 55397,
and Sharon Wagner (the "Employee"), residing at 101 Douglas Drive, Glencoe,
Minnesota 55336.
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. 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, 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. 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.
(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.
(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 Employee's 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.
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.
2
<PAGE> 3
(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 the 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:
(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 employee's 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
3
<PAGE> 4
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
(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.
4
<PAGE> 5
(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.
(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
5
<PAGE> 6
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 representatives, 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 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.
6
<PAGE> 7
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.
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 20, 1997 /s/ Sharon Wagner
-------------------------------
Sharon Wagner
7
<PAGE> 1
Exhibit 10.26
SENIOR CREDIT AGREEMENT
dated as of
November 25, 1997
among
YOUNG AMERICA CORPORATION,
as Borrower,
THE SUBSIDIARY GUARANTORS named herein,
THE LENDERS named herein
and
BANKERS TRUST COMPANY, as Agent
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS................................................1
1.1 Certain Defined Terms.......................................
1.2 Accounting Terms............................................
1.3 Other Definitional Provisions...............................
SECTION 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES........
2.1 Bridge Loan and Bridge Note.................................
2.2 Term Loan and Term Note.....................................
2.3 Interest on the Loans.......................................
2.4 Fees........................................................
2.5 Prepayments and Payments....................................
2.6 Use of Proceeds.............................................
SECTION 3 CONDITIONS..................................................
3.1 Conditions to Bridge Loan...................................
3.2 Conditions to Term Loan.....................................
SECTION 4 REPRESENTATIONS AND WARRANTIES..............................
4.1 Organization and Good Standing; Capitalization..............
4.2 Authorization and Power.....................................
4.3 No Conflicts or Consents....................................
4.4 Enforceable Obligations.....................................
4.5 Properties; Liens...........................................
<PAGE> 2
4.6 Financial Condition.........................................
4.7 Full Disclosure.............................................
4.8 No Default..................................................
4.9 Compliance with Contracts, Etc..............................
4.10 No Litigation...............................................
4.11 Use of Proceeds; Margin Stock, Etc..........................
4.12 Taxes.......................................................
4.13 ERISA.......................................................
4.14 Compliance with Law.........................................
4.15 Government Regulation.......................................
4.16 Capital Structure and Subsidiaries..........................
4.17 Intellectual Property.......................................
4.18 Environmental Matters.......................................
4.19 Survival of Representations and Warranties..................
4.20 Permits.....................................................
4.21 Insurance...................................................
4.22 Labor Matters...............................................
4.23 Guarantees..................................................
4.24 Senior Indenture; etc.......................................
4.25 Broker's or Finder's Fees...................................
4.26 Security Interests..........................................
SECTION 5 AFFIRMATIVE COVENANTS.......................................
5.1 Financial Statements and Other Reports......................
5.2 Corporate Existence, Etc....................................
5.3 Payment of Taxes and Claims; Tax Consolidation..............
5.4 Maintenance of Properties; Insurance........................
5.5 Inspection..................................................
5.6 Equal Security for Loans and Notes..........................
5.7 Compliance with Laws, Etc...................................
5.8 Maintenance of Accurate Records, Etc........................
5.9 Take-Out Financing..........................................
5.10 Exchange of Term Notes......................................
5.11 ERISA Compliance............................................
5.12 Register....................................................
5.13 Lenders Meeting.............................................
5.14 Additional Subsidiary Guarantors............................
5.15 Additional Security; Further Assurances; Pledge
of Additional Collateral....................................
SECTION 6 NEGATIVE COVENANTS..........................................
6.1 Indebtedness................................................
6.2 Liens.......................................................
6.3 Restricted Payments.........................................
6.4 Investments; Joint Ventures.................................
6.5 Contingent Obligations......................................
6.6 Senior Indebtedness.........................................
6.7 Restriction on Fundamental Changes..........................
6.8 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries......................................
<PAGE> 3
6.9 Transactions with Shareholders and Affiliates...............
6.10 Subsidiary Stock............................................
6.11 Business Activities.........................................
6.12 Amendments to Charter Documents.............................
6.13 Refinancing of the Loans in Part............................
6.14 Asset Sales.................................................
6.15 Transfer of Assets to Subsidiaries..........................
SECTION 7 EVENTS OF DEFAULT...........................................
7.1 Failure To Make Payments When Due...........................
7.2 Default in Other Agreements.................................
7.3 Breach of Certain Covenants.................................
7.4 Breach of Warranty..........................................
7.5 Other Defaults Under Agreement or Loan Documents............
7.6 Involuntary Bankruptcy; Appointment of Custodian, Etc.......
7.7 Voluntary Bankruptcy; Appointment of Custodian, Etc.........
7.8 Judgments and Attachments...................................
7.9 Dissolution.................................................
7.10 Guarantee...................................................
SECTION 8 THE AGENT...................................................
8.1 Appointment.................................................
8.2 Delegation of Duties........................................
8.3 Exculpatory Provisions......................................
8.4 Reliance by Agent...........................................
8.5 Notice of Default...........................................
8.6 Non-Reliance on Agent and Other Lenders.....................
8.7 Indemnification.............................................
8.8 Agent in Its Individual Capacity............................
8.9 Resignation of the Agent; Successor Agent...................
SECTION 9 GUARANTEE...................................................
9.1 Unconditional Guarantee.....................................
9.2 Severability................................................
9.3 Release of a Subsidiary Guarantor...........................
9.4 Limitation of Subsidiary Guarantor's Liability..............
9.5 Subsidiary Guarantors May Consolidate,
etc., on Certain Terms......................................
9.6 Contribution................................................
9.7 Waiver of Subrogation.......................................
9.8 Evidence of Guarantee.......................................
9.9 Waiver of Stay, Extension or Usury Laws.....................
SECTION 10 MISCELLANEOUS...............................................
10.1 Representation of the Lenders...............................
<PAGE> 4
10.2 Participations in and Assignments of Loans and Notes........
10.3 Expenses....................................................
10.4 Indemnity...................................................
10.5 Setoff......................................................
10.6 Amendments and Waivers......................................
10.7 Independence of Covenants...................................
10.8 Entirety....................................................
10.9 Notices.....................................................
10.10 Survival of Warranties and Certain Agreements...............
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative.......
10.12 Severability................................................
10.13 Headings....................................................
10.14 Applicable Law..............................................
10.15 Successors and Assigns; Subsequent Holders of Notes.........
10.16 Counterparts; Effectiveness.................................
10.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial........
10.18 Payments Pro Rata...........................................
10.19 Taxes.......................................................
10.20 Waiver of Stay, Extension or Usury Laws.....................
10.21 Requirements of Law.........................................
10.22 Confidentiality.............................................
SCHEDULES
A EXISTING LIENS
B SUBSIDIARIES
C ERISA
D EXISTING INVESTMENTS
E INTELLECTUAL PROPERTY
F ENVIRONMENTAL MATTERS
G PERMITS
H BROKER FEES
I EXISTING INDEBTEDNESS
EXHIBITS
I FORM OF BRIDGE NOTE
II FORM OF TERM NOTE
III FORM OF COMPLIANCE CERTIFICATE
IV-A FORM OF NOTICE OF BORROWING
IV-B FORM OF NOTICE OF CONVERSION
V TERM SHEET FOR REGISTRATION RIGHTS AGREEMENT
VI-A FORM OF OPINION OF O'SULLIVAN GRAEV & KARABELL, LLP -
COUNSEL FOR THE BORROWER AND THE SUBSIDIARY
GUARANTORS
VI-B FORM OF OPINION OF KAPLAN, STRANGIS AND KAPLAN,
P.A. - MINNESOTA COUNSEL FOR THE BORROWER AND
<PAGE> 5
THE SUBSIDIARY GUARANTORS
VII FORM OF OPINION OF CAHILL GORDON & REINDEL -
COUNSEL FOR THE LENDERS
VIII FORM OF NOTATION OF GUARANTEE
IX FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
X FORM OF STOCK PLEDGE AND SECURITY AGREEMENT
<PAGE> 6
This Senior Credit Agreement is dated as of November 25, 1997, and
entered into by and among Young America Corporation, a Minnesota corporation
(the "Company"), the Subsidiary Guarantors named on the signature pages hereto,
the Lenders named on the signature pages hereto (the "Lenders") and Bankers
Trust Company ("BTCo"), as agent for the Lenders (in such capacity, the
"Agent").
RECITALS
WHEREAS, the Company desires that the Lenders extend a senior credit
facility to the Company in connection with the Recapitalization (definition to
come);
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereby agree as follows:
SECTION 1 DEFINITIONS
1.1 Certain Defined Terms
The following terms used in this Agreement shall have the following
meanings:
"Adjusted Net Assets" shall have the meaning provided in Section
9.6.
"Affiliate," as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise, or (ii) the ownership of more than 10% of the voting
securities of that Person; provided that none of BTNY or any of its Affiliates
shall be treated as an Affiliate of the Company or of any Subsidiary of the
Company.
<PAGE> 7
"Agent" has the meaning ascribed to such term in the introduction to
this Agreement.
"Agreement" means this Senior Credit Agreement dated as of November
25, 1997, as it may be amended, supplemented or otherwise modified from time to
time in accordance with the terms hereof.
"Amount of Unfunded Benefit Liability" means, with respect to any
Pension Plan, (i) if set forth on the most recent actuarial valuation report
with respect to such Pension Plan, the amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) and (ii) otherwise, the excess of
(a) the greater of the current liability (as defined in Section 412(l)(7) of the
Internal Revenue Code) or the actuarial present value of the accrued benefits
with respect to such Pension Plan over (b) the market value of the assets of
such Pension Plan.
"Applicable Rate" means for each Quarterly Period, the LIBOR Rate
then in effect.
"Applicable Spread" means 6.0% for the period from and including the
Closing Date and to but excluding the last day of the Quarterly Period in which
the Closing Date occurs and for each subsequent Quarterly Period the Applicable
Spread in effect for the immediately preceding Quarterly Period plus .50%.
Notwithstanding the foregoing, from December 15, 1997 until such time as the
requirements of Section 5.1(xv) are met, the Applicable Spread shall be
increased by an additional .50%.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, lease, assignment, transfer or other disposition for value
(including, without limitation, pursuant to any amalgamation, merger or
consolidation or pursuant to any sale-and-leaseback transaction) by the Company
or by any of its Subsidiaries to any Person other than the Company or any of its
Wholly-Owned Subsidiaries (any such transaction, a "disposition") of (i) any of
the stock of any of the Company's Subsidiaries, (ii) substantially all of the
assets of any division or line of business of the Company or of any of its
Subsidiaries, or (iii) any other assets (whether tangible or intangible) of the
Company or of any of its Subsidiaries; excluding (a) any disposition of Cash
Equivalents or inventory in the ordinary course of business or obsolete
equipment in the ordinary course of business consistent with past practices of
the Company or the lease or sublease of any real or personal property in the
ordinary course of business and (b) any disposition of stock or assets in any
single transaction or related series of transactions the aggregate value of
which is equal to $250,000 or less.
<PAGE> 8
"Bankruptcy Law" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute or any
other United States federal, state or local law or the law of any other
jurisdiction relating to bankruptcy, insolvency, winding up, liquidation,
reorganization or relief of debtors, whether in effect on the date hereof or
hereafter.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation, winding
up, dissolution or reorganization, or appointing a custodian of a debtor or of
all or any substantial part of a debtor's property, or providing for the
staying, arrangement, adjustment or composition of indebtedness or other relief
of a debtor.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any duly authorized committee of that Board.
"Bridge Loan" means, collectively, the loans made by the Lenders
pursuant to Section 2.1A.
"Bridge Loan Commitment" means the commitment of the Lenders to make
the Bridge Loan as set forth in Section 2.1A.
"Bridge Notes" has the meaning ascribed to such term in Section
2.1D.
"BTNY" means Bankers Trust New York Corporation.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of New York, New York or is a day on
which banking institutions therein located are authorized or required by law or
other governmental action to close.
"Capital Lease," as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is required to be accounted for as a capital lease on the
balance sheet of that Person.
"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,
without limitation, 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.
<PAGE> 9
"Capitalized Lease Obligation" means obligations under a Capital
Lease and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued 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 the highest rating obtainable
from either Standard & Poor's Rating Group ("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 the highest
rating obtainable from either S&P's or Moody's; and (iv) certificates of deposit
or bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any commercial 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 $250.0 million; (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.
"Cash Proceeds" means, with respect to any Asset Sale, cash payments
(including any cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise but only as and when so
received) received from such Asset Sale.
"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 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; (ii) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company; (iii) any
Person or Group (other than the Permitted Holders) shall become the owner,
directly or indirectly, beneficially
<PAGE> 10
or of record, of shares representing more than 35% of the Voting Stock of the
Company, unless at such time the Permitted Holders beneficially own (within the
meaning of Rule 13d-3 and 13d-5 under the Exchange Act) in the aggregate, not
less than a majority of such Voting Stock of the Company; (iv) the replacement
of a majority of the Board of Directors of the Company over a two-year period
from the directors who constituted the Board of Directors of the Company at the
beginning of such period, and such replacement shall not have been approved
either in accordance with the shareholder's agreement or by a vote of at least a
majority of the Board of Directors of the Company 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, unless at such time the Permitted Holders beneficially own (within the
meaning of Rule 13d-3 and 13d-5 under the Exchange Act) in the aggregate, not
less than a majority of the Voting Stock of the Company; or (v) prior to the
Conversion Date, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of the shares of Voting Stock of the Company beneficially owned by
the Permitted Holders on the Closing Date.
"Change of Control Date" has the meaning ascribed to such term in
Section 2.5A(iv).
"Change of Control Offer" has the meaning ascribed to such term in
Section 2.5A(iv).
"Closing Date" means the date on or before November 25, 1997 on
which the initial Bridge Loan is made and the conditions set forth in Section
3.1 are satisfied or waived in accordance with Section 10.6.
"Commission" means the Securities and Exchange Commission.
"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
Closing Date or issued after the Closing Date, and includes, without limitation,
all series and classes of such common stock.
"Company" has the meaning ascribed to such term in the introduction
to this Agreement.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit III delivered to the Agent by the Company pursuant to Section
5.1(iv)(b).
<PAGE> 11
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the net income (or loss) of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other Person in which such
Person or any of its Subsidiaries has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net income of
such Person and its Subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
Person or such Subsidiary by such other Person during such period; (b) the net
income of any Subsidiary of such Person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction would
prevent the payment of an amount that otherwise could have been paid to such
Person or to a Subsidiary of such Person not subject to any Payment Restriction;
and (c) there shall be excluded (i) the net income (or loss) of any other Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all after-tax gains and losses realized on any Asset
Sale (without regard to the $250,000 threshold set forth in the definition of
Asset Sale), (iii) after-tax income or losses attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), (iv) all
after-tax gains and losses realized on the purchase or other acquisition by such
Person or any of its Subsidiaries of any Securities of such Person or any of its
Subsidiaries and (v) all other after-tax extraordinary gains and losses.
"Contested Claim" means any Tax, Indebtedness or other claim or
liability (i) the validity or amount of which is being diligently contested in
good faith, (ii) for which adequate reserve, or other appropriate provision, if
any, as required in conformity with GAAP shall have been made, and (iii) with
respect to which any right to execute upon or sell any assets of the Company or
of any of its Subsidiaries has not matured or has been and continues to be
effectively enjoined, superseded or stayed.
"Contingent Obligation," as applied to any Person, means any direct
or indirect liability, contingent or otherwise, of that Person (i) with respect
to any Indebtedness, lease, dividend or other obligation of another if the
primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
<PAGE> 12
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under Interest Rate Agreements and Currency Agreements.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of such Person for
the obligation of another through any agreement (contingent or otherwise) (X) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (Y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited. Contingent Obligations shall not
include obligations in respect of performance or other surety bonds incurred, to
the extent required by applicable law, in connection with the Company's
sweepstakes management service.
"Contractual Obligation", as applied to any Person, means any
obligation of that Person under any Security issued by that Person or any
indenture, mortgage, deed of trust, contract, legally binding undertaking,
agreement or other instrument to which that Person is a party.
"Controlled Group" means (i) a controlled group of corporations as
defined in Section 1563(a) of the Internal Revenue Code or (ii) a group of
trades or businesses under common control, as defined in Section 414(c) of the
Internal Revenue Code, of which the Company or any of its Subsidiaries is a part
or becomes a part.
"Conversion Date" means the one year anniversary of the Closing Date
or such later date to which the Conversion Date may be deferred pursuant to
Sections 3.2B, 3.2C or 3.2D.
"Covered Taxes" has the meaning ascribed to it in Section 10.19.
<PAGE> 13
"Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement designed to protect Company or any of its
Subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, interim receiver, receiver and
manager, trustee, assignee, liquidator, sequestrator or similar official charged
with maintaining possession or control over property for one or more creditors,
whether under any Bankruptcy Law or otherwise.
"Demand Take-Out Notes" means unsecured senior notes of the Company
issued under an indenture substantially similar to the Senior Indenture the
proceeds of which shall be used to repay the Bridge Notes in whole or in part,
which Demand Take-Out Notes shall be guaranteed by each entity that guarantees
on an unsecured basis the Bridge Loan.
"Disqualified Capital Stock" means 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), (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof (except upon the occurrence of a Change
of Control), in whole or in part, on or prior to the final maturity date of the
Notes, or (ii) is convertible into or exchangeable for (whether at the option of
the issuer or the holder thereof) (a) debt securities or (b) any Capital Stock
referred to in (i) above, in each case at any time prior to the final maturity
of the Notes; provided that only the portion of Capital Stock which so matures
or is mandatorily redeemable, is so convertible or exchangeable or is so
redeemable at the option of the holder thereof prior to such final maturity date
shall be deemed to be Disqualified Capital Stock.
"Dollars" or the sign "$" means the lawful money of the United
States of America.
"EBITDA" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person for such period, plus, in each case to
the extent deducted in computing Consolidated Net Income of such Person for such
period (without duplication), (i) provisions for income taxes or similar charges
recognized by such Person and its consolidated Subsidiaries, (ii) depreciation
and amortization expense of such Person and its consolidated Subsidiaries (but
only to the extent not included in Fixed Charges), (iii) Fixed Charges of such
Person and its consolidated Subsidiaries, (iv) the amount of any restructuring
reserve or charge in accordance with GAAP,
<PAGE> 14
including any such reserve or charge related to the Transactions, (v) any other
non-cash charges reducing Consolidated Net Income (excluding, except to the
extent provided in clauses (iv) and (vi)(y) of this definition, any such charge
which requires an accrual of or a cash reserve for anticipated cash charges for
any future period) and (vi) fees paid pursuant to Section 2.4, less, without
duplication, (x) non-cash items increasing Consolidated Net Income of such
Person for such period (excluding any such items representing an accrual of
anticipated cash receipts in a future period) in each case determined in
accordance with GAAP and (y) the amount of all cash payments made by such Person
or its Subsidiaries during such period to the extent that such cash payment has
been provided for in a restructuring reserve or charge referred to in clause
(iv) above (and was not otherwise deducted in the computation of Consolidated
Net Income of such Person for any period).
"Eligible Assignee" means (A) (i) a commercial bank organized under
the laws of the United States of America or any state thereof; (ii) a savings
and loan association or savings bank organized under the laws of the United
States or any state thereof; (iii) a commercial bank organized under the laws of
any other country or a political subdivision thereof; provided that (x) such
bank is acting through a branch or agency located in the United States or (y)
such bank is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political subdivision
of such country; and (iv) any other entity which is an "accredited investor" (as
defined in Regulation D under the Securities Act of 1933) which extends credit
or buys loans as one of its businesses including, but not limited to, insurance
companies, mutual funds and lease financing companies, in each case (under
clauses (i) through (iv) above) that is reasonably acceptable to the Agent; and
(B) any Lender and any Affiliate of any Lender.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA (i) which is, or, at any time within the five calendar
years immediately preceding the date hereof, was at any time, maintained or
contributed to by the Company or its Subsidiaries or any of their respective
ERISA Affiliates or (ii) with respect to which the Company or its Subsidiaries
retains any liability, including any potential joint and several liability as a
result of an affiliation with an ERISA Affiliate or a party that would be an
ERISA Affiliate except for the fact the affiliation ceased more than five
calendar years prior to the date hereof.
"Environmental Claim" means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise)
<PAGE> 15
by any governmental authority or any Person for any response or corrective
action, any damage, including, without limitation, personal injury (including
sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, in each case arising under
any Environmental Law, including without limitation, relating to, resulting from
or in connection with Hazardous Materials and relating to the Company, any of
its Subsidiaries or any of their respective properties or predecessors in
interest.
"Environmental Laws" means the common law and all statutes,
ordinances, orders, rules, regulations, plans, policies or decrees and the like
relating to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or threatened
Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air
Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
ss. 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7
U.S.C. ss. 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.
651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42
U.S.C. ss. 11001 et seq.), each as amended or supplemented, and any analogous
future or present statutes and regulations promulgated pursuant thereto, each as
in effect as of the date of determination.
"Environmental Lien" means a Lien in favor of a Tribunal or other
Person (i) for any liability under an Environmental Law or (ii) for damages
arising from or costs incurred by such Tribunal or other Person in response to a
release or threatened release of hazardous or toxic waste, substance or
constituent into the environment.
"Equity Financing" shall mean the issuance and sale by the Company
on the Closing Date of Common Stock of the Company generating gross cash
proceeds of not less than $38.5 million.
<PAGE> 16
"Equity Financing Documents" shall mean each of the documents
related to the consummation of the Equity Financing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, means (i) any
corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time within the five calendar years
immediately preceding the date hereof, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time within the five
calendar years immediately preceding the date hereof, a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Internal Revenue Code of which that Person is, or was at any time within
the five calendar years immediately preceding the date hereof, a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is, or was at any time within the five calendar years immediately
preceding the date hereof, a member.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by the Company or any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing sponsors or
the termination of any such Pension Plan resulting in liability pursuant to
Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings
to terminate any Pension Plan, or the occurrence of any event or condition which
might reasonably be expected to constitute grounds under ERISA for the
<PAGE> 17
termination of, or the appointment of a trustee to administer, any Pension Plan;
(vi) the imposition of liability on the Company or any of its Subsidiaries or
any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of
ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal by the Company or any of its Subsidiaries or any of their respective
ERISA Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by the Company or any of its
Subsidiaries or any of their respective ERISA Affiliates of notice from any
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated
under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or
omission which could reasonably be expected to give rise to the imposition on
the Company or any of its Subsidiaries or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of
ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material
claim (other than routine claims for benefits) against any Employee Benefit Plan
other than a Multiemployer Plan or the assets thereof, or against the Company or
any of its Subsidiaries or any of their respective ERISA Affiliates in
connection with any such Employee Benefit Plan; (x) receipt from the Internal
Revenue Service of notice of the failure of any Pension Plan (or any other
Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"Event of Default" means each of the events set forth in Section 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Exchange Notes" has the meaning ascribed to it in Section 5.10(ii).
"Exchange Request" has the meaning ascribed to it in Section 5.10.
"Existing Credit Agreement" means the credit facility provided to
the Company and certain Subsidiaries
<PAGE> 18
pursuant to the Credit Agreement dated as of June 9, 1997 among the Company, the
Subsidiaries named therein, the financial institutions party thereto, and
Norwest Bank Minnesota N.A. as Agent, as amended.
"Facilities" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by the Company, its
Subsidiaries or any of their respective predecessors in interest.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fee Letter" means the letter agreement dated the date hereof
between the Company and BTNY pursuant to which the Company committed to pay BTNY
certain fees.
"Fixed Charge Coverage Ratio" means, with respect to any Person, the
ratio of (1) EBITDA of such Person during the four full fiscal quarters
(determined based on a fiscal year ending December 31) (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Fixed Charge Coverage Ratio (the "Transaction Date") to
(2) the aggregate Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "EBITDA" and "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 of such Person or any of its 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 (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, at any time subsequent to the first day
of the Four Quarter Period and on or prior to the Transaction Date (the
"Reference Period"), (ii) any Investment, during the Reference Period, in any
other Person that, as a result of such Investment, becomes a Subsidiary of such
Person, (iii) the acquisition, during the Reference Period (by
<PAGE> 19
merger, consolidation or purchase of stock or assets) of any business or product
or service line, (iv) the sale or other disposition (whether by merger,
consolidation or sale of stock or assets) of any business or product or service
line occurring during the Reference Period, in each case as if such incurrence,
repayment, Investment, acquisition or sale had occurred on the first day of the
Reference Period including giving effect from such first day to the related
addition or elimination of any EBITDA (including any pro forma expense and cost
reductions and other operating improvements as determined in good faith by a
responsible financial or accounting officer of the Company and as approved by
the Agent) attributable to the business or product or service line that is the
subject of such acquisition or sale and (v) expense and cost adjustments related
to the Recapitalization, as approved by the Agent. If such Person or any of its
Subsidiaries directly or indirectly guarantees any Indebtedness of a third
Person, the Fixed Charge Coverage Ratio shall give effect to the incurrence of
such Indebtedness as if such Person or Subsidiary had directly incurred such
guaranteed Indebtedness.
"Fixed Charges" means, with respect to any Person, for any period,
the aggregate amount of (i) interest expense (determined in accordance with
GAAP) in respect of all Indebtedness of such Person and its consolidated
Subsidiaries (including (a) amortization of original issue discount on any
Indebtedness, but excluding amortization of debt issuance costs, and (b) the
interest portion of all deferred payment obligations, calculated in accordance
with the effective interest method, in each case to the extent attributable to
such period, but excluding amortization of debt issuance costs) and (ii) the
amount of all dividend payments on any series of Capital Stock of such Person
and its consolidated Subsidiaries (other than dividends payable in shares of
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during
such period and excluding items eliminated in consolidation. For purposes of
this definition, (a) interest on a Capitalized Lease Obligation shall be deemed
to accrue in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated and (c) Fixed Charges shall be
increased or reduced by the net cost (including amortization of discount) or
benefit associated with Interest Rate Agreements attributable to such period.
For purposes of clause (ii) above, dividend payments shall be increased to an
amount representing the pretax earnings that would be required to cover such
dividend payments; accordingly, the increased amount shall be equal to a
fraction, the numerator of which is the amount of such dividend requirements and
the
<PAGE> 20
denominator of which is one (1) minus the applicable actual combined federal,
state, local and foreign income tax rate of such Person and its subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Fixed Charges.
"Fixed Rate" has the meaning ascribed to it in Section 2.3(A)(ii).
"Fixed Rate Loans" means Loans described in Section 2.3A(ii).
"Floating Rate Loans" means Loans described in Section 2.3A(i).
"Funding Subsidiary Guarantor" has the meaning ascribed to it in
Section 9.6.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board and which are consistently applied for all periods after the date hereof
so as to properly reflect the financial conditions, and the results of
operations and changes in financial position, of the Company and its
Subsidiaries, except that any accounting principle or practice required to be
changed in order to continue as a generally accepted accounting principle or
practice may be so changed.
"Guarantees" means, collectively, the guarantees delivered to the
Lenders by the Subsidiary Guarantors pursuant to Section 9 which are evidenced
by notations of guarantee substantially in the form of Exhibit VIII.
"Hazardous Materials" means (i) any chemical, material or substance
at any time defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," "infectious waste," "toxic substances" or any
other formulations intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws or
publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iv) any flammable
substances or explosives; (v) any radioactive materials; (vi) asbestos in any
form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which
contains any
<PAGE> 21
oil or dielectric fluid containing levels of polychlorinated biphenyls in excess
of fifty parts per million; (ix) pesticides; and (x) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated by
any governmental authority or which may or could pose a hazard to human health
or safety or the environment.
"Incur" means, with respect to any Indebtedness or other obligation
of any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided that any amendment,
modification or waiver of any document pursuant to which Indebtedness was
previously Incurred shall only be deemed to be an Incurrence of Indebtedness if
and to the extent such amendment, modification or waiver (i) increases the
principal thereof or interest rate payable thereon or (ii) changes to an earlier
date the stated maturity thereof or the date of any scheduled or required
principal payment thereon or the time or circumstances under which such
Indebtedness shall be redeemed; provided, further, that any Indebtedness of a
Person existing at the time such Person becomes a Subsidiary of the Company
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be Incurred by such Subsidiary at the time it becomes a Subsidiary of the
Company.
"Indebtedness" means, with respect to any Person, (i) all
indebtedness, obligations and liabilities of such Person for borrowed money,
(ii) Capitalized Lease Obligations, (iii) notes payable and drafts accepted
representing extensions of credit, whether or not representing obligations for
borrowed money, of such Person, (iv) any indebtedness, obligation or liability
of such Person owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months (or a longer period of up
to one year, if such terms are available from suppliers in the ordinary course
of business) from the date of incurrence of the obligation in respect thereof or
(b) evidenced by a note or similar written instrument, except that
"Indebtedness" shall not include trade payables and accrued liabilities Incurred
in the ordinary course of business for the purchase of goods or services which
are not secured by a Lien other than a Permitted Encumbrance and obligations
under Interest Rate Agreements and Currency Agreements (which constitute
Contingent Obligations, not Indebtedness), (v) all indebtedness, obligations and
liabilities secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall
<PAGE> 22
have been assumed by that Person or is nonrecourse to the credit of that Person,
the amount of such Indebtedness being the lesser of the fair market value of
such property or asset or the amount of the Indebtedness so secured, (vi)
guarantees of such Person in respect of Indebtedness of other Persons and (vii)
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 this Agreement, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value to 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 Company's
sweepstakes management service.
"Indemnified Liabilities" has the meaning ascribed to such term in
Section 10.4.
"Indemnitees" has the meaning ascribed to such term in Section 10.4.
"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.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of the Company as currently conducted that are material
to the condition (financial or otherwise), business, operations or prospects of
the Company and its Subsidiaries, taken as a whole.
"Intercompany Indebtedness" means any Indebtedness of the Company or
any Subsidiary of the Company which, in the case of the Company, is owing to any
Wholly-Owned Subsidiary of the Company and which, in the case of any such
Subsidiary, is owing to the Company or any Wholly-Owned Subsidiary of the
Company; provided that if as of any date
<PAGE> 23
any Person other than the Company or a Wholly-Owned Subsidiary of the Company
owns or holds such Indebtedness, or holds any Lien in respect thereof, such
Indebtedness shall no longer be Intercompany Indebtedness permitted to be
Incurred pursuant to Section 6.1(v).
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Company or any of its Subsidiaries
against fluctuations in interest rates.
"Interest Rate Determination Date" means, with respect to any
Quarterly Period, the second Business Day on which banks in New York and London
are open prior to the first Business Day of such Quarterly Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor code or statute.
"Investment" means (i) any direct or indirect purchase or other
acquisition of, or of a beneficial interest in, any Securities of any other
Person or (ii) any direct or indirect loan, advance (other than advances to
employees for moving, entertainment and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business), extension of credit or
capital contribution to any other Person, including all indebtedness and
accounts receivable from that other Person that are not current assets or did
not arise from sales or the provision of services to that other Person in the
ordinary course of business. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups (including
pursuant to the equity method of accounting therefor), 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.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.
"Laws" means all applicable statutes, laws, ordinances, regulations,
rules, orders, judgments, writs, injunctions or decrees of any state,
commonwealth, nation, territory, possession, province, county, parish, town,
<PAGE> 24
township, village, municipality or Tribunal, and "Law" means each of the
foregoing.
"Lenders" has the meaning ascribed to that term in the introduction
to this Agreement and shall include any permitted assignee of any Loan, Note or
Loan Commitment to the extent of such assignment.
"LIBOR Rate" means the rate determined on the basis of the offered
rates for deposits in U.S. Dollars for a period of three months which appear on
the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the Interest Rate
Determination Date for such Quarterly Period. If at least two rates appear on
the Reuters Screen LIBO Page, the rate for such Quarterly Period will be the
arithmetic mean of such rates rounded upwards, if necessary, to the nearest 1/16
of 1%. If fewer than two rates appear on the Reuters Screen LIBO Page, then such
rate shall equal the arithmetic mean (rounded upward to the nearest 1/16 of 1%)
of the interest rates per annum at which deposits in U.S. Dollars for a period
of three months are offered by BTCo or its designee reasonably acceptable to the
Company at approximately 11:00 a.m., London time, on such Interest Rate
Determination Date to first class banks in the London interbank market.
"Lien" means any lien, mortgage, pledge, assignment, 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) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"Litigation" means any action, suit, proceeding, claim, lawsuit
and/or investigation conducted or threatened by or before any Tribunal.
"Loan Commitment" means the Bridge Loan Commitment and the Term Loan
Commitment.
"Loan Documents" means this Agreement, the Bridge Notes, the Term
Notes, the Guarantees, the Exchange Notes, the Registration Rights Agreement and
the Stock Pledge and Security Agreement.
"Loans" means the Bridge Loan and the Term Loan as each may be
outstanding.
"Margin Stock" has the meaning assigned to that term in Regulation U
and Regulation G of the Board of Governors of the Federal Reserve System as in
effect from time to time.
<PAGE> 25
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means (i) a material adverse effect upon
the business, operations, properties, assets, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries, taken as a whole, or (ii) the
impairment of the ability of the Company and its Subsidiaries, taken as a whole,
to perform in any material respect, or the impairment of the ability of the
Agent or Lenders to enforce in any material respect, the Obligations.
"Material Subsidiary" means, with respect to any accounting period,
any Subsidiary of the Company (i) whose revenues constitute greater than 10% of
the aggregate dollar value of the revenues of Company and its Subsidiaries,
taken as a whole, for such accounting period or (ii) the fair market value of
whose assets at any time during such accounting period is greater than 10% of
the fair market value of all of the assets of Company and its Subsidiaries at
such time.
"Maximum Cash Interest Rate" means an interest rate of 14% per
annum; provided that in computing such interest rate, fees paid to the Lenders
shall not be deemed an interest payment.
"Multiemployer Plan" means a Pension Plan which is a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any Asset Sale, Cash
Proceeds of such Asset Sale net of bona fide direct costs of sale including, but
not limited to, (i) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (ii) taxes reasonably estimated to be
actually payable as a result of such Asset Sale within two years of the date of
such Asset Sale and (iii) payment of the outstanding principal amount of,
premium or penalty, if any, and interest on any Indebtedness that is required to
be repaid as a result of such Asset Sale (whether because such Indebtedness is
secured by a Lien on the stock or assets in question, because the terms of such
Indebtedness so provide or because repayment is required in order to obtain any
required consent to such Asset Sale by the holder of such Indebtedness) and (iv)
appropriate amounts to be provided by the Company or any of its Subsidiaries, 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 Subsidiary,
as the case may be, after
<PAGE> 26
such Asset Sale, including, without limitation, liabilities under any
indemnification obligations associated with such Asset Sale.
"Notes" means, collectively, the Bridge Notes and the Term Notes.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit IV-A with respect to a proposed borrowing.
"Notice of Conversion" means a notice substantially in the form of
Exhibit IV-B with respect to a proposed conversion.
"Obligations" means all obligations of every nature of the Company
from time to time owed to the Lenders and the Agent under the Loan Documents,
whether for principal, reimbursements, interest, fees, expenses, indemnities or
otherwise, and whether primary, secondary, direct, indirect, contingent, fixed
or otherwise (including obligations of performance).
"Offer Payment Date" has the meaning ascribed to such term in
Section 2.5A(iv).
"Officer" means the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer, the Controller, any Assistant
Controller, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of each of the Company and the Subsidiary Guarantors.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by two Officers; provided
that every Officers' Certificate with respect to the compliance with a condition
precedent to the making of the Loans hereunder shall include (i) a statement
that the officer or officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of the
signers, they have made or have caused to be made such examination or
investigation as is necessary to enable them to express an informed opinion as
to whether or not such condition has been complied with, and (iii) a statement
as to whether, in the opinion of the signers, such condition has been complied
with.
"Other Taxes" has the meaning ascribed to such term in Section
10.19.
"Payment Office" shall mean the office of the Agent located at One
Bankers Trust Plaza, New York, New York
<PAGE> 27
10006 or such other office as the Agent may designate to the Company and the
Lenders from time to time.
"Payment Restriction" has the meaning ascribed to such term in
Section 6.8.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA which is subject to the provisions of Title IV of ERISA
and which is maintained for employees of the Company, any Subsidiary of the
Company or any member of the Controlled Group.
"Permits" has the meaning ascribed to such term in Section 4.20.
"Permitted Encumbrances" means (i) Liens existing on the Closing
Date set forth on Schedule A to the extent and in the manner such Liens are in
effect on the Closing Date ("Prior Liens"); (ii) Liens for taxes, assessments or
governmental charges or claims the payment of which is not, at the time,
required by Section 5.3; (iii) statutory Liens of landlords and banks and rights
of offset, and Liens of carriers, warehousemen, workmen, repairmen, mechanics
and materialmen 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 therefor; (iv) 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 Liens
securing letters of credit issued in the ordinary course of business in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts, trade
contracts, utility payments, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (v) any attachment or judgment Lien not constituting an Event of
Default; (vi) leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of the business of the Company and
its Subsidiaries, taken as a whole; (vii) easements, rights-of-way,
restrictions, minor defects, encroachments or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of the Company and its Subsidiaries, taken as a
whole; (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
<PAGE> 28
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 this Agreement under which the Company or any of its 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) any zoning or similar law or right reserved to or
vested in any governmental office or agency to control or regulate the use of
any real property; (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 Subsidiaries; (xiii) 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; (xiv) Liens securing reimbursement obligations with respect to
letters of credit which encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xv) Liens encumbering
customary initial deposits and margin deposits, and other Liens incurred in the
ordinary course of business that are within the general parameters customary in
the industry, in each case securing obligations under Interest Rate Agreements,
Currency Agreements or forward contracts, option futures contracts, futures
options or similar agreements or arrangements designed to protect the Company or
any Subsidiary from fluctuations in the price of commodities; (xvi) Liens
arising out of consignment or similar arrangements for the sale of goods entered
into by the Company or any Subsidiary in the ordinary course of business in
accordance with past practices; (xvii) Liens to secure Permitted Refinancing
Indebtedness to the extent the Indebtedness Refinanced was secured and such
Liens do not extend to any property other than the property which was subject to
the Lien under the Indebtedness being Refinanced; (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 Subsidiary; and (xix) Liens securing purchase money indebtedness;
provided that such Liens extend only to the assets so purchased.
<PAGE> 29
"Permitted Holders" means BT Capital Partners, Inc. and its
Affiliates.
"Permitted Investments" means (a) Investments in cash and Cash
Equivalents; (b) Investments by the Company or by any Subsidiary of the Company
in any Person that is or will become immediately after such Investment a
Wholly-Owned Subsidiary of the Company that either (I) has not Incurred (and
will not Incur as a result of or in connection with such transaction) any
Indebtedness (other than Indebtedness permitted to be Incurred by such
Subsidiary under Section 6.1) or (II) is a Subsidiary Guarantor; provided that
(x) such Investment shall be a Permitted Investment only for so long as any such
Subsidiary in which the Investment has been made meets the conditions set forth
above and (y) no Investment in any such Person or Subsidiary (including any
transaction pursuant to which any Person becomes a Subsidiary of the Company)
will be a Permitted Investment if and for so long as such Subsidiary is or would
be subject to any Payment Restriction; (c) any Investments in the Company by any
Subsidiary of the Company; provided that any Indebtedness of the Company for
payment in respect of such Investment is subordinated in right of payment,
pursuant to a written agreement, to the Company's Obligations; (d) Investments
made by the Company or by its Subsidiaries out of the Net Cash Proceeds of an
Asset Sale made in compliance with Section 2.5A(ii)(a); and (e) Intercompany
Indebtedness by and between the Company and its Subsidiaries.
"Permitted Refinancing Indebtedness" means (A) any Refinancing by
the Company of Indebtedness of the Company or of its Subsidiaries (other than
Indebtedness Incurred or outstanding pursuant to clauses (v), (vi), (ix) and
(xi) of Section 6.1, which Indebtedness shall remain subject to the maximum
aggregate amounts outstanding as set forth therein) and (B) any Indebtedness
incurred pursuant to a Refinancing by any Subsidiary of the Company of
Indebtedness Incurred by such Subsidiary (other than Indebtedness Incurred or
outstanding pursuant to clauses (v), (vi), (ix) and (xi) of Section 6.1, which
Indebtedness shall remain subject to the maximum aggregate amounts outstanding
as set forth therein), in the case of each of (A) and (B), that does not (1)
result in an increase in the total of the aggregate principal amount of the
Indebtedness of such Person being Refinanced as of the date of such proposed
Refinancing except to finance the payment of applicable prepayment penalties or
call premiums, accrued interest on such Indebtedness and reasonable costs and
expenses incurred in connection with such Permitted Refinancing (if such
Indebtedness that is Refinancing the existing Indebtedness is issued at a price
less than 100% of the principal amount thereof, an increase shall not be deemed
to have occurred unless the gross proceeds of such Indebtedness that is
Refinancing the
<PAGE> 30
existing Indebtedness are in excess of the total of the aggregate principal
amount of the Indebtedness being Refinanced as of the date of such proposed
Refinancing) or (2) create Indebtedness with a Weighted Average Life to Maturity
that is less than the Weighted Average Life to 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 (y) if such Indebtedness being
Refinanced is subordinate or junior in right of payment to the Loans or the
Guarantees, as the case may be, or if recourse in respect of the Indebtedness
being Refinanced is limited in any respect, then such Indebtedness proposed to
be Incurred to Refinance the existing Indebtedness shall be subordinate in right
of payment to the Loans or the Guarantees, as the case may be, and recourse with
respect thereto, as the case may be, shall be limited at least to the same
extent and in the same manner as the Indebtedness being Refinanced.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"PIK Interest Amount" has the meaning ascribed to such term in
Section 2.3B.
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained by the Company or any of its Subsidiaries for employees of the
Company or any of its Subsidiaries.
"Pledged Collateral" shall have the meaning assigned to such term in
the Security Agreement.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights (as compared to any other Capital Stock of
such Person) with respect to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
<PAGE> 31
"Quarterly Period" shall mean the period commencing on the first
calendar day of each three-month period, if such day is a Business Day, or the
first Business Day succeeding the first calendar day of each three-month period
and ending on the day next preceding the first Business Day of the following
Quarterly Period; provided that the first Quarterly Period shall commence on the
Closing Date and shall end on and exclude January 1, 1998.
"Real Property Assets" means interests in land, buildings,
improvements, and fixtures attached thereto or used in the operation thereof, in
each case owned or leased (as lessee) by the Company or its Subsidiaries.
"Recapitalization" means the recapitalization by the Company
pursuant to the Recapitalization Agreement.
"Recapitalization Agreement" means the Recapitalization Agreement
dated as of November 25, 1997, by and among the Company, 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., relating to the Recapitalization.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund or defease, 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.
"Register" has the meaning ascribed to such term in Section 5.13.
"Registration Rights Agreement" means a registration rights
agreement substantially containing the terms of Exhibit V (with such changes
therein as the Agent and the Company shall approve).
"Related Business" means any capital expenditure or Investment in
properties and assets that replace the properties and assets that were the
subject of an Asset Sale or in properties and assets that will be used in the
business of the Company and its Subsidiaries as existing on the Closing Date or
in businesses reasonably related or complementary thereto.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment
<PAGE> 32
or disposal of any barrels, containers or other closed receptacles containing
any Hazardous Materials), or into or out of any Facility, including the movement
of any Hazardous Material through the air, soil, surface water, groundwater or
property.
"Reportable Event" has the meaning set forth in Section 4043 of
ERISA, but excluding any event for which the 30-day notice requirement has been
waived by applicable regulations of the PBGC.
"Required Lenders" means Lenders holding in the aggregate more than
50% of the outstanding principal amount of Notes.
"Restricted Payment" has the meaning ascribed to such term in
Section 6.3.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit
sharing agreement or arrangement, bonds, debentures, options, warrants, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"Security Agreement" shall have the meaning provided in Section
3.1(U)
"Senior Indenture" means an indenture between the Company and a
trustee containing terms and provisions typical for high yield financings, and
containing events of default and guarantees substantially similar to the
provisions of Sections 7 and 9, respectively, and in the case of an indenture
for Exchange Notes, negative covenants substantially similar to the provisions
of Section 6, and in the case of an indenture for Demand Take-Out Notes,
negative covenants substantially similar to Section 6, except for Sections 6.1,
6.3 and Section 6.7 which shall be in accordance with high yield market practice
at such time (with such changes therein as the Agent and the Company shall
approve, and, at such time as notes issued thereunder are sold in a public
offering, with other appropriate changes to reflect such public offering).
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary Guarantor which is expressly subordinated in right of payment to the
Notes or the Guarantee of such Subsidiary Guarantor, as the case may be.
<PAGE> 33
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock or other equity interest entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereto is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof.
"Subsidiary Guarantors" means each of the present and future
Subsidiaries of the Company.
"Take-Out Bank" has the meaning ascribed to such term in Section
3.1N.
"Take-Out Securities" means (i) any Securities of the Company and/or
the Subsidiary Guarantors the proceeds of which are used to repay the Notes in
full and (ii) any Securities of the Company issued in accordance with Section
6.13 the proceeds of which are used to Refinance the Notes in part, including,
without limitation, the Demand Take-Out Notes.
"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
penalties, deductions, liabilities, withholdings or other charges of any nature
whatsoever, including interest and penalties thereon, from time to time or at
any time imposed by any Law or any Tribunal.
"Term Loan" means the loans made by the Lenders pursuant to Section
2.2A.
"Term Loan Commitment" has the meaning ascribed to such term in
Section 2.2A.
"Term Notes" has the meaning ascribed to such term in Section 2.2E.
"Transaction Costs" means the fees, costs and expenses payable by
the Company pursuant hereto and other fees, costs and expenses payable by the
Company or a Subsidiary of the Company in connection with the Transactions.
"Transactions" shall mean, collectively, (i) the Equity Financing,
(ii) the incurrence of the Bridge Loans hereunder on the Closing Date, (iii) the
Recapitalization, (iv) any other transaction on the Closing Date contemplated in
relation to the foregoing and (v) the payment of fees and expenses in connection
with the foregoing.
"Transferee" has the meaning ascribed to such term in Section 10.19.
<PAGE> 34
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency, authority or
instrumentality of the United States or any state, province, commonwealth,
nation, territory, possession, county, parish, town, township, village or
municipality, whether now or hereafter constituted and/or existing.
"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.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors or other governing body of such Person.
"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 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) that will elapse between
such date and the making of such payment.
"Wholly-Owned Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which 100% of the total
voting power of shares of stock or other equity interest entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Wholly-Owned
Subsidiaries of that Person or a combination thereof.
1.2 Accounting Terms
For the purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to them in conformity
with GAAP.
1.3 Other Definitional Provisions
Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
<PAGE> 35
SECTION 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES
2.1 Bridge Loan and Bridge Note
A. Bridge Loan Commitment. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of the
Company herein set forth, the Lenders hereby agree to lend to the Company on the
Closing Date $80.0 million in the aggregate (the "Bridge Loan"), each such
Lender committing to lend the amount set forth next to such Lender's name on the
signature pages hereto. The Lenders' commitments to make the Bridge Loan to the
Company pursuant to this Section 2.1A are herein called individually, the
"Bridge Loan Commitment" and collectively, the "Bridge Loan Commitments."
B. Notice of Borrowing. When the Company desires to borrow under
this Section 2.1, it shall deliver to the Agent a Notice of Borrowing no later
than 11:00 A.M. (New York time), at least two Business Days in advance of the
Closing Date or such later date as shall be agreed to by the Agent. The Notice
of Borrowing shall specify the applicable date of borrowing (which shall be a
Business Day). Upon receipt of such Notice of Borrowing, the Agent shall
promptly notify each Lender of its share of the Bridge Loan and the other
matters covered by the Notice of Borrowing.
C. Disbursement of Funds. (a) No later than 12:00 Noon (New York
time) on the Closing Date, each Lender will make available its pro rata share of
the Bridge Loan requested to be made on such date in the manner provided below.
All amounts shall be made available to the Agent in U.S. Legal Tender and
immediately available funds at the Payment Office and the Agent promptly will
make available to the Company by depositing to its account at the Payment Office
the aggregate of the amounts so made available in the type of funds received.
Unless the Agent shall have been notified by any Lender prior to the Closing
Date that such Lender does not intend to make available to the Agent its portion
of the Bridge Loan to be made on such date, the Agent may assume that such
Lender has made such amount available to the Agent on such date, and the Agent,
in reliance upon such assumption, may (in its sole discretion and without any
obligation to do so) make available to the Company a corresponding amount. If
such corresponding amount is not in fact made available to the Agent by such
Lender and the Agent has made available same to the Company, the Agent shall be
entitled to recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Company, and the Company shall
immediately pay such corresponding amount
<PAGE> 36
to the Agent. The Agent shall also be entitled to recover from such Lender or
the Company, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the Agent to the Company to the date such corresponding amount is recovered
by the Agent, at a rate per annum equal to (x) if paid by such Lender, the
overnight Federal Funds Rate or (y) if paid by the Company, the then applicable
rate of interest on the Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its Bridge Loan Commitment hereunder or to prejudice any
rights which the Company may have against any Lender as a result of any default
by such Lender hereunder.
D. Bridge Notes. The Company shall execute and deliver to each
Lender on the Closing Date a Bridge Note dated the Closing Date substantially in
the form of Exhibit I to evidence such Lender's portion of the Bridge Loan
Commitment and with appropriate insertions (the "Original Bridge Notes"). On
each interest payment date prior to the Conversion Date on which the Company
elects to pay a PIK Interest Amount pursuant to Section 2.3B, the Company shall
execute and deliver to each Lender on such interest payment date a Bridge Note
dated such interest payment date substantially in the form of Exhibit I annexed
hereto in a principal amount equal to such Lender's pro rata portion of such PIK
Interest Amount and with other appropriate insertions (each a "Subsequent Bridge
Note" and, together with the Original Bridge Notes, the "Bridge Notes"). A
Subsequent Bridge Note shall bear interest from the date of its issuance at the
same rate borne by all Bridge Notes.
E. Scheduled Payment of Bridge Loan. Subject to Section 2.2, the
Company shall pay in full the outstanding amount of the Bridge Loan and all
other Obligations owing hereunder no later than the Conversion Date.
F. Termination of Bridge Loan Commitment. The Bridge Loan Commitment
hereunder shall terminate on the earlier of (i) the date on which the
Recapitalization Agreement is terminated in accordance with its terms or (ii)
November 30, 1997 if the Bridge Loan is not made on or before such date.
G. Pro Rata Borrowings. The Bridge Loan made under this Agreement
shall be made by the Lenders pro rata on the basis of their respective Bridge
Loan Commitments. It is understood that no Lender shall be responsible for any
default by any other Lender of its obligation to make its portion of the Bridge
Loan
<PAGE> 37
hereunder and that each Lender shall be obligated to make its portion of the
Bridge Loan hereunder, regardless of the failure of any other Lender to fulfill
its commitments hereunder.
2.2 Term Loan and Term Note
A. Term Loan Commitment. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the Company
herein set forth, the Lenders hereby agree, on the Conversion Date, upon the
request of the Company, to convert the then outstanding principal amount of the
Bridge Notes into a term loan (the "Term Loan"), such Term Loan to be in the
aggregate principal amount of the then outstanding principal amount of the
Bridge Notes. The Lenders' commitments under this Section 2.2A are herein called
collectively, the "Term Loan Commitment."
B. Notice of Conversion/Borrowing. If the Company has not repaid the
Bridge Loan in full on or prior to the Conversion Date, then the Company shall
convert the then outstanding principal amount of the Bridge Notes into a Term
Loan under this Section 2.2. The Company shall deliver to the Lenders a Notice
of Conversion no later than 11:00 A.M. (New York time), at least two Business
Days in advance of the Conversion Date. The Notice of Conversion shall specify
the principal amount of the Bridge Notes outstanding on the Conversion Date to
be converted into a Term Loan.
C. Making of Term Loan. Upon satisfaction or waiver of the
conditions precedent specified in Section 3.2, each Lender shall extend to the
Company the Term Loan to be issued on the Conversion Date by such Lender by
canceling on its records a corresponding principal amount of the Bridge Notes
held by such Lender.
D. Maturity of Term Loan. The Term Loan shall mature and the Company
shall pay in full the outstanding principal amount thereof and accrued interest
thereon on the seventh anniversary of the Closing Date (the "Maturity Date").
E. Term Notes. The Company, as borrower, shall execute and deliver
to each Lender on the Conversion Date a Term Note dated the Conversion Date
substantially in the form of Exhibit II to evidence the Term Loan made on such
date, in the principal amount of the Bridge Notes held by such Lender on such
date and with other appropriate insertions (collectively the "Original Term
Notes"). On or after the Conversion Date, on each interest payment date on which
the Company elects to pay a PIK Interest Amount pursuant to Section 2.3B, the
Company shall execute and deliver to each Lender on such interest payment date a
Term Note dated such interest payment date substantially in the form of Exhibit
II annexed hereto in a principal amount
<PAGE> 38
equal to such Lender's pro rata portion of such PIK Interest Amount and with
other appropriate insertions (each a "Subsequent Term Note" and, together with
the Original Term Notes, the "Term Notes"). A Subsequent Term Note shall bear
interest at the same rate borne by all Term Notes.
2.3 Interest on the Loans
A. Rate of Interest. The Loans shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
prepayment, acceleration or otherwise) at a rate determined as set forth below.
(i) Floating Rate Loans. Subject to Section 2.3A(ii), the Loans
shall bear interest for each Quarterly Period at a rate per annum equal to the
Applicable Rate for such period plus the Applicable Spread.
(ii) Fixed Rate Loans. At any time, on one occasion, on and after
the Conversion Date, at the request of the Required Lenders, all or any portion
of the Term Loan owing to the Required Lenders shall bear interest at a fixed
rate per annum equal to the rate of interest borne by the Term Loans at the time
of such request (such rate of interest equal to the Applicable Rate plus the
Applicable Spread) plus .50% (the "Fixed Rate"), effective as of the first
interest payment date with respect to such Term Loan after such notice so long
as the 20 Business Days' notice set forth below is given; provided that no such
conversion shall be permitted in respect of amounts to be voluntarily prepaid
following receipt of a notice of prepayment pursuant to Section 2.5A. In order
to request the conversion of a Floating Rate Loan to a Fixed Rate Loan, the
Required Lenders shall notify the Agent in writing of their intention to do so
at least 60 Business Days prior to an interest payment date, indicating the
amount of the Term Loan for which they are requesting conversion to a Fixed Rate
Loan, which shall be not less than $5.0 million and increments of $10,000 in
excess thereof, and the Agent shall so notify the Company at least 60 Business
Days prior to such next succeeding interest payment date. Upon the conversion of
a portion of a Floating Rate Loan to a Fixed Rate Loan an appropriate notation
will be made on the Term Note and, on and after the first interest payment date
following the receipt by the Company of a notice hereunder, such portion of the
Term Loan which is converted to a Fixed Rate Loan shall bear interest at the
Fixed Rate until repaid.
(iii) Notwithstanding clause (i) or (ii) of this Section 2.3A or any
other provision herein, in no event will the combined sum of interest on the
Loans exceed 16.00% per annum.
<PAGE> 39
B. Interest Payments. Interest shall be payable (i) with respect to
the Bridge Loan, in arrears on February 15, 1998, May 15, 1998, August 15, 1998
and November 15, 1998, and upon any prepayment of the Bridge Loan (to the extent
accrued on the amount being prepaid) and at maturity of the Bridge Loan in
respect of any amounts paid on such date and not converted to Term Loans and
(ii) with respect to the Term Loan, in arrears on each February 15, May 15,
August 15 and November 15 of each year, commencing on the first of such dates to
follow the Conversion Date, upon any prepayment of the Term Loan (to the extent
accrued on the amount being prepaid) and at maturity of the Term Loan; provided,
however, that if, on any interest payment date, the interest rate borne by the
Bridge Notes or the Term Notes, as the case may be, exceeds the Maximum Cash
Interest Rate, the Company may pay all or a portion of the interest payable in
excess of the amount of interest that would be payable on such date at the
Maximum Cash Interest Rate by issuance of Subsequent Bridge Notes or Subsequent
Term Notes, as the case may be, in an aggregate principal amount equal to the
amount of such interest being so paid (the "PIK Interest Amount").
C. Post-Maturity Interest. Any principal payments on the Loans not
paid when due and, to the extent permitted by applicable law, any interest
payment on the Loans not paid when due, in each case whether at stated maturity,
by notice of prepayment, by acceleration or otherwise, shall thereafter bear
interest payable upon demand at a rate which is 2.00% per annum in excess of the
rate of interest otherwise payable under this Agreement for the Loans.
D. Computation of Interest. Interest on the Loans shall be computed
on the basis of a 360-day year and, with respect to any amount of the Loans
which are Floating Rate Loans, the actual number of days elapsed in the period
during which it accrues or, with respect to any amount of the Loans which are
Fixed Rate Loans, twelve 30-day months. In computing interest on the Loans, the
date of the making of the Loans shall be included and the date of payment shall
be excluded; provided that if a Loan is repaid on the same day on which it is
made, one day's interest shall be paid on that Loan.
2.4 Fees
(i) The Company agrees to pay to BTNY all fees and other obligations
in accordance with, and at the times specified by, the Fee Letter.
(ii) The Company shall pay to BTCo an annual agency fee of $10,000
payable quarterly in advance beginning on the Closing Date.
<PAGE> 40
(iii) On the six-month anniversary of the Closing Date and if the
Bridge Loan is outstanding on such date, the Company shall pay a fee to the
Lenders or their designated affiliates, payable in the form of warrants to
purchase for a nominal exercise price Common Stock of the Company ("Warrants")
in an amount equal to 2.0% of the outstanding Common Stock of the Company as of
the Closing Date; on the nine-month anniversary of the Closing Date and if the
Bridge Loan is outstanding on such date, the Company shall pay a fee to the
Lenders or their designated affiliates, payable in the form of Warrants in an
amount equal to 2.0% of the outstanding Common Stock of the Company as of the
Closing Date; and on the twelve-month anniversary of the Closing Date and if the
Bridge Loan is outstanding on such date, the Company shall pay a fee to the
Lenders or their designated affiliates, payable in the form of Warrants in an
amount equal to 2.0% of the outstanding Common Stock of the Company as of the
Closing Date. The Warrants shall contain terms and provisions mutually
satisfactory to the Lenders and the Company, including mutually acceptable
antidilution provisions.
2.5 Prepayments and Payments
A. Prepayments
(i) Voluntary Prepayments. The Company may, upon not less than two
Business Days' prior written or telephonic notice confirmed in writing to
the Agent at any time and from time to time, prepay the Loans made to the
Company in whole or in part in an aggregate minimum amount of $500,000 and
integral multiples of $100,000 in excess of that amount; provided that,
prior to the Conversion Date, unless Loans are to be prepaid in full, such
voluntary prepayments shall not result in the aggregate amount of the
Loans outstanding being less than $60.0 million or shall not be made at a
time when the aggregate amount of the Loans outstanding is less than $60.0
million; provided, further, that at such time as all or part of the Term
Loan bears interest at the Fixed Rate, the Term Loan or such part that
bears interest at the Fixed Rate, as the case may be, will be redeemable
at the option of the Company, in whole or in part, at any time at a
redemption price equal to 100% of the principal amount plus a premium,
which premium shall be equal to the Fixed Rate during the first year after
the Conversion Date and shall reduce ratably on each annual anniversary of
the Conversion Date, which premium shall be zero on the fifth anniversary
of the Conversion Date and thereafter, plus in each case accrued and
unpaid interest to the redemption date.
<PAGE> 41
Notice of prepayment having been given as aforesaid, the principal
amount of the Loans to be prepaid shall become due and payable on the prepayment
date. Amounts of the Loans so prepaid may not be reborrowed.
(ii) Mandatory Prepayments.
(a) Prepayments from Asset Sales.
The Company shall, or shall cause its Subsidiaries to, prepay the
Loans with the Net Cash Proceeds received from any Asset Sale on a date
not later than the Business Day next succeeding (i) the third Business day
after the receipt thereof if such date of receipt is on or prior to the
Conversion Date and (ii) the 270th day after the consummation of such
Asset Sale if and to the extent that such Net Cash Proceeds are not
applied by the Company or any Subsidiary of the Company within 270 days to
a Related Business if such date of receipt is after the Conversion Date;
provided that at such time as the Term Loan bears interest at the Fixed
Rate, any such Net Cash Proceeds not so applied shall be used to make an
offer to purchase the Term Loan from each Lender on a pro rata basis at
100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of repurchase. Concurrently with the consummation of
an Asset Sale, the Company shall deliver to the Agent an Officer's
Certificate demonstrating the derivation of Net Cash Proceeds from the
gross sales price of such Asset Sale.
(b) Prepayments from Issuances of Take-Out Securities. Concurrently
with the receipt by the Company of proceeds from the issuance of Take-Out
Securities, the Company shall prepay the Loans (at a price per Note equal
to the principal amount of such Note plus accrued and unpaid interest, if
any, to the date of payment) in a principal amount equal to the lesser of
the proceeds thereof (net of expenses payable by the Company to any Person
other than an Affiliate of the Company in connection with the issuance
thereof) or the aggregate principal amount of the Notes then outstanding.
(c) Notice. The Company shall notify the Agent of any prepayment to
be made pursuant to this Section 2.5A(ii) at least two Business Days prior
to such prepayment date (unless shorter notice is satisfactory to the
Required Lenders).
(iii) Company's Mandatory Prepayment Obligation; Application of
Prepayments. All prepayments shall include payment of accrued interest on
the principal
<PAGE> 42
amount so prepaid and shall be applied to payment of interest before
application to principal.
(iv) Mandatory Offer to Purchase Notes.
(a) Upon the occurrence of a Change of Control (the date of such
occurrence, the "Change of Control Date"), the Lenders shall have the
right to require the repurchase of all of the Notes pursuant to an offer
to purchase (the "Change of Control Offer") at a purchase price equal to
100% of the aggregate principal amount thereof plus accrued interest
thereon to the date of repurchase.
(b) The notice (referred to in (c) below) to the Agent shall contain
all instructions and materials necessary to enable the Lenders to tender
Notes.
(c) Within 30 days following any Change of Control the Company shall
mail a notice to the Agent stating:
(1) that the Change of Control Offer is being made pursuant to this
Section 2.5(A)(iv) and that all Notes validly tendered will be accepted
for payment;
(2) the purchase price and the purchase date (the "Offer Payment
Date"), which shall be no earlier than 30 days nor later than 40 days from
the date such notice is mailed;
(3) that any Note not tendered will continue to accrue interest;
(4) that any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Offer Payment Date
unless the Company shall default in the payment of the repurchase price of
the Notes;
(5) that if a Lender elects to have a Note purchased pursuant to the
Change of Control Offer it 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 Company prior to 5:00 p.m. New York time on the
Offer Payment Date;
(6) that a Lender will be entitled to withdraw its election if the
Company receives, not later than 5:00 p.m. New York time on the Business
Day preceding the Offer Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the principal amount of Notes such
Lender delivered for purchase, and
<PAGE> 43
a statement that such Lender is withdrawing its election to have such Note
purchased; and
(7) that if Notes are purchased only in part a new Note of the same
type will be issued in principal amount equal to the unpurchased portion
of the Notes surrendered.
(d) On or before the Offer Payment Date, the Company shall (i)
accept for payment Notes or portions thereof which are to be purchased in
accordance with the above, and (ii) deposit at the Payment Office U.S.
Legal Tender sufficient to pay the purchase price of all Notes to be
purchased. The Agent shall promptly mail to the Lenders whose Notes are so
accepted payment in an amount equal to the purchase price.
(e) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the purchase of Notes pursuant to an offer hereunder. To
the extent the provisions of any securities laws or regulations conflict
with the provisions under this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
B. Manner and Time of Payment. All payments of principal and
interest hereunder and under the Notes by the Company shall be made without
defense, set-off or counterclaim and in same-day funds and delivered to the
Agent, unless otherwise specified, not later than 12:00 Noon (New York time) on
the date due at the Payment Office for the account of the Lenders; funds
received by the Agent after that time shall be deemed to have been paid by the
Company on the next succeeding Business Day. The Company hereby authorizes the
Agent to charge its account with the Agent in order to cause timely payment to
be made of all principal, interest and fees due hereunder (subject to sufficient
funds being available in its account for that purpose).
C. Payments on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Notes or of the commitment and other fees
hereunder, as the case may be.
<PAGE> 44
D. Notation of Payment. Each Lender agrees that before disposing of
any Note held by it, or any part thereof (other than by granting participations
therein), such Lender will make a notation thereon of all principal payments
previously made thereon and of the date to which interest thereon has been paid
and will notify the Company of the name and address of the transferee of that
Note; provided that the failure to make (or any error in the making of) such a
notation or to notify the Company of the name and address of such transferee
shall not limit or otherwise affect the obligation of the Company hereunder or
under such Notes with respect to the Loans and payments of principal or interest
on any such Note.
2.6 Use of Proceeds
A. Bridge Loan. The proceeds of the Bridge Loan shall be applied by
the Company, together with funds raised in the Equity Financing, to the payment
of the Transaction Costs and to pay the consideration for the Recapitalization.
B. Term Loan. Upon the extension of the Term Loan by the Lenders,
the Bridge Notes shall be cancelled and exchanged for Term Notes.
C. Margin Regulations. No portion of the proceeds of any borrowing
under this Agreement shall be used by the Company in any manner which might
cause the borrowing or the application of such proceeds to violate the
applicable requirements of Regulation G, Regulation U, Regulation T or
Regulation X of the Board of Governors of the Federal Reserve System or any
other regulation of the Board of Governors or to violate the Exchange Act, in
each case as in effect on the date or dates of such borrowing and such use of
proceeds.
SECTION 3 CONDITIONS
3.1 Conditions to Bridge Loan
The obligation of the Lenders to make the Bridge Loan is subject to
prior or concurrent satisfaction of each of the following conditions:
A. On or before the Closing Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agent shall be reasonably satisfactory in form and substance
to the Agent, and the Agent shall have received on behalf of the Lenders the
following items, each of which shall be in form and substance satisfactory to
the Agent and, unless otherwise noted, dated the Closing Date:
<PAGE> 45
1. a certified copy of the Company's, each Subsidiary Guarantor's
and any other of the Company's Subsidiaries' charter, together with a
certificate of status, compliance, good standing or like certificate with
respect to the Company and each Subsidiary Guarantor issued by the
appropriate government officials of the jurisdiction of its incorporation
and of each jurisdiction in which it owns any material assets or carries
on any material business, each to be dated a recent date prior to the
Closing Date;
2. a copy of the Company's and each Subsidiary Guarantors' and any
other of the Company's Subsidiaries' bylaws, certified as of the Closing
Date by one of its Officers;
3. resolutions of the Company's and each Subsidiary Guarantor's
Board of Directors approving and authorizing the execution, delivery and
performance of this Agreement, each of the other Loan Documents and any
other documents, instruments and certificates required to be executed by
the Company or such Subsidiary Guarantor in connection herewith and
therewith and approving and authorizing the execution, delivery and
payment of the Notes and the consummation of the Transactions, each
certified as of the Closing Date by one of its Officers as being in full
force and effect without modification or amendment;
4. signature and incumbency certificates of the Company's and each
Subsidiary Guarantor's Officers executing this Agreement and the Bridge
Notes;
5. executed copies of this Agreement and the Bridge Notes
substantially in the form of Exhibit I executed in accordance with Section
2.1D drawn to the order of the Lenders and with appropriate insertions;
6. an originally executed Notice of Borrowing substantially in the
form of Exhibit IV-A, signed by the President or a Vice President of the
Company on behalf of the Company in writing delivered to the Agent;
7. originally executed copies of one or more favorable written
opinions of (I) O'Sullivan Graev & Karabell, LLP, counsel for the Company
and the Subsidiary Guarantors, substantially in the form of Exhibit VI-A
and addressed to the Lenders and Kaplan, Strangis and Kaplan, P.A.,
Minnesota counsel for the Company and the Subsidiary Guarantors,
substantially in the form of Exhibit VI-B and addressed to the Lenders,
(II) Cahill Gordon & Reindel, counsel for the Lenders, substantially in
the form of Exhibit VII and addressed
<PAGE> 46
to the Lenders, and (III) such other opinions of counsel and such
certificates or opinions of accountants, appraisers or other professionals
as the Agent shall have reasonably requested;
8. a certificate, delivered by the Company and signed by the Chief
Financial or Accounting Officer of the Company and addressed to the
Lenders in form and substance reasonably satisfactory to the Agent, with
appropriate attachments, stating that, after giving effect to the
consummation of the Transactions, the fair saleable value of the assets
(including going concern value) of the Company and its Subsidiaries will
not be less than the probable liability on their debts, that each of the
Company and its Subsidiaries will be able to pay its debts as they mature
and that each will not have unreasonably small capital to conduct its
business;
9. true and correct copies of the Recapitalization Agreement, which
shall not have been amended without the Agent's consent (which consent
shall not be unreasonably withheld or delayed) and which shall be in full
force and effect and each of the conditions to purchase contained therein
shall have been satisfied and not materially waived or amended without the
Agent's prior written consent (which consent shall not be unreasonably
withheld or delayed);
10. a notation of Guarantee, executed and delivered by each
Subsidiary Guarantor, dated the date of this Agreement, substantially in
the form of Exhibit VIII, as applicable; and
11. a copy of all closing documents relating to the Recapitalization
and all such counterpart originals or certified copies of such other
documents, instruments, certificates and opinions as the Agent may
reasonably request.
B. On or before the Closing Date, all material authorizations,
consents and approvals necessary in connection with the Transactions shall have
been obtained and remain in full force and effect and all applicable waiting
periods under Law applicable to the Recapitalization shall have expired without
any action being taken by any competent authority (including without limitation,
any Tribunal) which restrains, prevents or imposes materially adverse conditions
upon the completion of the Recapitalization or the financing thereof and
evidence of the receipt of such authorizations, consents and approvals
satisfactory to the Agent shall have been delivered to the Agent.
<PAGE> 47
C. On or before the Closing Date, the Company shall have paid to
BTNY the fees payable on the Closing Date pursuant to Section 2.4.
D. On or before the Closing Date, the Company shall have performed
in all material respects all agreements which this Agreement provides shall be
performed on or before the Closing Date except as otherwise disclosed to and
agreed to in writing by the Agent.
E. At the Closing Date, the Company shall have consummated the
Equity Financing and received gross cash proceeds of at least $38.5 million
therefrom. The Equity Financing shall have been definitively documented on terms
and conditions reasonably satisfactory to the Agent, all such documentation
shall be in full force and effect and the parties thereto shall be in compliance
in all material respects with all material agreements thereunder.
F. Simultaneously with the making of the Bridge Loan by the Lenders,
the Company shall have delivered to the Agent an Officers' Certificate from the
Company in form and substance satisfactory to the Agent to the effect that (i)
the representations and warranties in Section 4 are true, correct and complete
in all material respects on and as of the Closing Date to the same extent as
though made on and as of that date, (ii) on or prior to the Closing Date, the
Company has performed and complied with in all material respects all covenants
and conditions to be performed and observed by the Company on or prior to the
Closing Date and (iii) all conditions to the consummation of the
Recapitalization in the Recapitalization Agreement have been satisfied
substantially on the terms set forth therein and have not been waived or amended
in any material respect without the Agent's prior written consent.
G. Existing Credit Agreement. (a) On the Closing Date, the
commitments under the Existing Credit Agreement shall have been terminated, all
loans thereunder shall have been repaid in full, together with all accrued and
unpaid interest thereon, all accrued and unpaid fees thereon shall have been
repaid in full, all letters of credit (except the letter of credit referred to
in Section 3.1(G)(b)) issued thereunder shall have been terminated, and all
other amounts then owing pursuant to the Existing Credit Agreement shall have
been repaid in full.
(b) On the Closing Date, all security interests and Liens created
under the Existing Credit Agreement and the related security documents on the
capital stock of, and assets owned by, the Company and its Subsidiaries shall
have been terminated and released (except for the cash collateral account as
security for Letter of Credit #403942 in the amount of $355,429.00), and the
Agent shall have received
<PAGE> 48
all such releases as may have been requested by the Agent, which releases shall
be in the form and substance reasonably satisfactory to the Agent.
(c) The Agent shall have received evidence from the lenders under
the Existing Credit Agreement in form, scope and substance reasonably
satisfactory to it that the matters set forth in this Section 3.1(G)(a) and (b)
have been satisfied at such time.
H. Immediately following the making of the Bridge Loan by the
Lenders, the Recapitalization shall be consummated without the waiver of any
material conditions precedent thereto.
I. None of the Company or any of the Subsidiaries of the Company
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 labor dispute or any legal or governmental
proceeding, which loss or interference, in the reasonable judgment of the Agent,
has had or could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the ability of the Company or its Subsidiaries to
consummate the Transactions and to execute, deliver and perform its respective
obligations under the Loan Documents and each other document or instrument to be
delivered in connection with the Transactions executed or to be executed by it;
there shall not have been, in the reasonable judgment of the Agent, any Material
Adverse Change, or any development involving a prospective Material Adverse
Change.
J. No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by the Notice of Borrowing
which would constitute an Event of Default or Potential Event of Default.
K. No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain the Lenders from
making the Bridge Loan.
L. There shall not be pending or, to the knowledge of the Company,
threatened any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Company or, to its knowledge, any property
or asset of the Company or any of its respective Affiliates which has not been
disclosed by the Company in writing to the Agent (and the Agent shall have
received on the Closing Date an Officer's Certificate dated the Closing Date
attesting to the same) and there shall have occurred no development not so
disclosed in any such action, suit, proceeding, governmental investigation or
arbitration so
<PAGE> 49
disclosed, which, in each case, singly or in the aggregate, in the reasonable
opinion of the Agent, could reasonably be expected to have a Material Adverse
Effect. No injunction or other restraining order shall have been issued and no
hearing to cause an injunction or other restraining order to be issued shall be
pending or noticed with respect to any action, suit or proceeding seeking to
restrain, enjoin, delay, prohibit or otherwise prevent the consummation of, or
to recover any material damages or obtain material relief against the Company as
a result of, the Transactions. There shall not be threatened, instituted or
pending any action, proceeding or application before or by any Tribunal, or any
other Person, domestic or foreign (i) challenging the Transactions or seeking to
restrain, delay or prohibit the consummation thereof; (ii) seeking to prohibit
or impose material limitations on the Company's ownership or operation of all or
any portion of the Company's business or assets (including the business or
assets of any Subsidiary thereof) or to compel the Company to dispose of or hold
separate all or any material portion of the Company's business or assets
(including the business or assets of any Subsidiary thereof) as a result of the
Recapitalization; (iii) which, in any event, could reasonably be expected to
materially adversely affect the Bridge Loan; or (iv) seeking to impose any
materially adverse conditions upon the Transactions.
M. The making of the Bridge Loan in the manner contemplated in this
Agreement shall not violate the applicable provisions of Regulation G, T, U or X
of the Board of Governors of the Federal Reserve Board or any other regulation
of the Board.
N. The Company shall have entered into an agreement with BT Alex.
Brown Incorporated (the "Take-Out Bank") such that the Take-Out Bank will, to
the extent that the Company deems it necessary and advisable, publicly sell or
privately place the Demand Take-Out Notes.
O. The pro forma consolidated capital structure of the Company and
its Subsidiaries, after giving effect to the Transactions, shall be satisfactory
to the Lenders.
P. There shall not have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on the New York Stock
Exchange or American Stock Exchange or in the over-the-counter market in the
United States or minimum or maximum prices established on any such exchanges;
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of the banks in the United States or New York; or (iii) either (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
<PAGE> 50
international calamity or emergency, or (C) any material change in the financial
markets of the United States, which, in the sole judgment of the Agent, makes it
impracticable or inadvisable to proceed with the consummation of the
Transactions or the Bridge Loan or any of the other transactions contemplated
hereby including, without limitation, the issuance and sale of the Demand
Take-Out Notes or that would materially affect the ability to sell or syndicate
the Bridge Loan.
Q. There shall not have been any disclosure of information relating
to conditions or events not previously disclosed to the Lenders, or new
information regarding previously disclosed matters, in the course of the
Lenders' continuing legal, financial, tax, environmental, business and
accounting due diligence review which the Lenders shall reasonably determine is
material and adverse to the Company.
R. The results of the Agent's financial, legal, tax and accounting
due diligence investigations and any supplemental business or financial due
diligence that the Agent reasonably determines has become necessary shall be
satisfactory in all respects to the Agent and the Lenders shall have received
any information reasonably necessary to conduct such due diligence.
S. On the Closing Date, the Agent shall receive, to the extent
available, the audited, unaudited and pro forma financial statements meeting the
requirements of Regulation S-X under the Securities Act of 1933, as amended, of
the Company and each Subsidiary Guarantor.
T. The Agent and its counsel shall be satisfied that the
consummation of the Recapitalization and the related financing, including the
funding of the Bridge Loan, shall be in compliance with all applicable Laws.
There shall not have been any statute, rule, regulation, injunction or order
applicable to the Recapitalization, or the financing thereof, promulgated,
enacted, entered or enforced by any state or federal government or governmental
or regulatory authority or agency or by any federal or state court, or by any
Tribunal, nor shall there be pending any action or proceeding by or before any
such authority, court or tribunal, involving a substantial likelihood of an
order, that would prohibit, restrict, delay or otherwise materially affect the
Recapitalization or the financing thereof.
U. On the Closing Date, the Company shall have duly authorized,
executed and delivered a Stock Pledge and Security Agreement in the form of
Exhibit X (as modified, amended or supplemented from time to time in accordance
with the terms thereof and hereof, the "Security Agreement") covering all of the
Pledged Collateral (as defined in the Security Agreement), together with:
<PAGE> 51
(A) executed copies of Financing Statements (Form UCC-1) or
appropriate local equivalent in appropriate form for filing under the UCC
or appropriate local equivalent of each jurisdiction as may be necessary
to perfect the security interests purported to be created by the Security
Agreement;
(B) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, each of a recent date, listing all
effective financing statements that name the Company as debtor and that
are filed in the jurisdictions referred to in clause (A) above, together
with copies of such financing statements that name the Company as debtor
(none of which shall cover the Pledged Collateral except (x) those with
respect to which appropriate termination statements executed by the
secured lender thereunder have been delivered to the Agent and (y) to the
extent evidencing Permitted Encumbrances);
(C) evidence of the completion of all other recordings and filings
of, or with respect to, the Security Agreement as may be necessary or, in
the reasonable opinion of the Agent, desirable to perfect the security
interests purported to be created by the Security Agreement; and
(D) evidence that all other actions necessary or, in the reasonable
opinion of the Agent, desirable to perfect the security interests
purported to be created by the Security Agreement have been taken;
and the Security Agreement shall be in full force and effect.
3.2 Conditions to Term Loan
The obligation of the Lenders to make the Term Loan on the
Conversion Date is subject to the prior or concurrent satisfaction or waiver of
the following conditions precedent:
A. The Agent shall have received in accordance with the provisions
of Section 2.2B an originally executed Notice of Conversion.
B. The Company or any of its Material Subsidiaries shall not be
subject to a Bankruptcy Order or a bankruptcy or other insolvency proceeding and
an Event of Default shall not have occurred under Section 7.6, 7.7 or 7.9
provided that if any Bankruptcy Order exists or any bankruptcy or other
insolvency proceeding is pending that does not constitute an Event of Default
under Section 7.6 or 7.9 on the Conversion Date, then the Conversion Date shall
<PAGE> 52
be deferred until the earlier to occur of (x) the date when such Bankruptcy
Order has been stayed, discharged or dismissed or such proceeding ceases to be
pending or (y) such Bankruptcy Order or proceeding constitutes an Event of
Default under Section 7.6 or 7.9.
C. No Event of Default or Potential Event of Default (whether
matured or not) shall have occurred under Section 7.1 provided that if, as of
the Conversion Date, any Potential Event of Default under Section 7.1 shall have
occurred that has not matured into an Event of Default, then the Conversion Date
shall be deferred until the earlier to occur of (x) the cure of such Potential
Event of Default or (y) such Potential Event of Default becoming an Event of
Default.
D. No Event of Default or Potential Event of Default shall have
occurred under Section 7.2; provided that if an event described in this Section
3.2D is continuing at the Conversion Date but 30 days has not passed since the
date of written notice of the commencement of such 30-day period from the holder
or holders of not less than 50% in aggregate principal amount of the Loans then
outstanding (the "Grace Period"), the Conversion Date shall be deferred until
the earlier to occur of (x) the cure of such event or (y) the expiration of such
Grace Period.
E. On the Conversion Date, the Agent shall have received an
Officers' Certificate from the Company, dated the Conversion Date and
satisfactory in form and substance to the Agent, to the effect that the
conditions in this Section 3.2 are satisfied on and as of the Conversion Date.
F. The Company shall have executed and delivered to the Agent on the
Conversion Date for delivery to the Lenders Term Notes dated the Conversion Date
substantially in the form of Exhibit II to evidence the Term Loan, in the
principal amount of (which principal amount shall be the aggregate principal
amount of the Bridge Loan outstanding on the Conversion Date) the Term Loan and
with other appropriate insertions.
G. The Company shall have paid any fees owing pursuant to Section
2.4 in cash to BTNY and BTCo.
H. The making of the Term Loan shall not violate Regulation G, T, U
or X of the Board of Governors of the Federal Reserve Board or any other
regulation of the Board.
SECTION 4 REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to
make the Loans, the Company represents and
<PAGE> 53
warrants to the Lenders that, at the time of execution hereof and after
consummation of the Transactions, the following statements are true, correct and
complete:
4.1 Organization and Good Standing; Capitalization
(a) Each of the Company and its Subsidiaries is a corporation duly
organized and existing and in good standing under the laws of its jurisdiction
of incorporation. Each of the Company and its Subsidiaries has the corporate
power and authority to own and operate its properties and to carry on its
business as now conducted and as proposed to be conducted and is duly qualified
as a foreign corporation and in good standing in all jurisdictions in which it
is doing business, except where failure to be so qualified or in good standing,
singly or in the aggregate, has not had and will not have a Material Adverse
Effect or a material adverse effect on the ability of the Company or its
subsidiaries to consummate the Transactions and to execute, deliver and perform
its respective obligations under the Loan Documents and each other document or
instrument to be delivered in connection with the Transactions executed or to be
executed by it.
(b) All of the Subsidiaries of the Company as of the Closing Date
are identified in Schedule B. The Capital Stock of each of the Subsidiaries of
the Company identified in Schedule B is duly authorized, validly issued, fully
paid and nonassessable and none of such capital stock constitutes Margin Stock.
(c) As of the Closing Date and after giving effect to the
Transactions, there are issued and outstanding 1,920,000 shares of Common Stock
of the Company. Such shares of Common Stock of the Company have been duly and
validly issued and are fully paid and nonassessable. Any issuance and sale of
Common Stock of the Company, upon such issuance and sale, will either (a) have
been registered or qualified under applicable federal and state securities laws
or (b) be exempt therefrom.
4.2 Authorization and Power
Each of the Company and its Subsidiaries has the corporate power and
requisite authority, and, to the extent a party thereto, has taken all corporate
action necessary, to consummate the Transactions and to execute, deliver and
perform its obligations under the Loan Documents and each other document and
instrument to be delivered in connection with the Transactions executed or to be
executed by it and to issue the Notes and the Exchange Notes.
4.3 No Conflicts or Consents
<PAGE> 54
(a) The execution and delivery of the Loan Documents, the
Recapitalization Agreement and each other document to be executed and delivered
in connection with the Transactions, the consummation of each of the
transactions herein or therein contemplated, the compliance with each of the
terms and provisions hereof or thereof, and the issuance, delivery and
performance of the Notes and the Exchange Notes, do not and will not (i) violate
any provision of any law or any governmental rule or regulation applicable to
any of the Company and its Subsidiaries, the Certificate or Articles of
Incorporation or bylaws of any of them or any order, judgment or decree of any
court or other agency of government binding on any of them which, in any case
other than a violation of the Certificate or Articles of Incorporation or bylaws
of the Company, could reasonably be expected to result in a Material Adverse
Effect or have a material adverse effect on the ability of the Company or its
Subsidiaries to consummate the Transactions and to execute, deliver and perform
its obligations under the Loan Documents and each other document and instrument
to be delivered in connection with the Transactions executed or to be executed
by it, (ii) conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any Contractual Obligation of any of
the Company and its Subsidiaries which could reasonably be expected to result in
a Material Adverse Effect or have a material adverse effect on the ability of
the Company or its Subsidiaries to consummate the Transactions and to execute,
deliver and perform its obligations under the Loan Documents and each other
document and instrument to be delivered in connection with the Transactions
executed or to be executed by it, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of any of the
Company and its Subsidiaries (other than Liens permitted by this Agreement) or
(iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of any of the Company and its
Subsidiaries except for such approvals or consents which will be obtained on or
before the Closing Date and disclosed in writing to Lenders or such approvals or
consents the failure to obtain which could not reasonably be expected to singly
or in the aggregate result in a Material Adverse Effect or have a material
adverse effect on the ability of the Company or its Subsidiaries to consummate
the Transactions and to execute, deliver and perform its obligations under the
Loan Documents and each other document and instrument to be delivered in
connection with the Transactions executed or to be executed by it.
(b) No consent, approval, authorization or order of any Tribunal or
other Person is required in connection with the execution and delivery by the
Company or any of its Subsidiaries of the Loan Documents or any other document
or
<PAGE> 55
instrument to be delivered in connection with the Transactions or the
consummation of the transactions contemplated hereby or thereby, other than any
such consent, approval, authorization or order which has been obtained and
remains in full force and effect or which has been waived in writing by the
Agent on behalf of the Lenders or the failure of which to obtain would not,
singly or in the aggregate, have a Material Adverse Effect or a material adverse
effect on the ability of the Company or its Subsidiaries to consummate the
Transactions and to execute, deliver and perform its respective obligations
under the Loan Documents and each other document or instrument to be delivered
in connection with the Transactions executed or to be executed by it.
4.4 Enforceable Obligations
Each of the Loan Documents, the Recapitalization Agreement and each
other document or instrument to be delivered in connection therewith has been
duly authorized; each of the Loan Documents, the Recapitalization Agreement and
each other document or instrument to be delivered in connection therewith to be
executed and delivered on or prior to the Closing Date has been duly executed
and delivered by the Company and each of its Subsidiaries that are a party
thereto; and each of the Loan Documents, the Recapitalization Agreement and each
other document or instrument to be delivered in connection therewith to be
executed and delivered on or prior to the Closing Date is, and each of the Loan
Documents to be executed and delivered after the Closing Date will be, upon such
execution and delivery, the legal, valid and binding obligations of the Company
and each such Subsidiary (to the extent a party thereto), enforceable in
accordance with their respective terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.5 Properties; Liens
Each of the Company and its Subsidiaries has good, sufficient and
legal title to all their respective properties and assets, and all properties
held under lease by any of them are held under valid, subsisting and enforceable
leases, and none of the Company or its Subsidiaries and, to the knowledge of the
Company, any other party thereto, is in default under any lease, except in each
case for such defects or defaults that, singly or in the aggregate, would not
have a Material Adverse Effect. Except as permitted by this Agreement, all such
properties and
<PAGE> 56
assets owned or leased are so owned or leased free and clear of Liens.
4.6 Financial Condition
(a) The audited consolidated balance sheets of the Company and its
Subsidiaries at December 31, 1996, December 31, 1995 and December 31, 1994 and
the related consolidated statements of income, shareholders equity and cash
flows of the Company and its Subsidiaries for the three-year period ended
December 31, 1996, certified by the independent certified public accountants of
the Company copies of which have been delivered to the Agent, were prepared in
accordance with GAAP, have been prepared from, and are consistent with, the
books and records of the Company and its Subsidiaries and fairly present in all
material respects the consolidated financial position of the Company and its
Subsidiaries, as at the respective dates thereof and the consolidated results of
operations and cash flows of the Company and its Subsidiaries, for the periods
then ended. None of the Company or any of its Subsidiaries had at October 31,
1997 any material contingent liabilities, liabilities for Taxes or long-term
leases, unusual forward or long-term commitments or unrealized or unanticipated
losses from any unfavorable commitments which are not reflected or reserved
against in the foregoing statements or in the notes thereto to the extent
required by GAAP. No events which have had or could reasonably be expected to
have a Material Adverse Effect have occurred since December 31, 1996 except as
reflected therein.
(b) The unaudited consolidated balance sheets of the Company and its
Subsidiaries at October 31, 1997 and the related consolidated statements of
income, retained earnings (deficit) and cash flows of each such entity for the
period then ended, a copy of which has been delivered to the Agent, were
prepared in accordance with GAAP consistently applied (except to the extent
noted therein), have been prepared from, and are consistent with, the books and
records of each such entity and fairly present in all material respects the
consolidated financial position of each such entity as of such date and the
consolidated results of operations and cash flows of each such entity for the
period covered thereby, in each case subject to normal year-end audit
adjustments (including footnotes), consistent with past practices. None of the
Company or any of its Subsidiaries had on such date any material contingent
liabilities, liabilities for Taxes or long-term leases, unusual forward or
long-term commitment or unrealized or unanticipated losses from any unfavorable
commitment which are not reflected or reserved against in the foregoing
statements or in the notes thereto to the extent required by GAAP.
<PAGE> 57
(c) The pro forma balance sheet of the Company as of October 31,
1997, a copy of which has heretofore been furnished to the Agent, fairly
presents in all material respects the estimated consolidated opening balance
sheet of the Company assuming the Transactions had occurred as of October 31,
1997 and the financial condition of the Company on the Closing Date does not
differ in any material respect from the information therein set forth.
(d) Upon giving effect to the Transactions:
(i) The fair saleable value of the assets (including going concern
value) of the Company and each of its Subsidiaries, on a stand-alone
basis, exceeds the amount that will be required to be paid on or in
respect of the existing debts and other liabilities (including contingent
liabilities) of such Person as they mature.
(ii) The assets of each of the Company and its Subsidiaries, on a
stand-alone basis, do not constitute unreasonably small capital for any
such Person to carry out its business as now conducted and as proposed to
be conducted including the capital needs of any such Person, taking into
account the particular capital requirements of the business conducted by
such Person, and projected capital requirements and debt and equity
capital availability thereof.
(iii) The Company does not intend to, and will not permit any of its
Subsidiaries to, incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable
on or in respect of debt of each of such Person). The cash flow of the
Company and each of its Subsidiaries and the debt and equity capital
available to the Company and its Subsidiaries, after taking into account
all anticipated uses of the cash of each such Person, will at all times be
sufficient to pay all amounts on or in respect of debt of each such
company when such amounts are required to be paid.
(iv) The Company does not intend, and does not believe, that final
judgments against any of the Company or its Subsidiaries in actions for
money damages will be rendered at a time when, or in an amount such that,
any such Person will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest reasonable
time at which such judgments might be rendered). The cash flow of the
Company and each of its Subsidiaries and the debt and equity capital
available to the Company and its Subsidiaries, on a
<PAGE> 58
stand-alone basis, after taking into account all other anticipated uses of
the cash of each such Person (including the payments on or in respect of
debt referred to in paragraph (iii) of this Section 4.6(d)), will at all
times be sufficient to pay all such judgments promptly in accordance with
their terms.
4.7 Full Disclosure
The financial projections (including, without limitation, the pro
forma financial statements included therewith) heretofore furnished to the Agent
by the Company were prepared by or under the direction of an officer of the
Company and were prepared in good faith on the basis of information and
assumptions that the Company believed to be reasonable as of the date of such
information, and which assumptions are believed to be reasonable as of the date
hereof. All other factual information heretofore or contemporaneously furnished
in writing by or on behalf of the Company or any of its Subsidiaries to the
Agent or Lenders for purposes of or in connection with this Agreement
(including, but not limited to, the Recapitalization Agreement and all exhibits
and appendices thereto), taken as a whole, does not contain any untrue statement
by such party or, to its knowledge, any other party of a material fact or omit
to state any material fact known to the Company or any of its Subsidiaries
necessary to keep the statements made by such party or, to its knowledge, any
other party contained herein or therein from being misleading. No fact is known,
no condition exists nor has any event occurred which is known to the Company or
any of its Subsidiaries and has not been disclosed herein or in any other
document, certificate or statement furnished to the Agent or the Lenders for use
in the transactions contemplated hereby which, singly or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
4.8 No Default
No event has occurred and is continuing which constitutes a
Potential Event of Default or an Event of Default.
4.9 Compliance with Contracts, Etc.
None of the Company or any of its Subsidiaries is in violation of
(A) its certificate of incorporation, by-laws or other organizational documents
or (B) any applicable law, ordinance, administrative or governmental rule or
regulation or (C) any order, decree or judgment of any Tribunal having
jurisdiction over any of them; no event of default or event that but for the
giving of notice or the lapse of time, or both, would constitute an event of
default on the part of the Company or any of its Subsidiaries exists
<PAGE> 59
under any material Contractual Obligation except, in any case other than clause
(A), for such violations and defaults that would not, singly or in the
aggregate, have a Material Adverse Effect.
4.10 No Litigation
There is no Litigation pending or, to the best knowledge of the
Company, threatened by, against, or which may relate to or affect, (a) any
benefit plan of the Company or any of its Subsidiaries or any fiduciary or
administrator thereof, (b) the Transactions, or (c) the Company or any of its
Subsidiaries that, singly or in the aggregate, could reasonably be expected to
have a Material Adverse Effect or that could reasonably be expected to
materially and adversely affect the ability of the Company to consummate the
Recapitalization in a timely manner. There are no outstanding injunctions or
restraining orders prohibiting consummation of any of the transactions
contemplated by the Loan Documents. There are no unsatisfied judgments against
the Company or any of its Subsidiaries or its business or activities that could
reasonably be expected to have a Material Adverse Effect. None of the Company or
any of its Subsidiaries has been advised that there is a reasonable likelihood
of an adverse determination of any Litigation which adverse determination,
should it occur, would have a Material Adverse Effect or a material adverse
effect on the ability of the Company or its Subsidiaries to consummate the
Transactions and to execute, deliver and perform its respective obligations
under the Loan Documents and each other document or instrument to be delivered
in connection with the Transactions executed or to be executed by it.
4.11 Use of Proceeds; Margin Stock, Etc.
The proceeds of the Bridge Loan will be used solely for the purposes
specified herein. None of such proceeds will be used for the purpose of
purchasing or carrying any Margin Stock within the meaning of the applicable
provisions of Regulation G, T, U or X, or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry a
Margin Stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of the applicable provisions of Regulation
G, T, U or X. Neither the Company nor any of its Subsidiaries has taken or will
take any action which might cause any of the Loan Documents to violate the
applicable provisions of Regulation G, T, U or X, or any other regulation of the
Board of Governors of the Federal Reserve System.
4.12 Taxes
<PAGE> 60
All material tax returns, foreign and domestic, required to be filed
prior to the Closing Date by the Company and each of its Subsidiaries in any
jurisdiction have been filed, and all material Taxes for which they are directly
or indirectly liable or to which any of their respective properties or assets
are subject have been paid prior to the time that such Taxes could give rise to
a Lien thereon. There is no material proposed tax assessment against the Company
or any of its Subsidiaries, and, to the best knowledge of the Company, there is
no basis for such assessment, except for Contested Claims.
4.13 ERISA
A. The Company, its Subsidiaries and each of their respective ERISA
Affiliates are in material compliance with all applicable provisions and
requirements of the Internal Revenue Code and ERISA and the regulations and
published interpretations thereunder with respect to each Employee Benefit Plan,
and have performed all their material obligations under each Employee Benefit
Plan.
B. No ERISA Events have occurred or are reasonably expected to occur
which individually or in the aggregate resulted in or might reasonably be
expected to result in a liability of the Company or any Subsidiary of the
Company or any of their respective ERISA Affiliates in excess of $100,000 during
the term of this Agreement.
C. Except as disclosed on Schedule C and except to the extent
required under Section 4980B of the Internal Revenue Code, no Employee Benefit
Plan provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employees of the Company or any Subsidiary
of the Company or any of their respective ERISA Affiliates.
D. In accordance with the most recent actuarial valuations, the
Amount of Unfunded Benefit Liabilities individually or in the aggregate for all
Pension Plans (excluding for purposes of such computation any Pension Plans
which have a negative Amount of Unfunded Benefit Liabilities), does not exceed
$100,000.
E. None of the Company or any of its Subsidiaries is a party to any
Foreign Plans. For purposes hereof, the term "Foreign Plans" shall mean any
plan, program, policy, arrangement or agreement maintained or contributed to by,
or entered into with, the Company or any of its Subsidiaries with respect to
employees employed outside the United States.
4.14 Compliance with Law
<PAGE> 61
The Company and each of its Subsidiaries is in compliance with all
Laws, except where the failure to comply, singly or in the aggregate, would not
have a Material Adverse Effect.
4.15 Government Regulation
Neither the Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940 (as any of the preceding acts have
been amended) or other Law which regulates the Incurrence by the Company or any
of its Subsidiaries of Indebtedness, including, but not limited to, Laws
relating to common contract carriers or the sale of electricity, gas, steam,
water or other public utility services.
4.16 Capital Structure and Subsidiaries
After giving effect to the Transactions, the Company will have no
interest in any Person other than the Subsidiaries of the Company set forth on
Schedule B and other Investments of the Company as set forth on Schedule D and
the Company will own, free and clear of all Liens, claims or restrictions on
voting or transfer (other than as permitted by this Agreement), 100% of all
classes of outstanding Capital Stock of each of the entities set forth on such
Schedule B, except as specified on Schedule B. All of the issued and outstanding
shares of Capital Stock of the Company and of each of its Subsidiaries is, and
at and as of the date of consummation of the Transactions will be, duly
authorized, validly issued, fully paid and nonassessable.
4.17 Intellectual Property
A. Schedule E sets forth a complete and correct list, as of the
Closing Date, of: (i) all patented or registered Intellectual Property and
pending patent applications or applications for registration of Intellectual
Property owned or filed by or on behalf of the Company or any of its
Subsidiaries; (ii) all trade names and unregistered trademarks or service marks
owned by or used by the Company or any of its Subsidiaries; and (iii) all
licenses of Intellectual Property to which the Company or any of its
Subsidiaries is a party, either as licensee or licensor. Except as set forth on
Schedule E, the Company and its Subsidiaries own or are licensed to use all
material Intellectual Property necessary to permit the operation of their
businesses as currently conducted.
B. Except as disclosed on Schedule E, no material claim has been
asserted by any Person with respect to the use of any such Intellectual
Property, or challenging or questioning the validity or effectiveness of any
such
<PAGE> 62
Intellectual Property. Except as disclosed on Schedule E, the use of such
Intellectual Property by the Company or any of its Subsidiaries does not
infringe on the rights of any Person, subject to such claims and infringements
as do not, in the aggregate, give rise to any liabilities on the part of the
Company or any of its Subsidiaries that are material to the Company and its
Subsidiaries, taken as a whole. The consummation of the Transactions will not in
any material manner or to any material extent impair the ownership of (or the
license to use, as the case may be) any of such Intellectual Property by the
Company or any of its Subsidiaries.
4.18 Environmental Matters
Except as set forth on Schedule F:
(i) the operations of each of the Company and its Subsidiaries
(including, without limitation, all operations and conditions at or in the
Facilities) comply in all material respects with all Environmental Laws,
except for any such noncompliance which would not reasonably be expected
to have a Material Adverse Effect;
(ii) each of the Company and its Subsidiaries has obtained all
Permits under Environmental Laws necessary to their respective operations,
and all such Permits are being maintained in good standing, and each of
the Company and its Subsidiaries is in compliance with all material terms
and conditions of such Permits, except for any such failure to obtain,
maintain or comply which would not reasonably be expected to have a
Material Adverse Effect;
(iii) none of the Company or its Subsidiaries has received (a) any
notice or claim to the effect that it is or may be liable to any Person
under any Environmental Law, including without limitation, any relating to
any Hazardous Materials, except as would not reasonably be expected to
have a Material Adverse Effect, or (b) any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9604) or comparable foreign
or state laws regarding any matter which could reasonably be expected to
result in a Material Adverse Effect, and, to the best of the Company's
knowledge, none of the Company or its Subsidiaries is involved in any
investigation, response or corrective action relating to or in connection
with any Hazardous Materials at any Facility or at any other location,
except for such of the foregoing which would not reasonably be expected to
have a Material Adverse Effect;
<PAGE> 63
(iv) none of the Company or its Subsidiaries is subject to any
judicial or administrative proceeding alleging the violation of or
liability under any Environmental Laws which if adversely determined could
reasonably be expected to have a Material Adverse Effect;
(v) none of the Company or its Subsidiaries or any of their
respective Facilities or operations are subject to any outstanding written
order or agreement with any governmental authority or private party
relating to (a) any actual or potential violation of or liability under
Environmental Laws or (b) any Environmental Claims, except for such of the
foregoing which would not reasonably be expected to have a Material
Adverse Effect;
(vi) none of the Company or its Subsidiaries has any contingent
liability in connection with any Release or threatened Release of any
Hazardous Materials by any of the Company or its Subsidiaries, except for
such of the foregoing which would not reasonably be expected to have a
Material Adverse Effect;
(vii) none of the Company or its Subsidiaries or, to the best of the
Company's knowledge, any predecessor of any of the Company or its
Subsidiaries has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent except in
compliance in all material respects with Environmental Laws;
(viii) no Hazardous Materials exist on, under or about any Facility
in a manner that would reasonably be expected to give rise to an
Environmental Claim having a Material Adverse Effect, and none of the
Company or its Subsidiaries has filed any notice or report of a Release of
any Hazardous Materials that would reasonably be expected to give rise to
an Environmental Claim having a Material Adverse Effect;
(ix) none of the Company or its Subsidiaries or, to the best of the
Company's knowledge, any of their respective predecessors has disposed of
any Hazardous Materials in a manner that would reasonably be expected to
give rise to an Environmental Claim having a Material Adverse Effect;
(x) no underground storage tanks or surface impoundments are on or
at any Facility; and
(xi) no Lien in favor of any Person relating to or in connection
with any Environmental Claim has been
<PAGE> 64
filed or has been attached to any Facility or other assets of the Company
or any of its Subsidiaries, except for any such Lien which would not
reasonably be expected to have a Material Adverse Effect.
Notwithstanding anything in this Section 4.18 to the contrary, to the Company's
knowledge, no event or condition has occurred which may interfere with present
compliance by the Company or its Subsidiaries with any Environmental Law, or
which may give rise to any liability under any Environmental Law, including,
without limitation, any matter disclosed on Schedule F which, individually or in
the aggregate, has had a Material Adverse Effect.
4.19 Survival of Representations and Warranties
Subject to Section 10.10B, all representations and warranties in the
Loan Documents shall survive delivery of the Bridge Notes and the making of the
Bridge Loan and shall continue until one year after repayment of the Notes and
the Obligations, and any investigation at any time made by or on behalf of the
Lenders shall not diminish the Lenders' right to rely thereon.
4.20 Permits
Except as disclosed on Schedule G, the Company and its Subsidiaries
have such certificates, permits, licenses, franchises, consents, approvals,
authorizations and clearances that are material to the condition (financial or
otherwise), business or operations of the Company and its Subsidiaries, taken as
a whole ("Permits"), and are (and will be immediately after the consummation of
the Transactions) in compliance in all material respects with all applicable
Laws of all Tribunals as are necessary to own, lease or operate their respective
properties and to conduct their businesses in the manner as presently conducted
and to be conducted immediately after the consummation of the Transactions, and
all such Permits are valid and in full force and effect and will be valid and in
full force and effect immediately upon consummation of the Transactions. The
Company and its Subsidiaries are, and immediately after the consummation of the
Transactions will be, in compliance in all material respects with their
respective obligations under such Permits and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination of such
Permits, except for any such revocation or termination as would not, singly or
in the aggregate, have a Material Adverse Effect.
4.21 Insurance
The Company and its Subsidiaries carry or are entitled to the
benefits of insurance (including self-
<PAGE> 65
insurance) in such amounts and covering such risks as is generally maintained by
companies of established repute engaged in the same or similar businesses, and
all such insurance is (and will be immediately after the consummation of the
Transactions) in full force and effect.
4.22 Labor Matters
No labor disturbance by the employees of the Company and its
Subsidiaries exists or, to the best knowledge of the Company, is threatened, and
the Company is not aware of any existing or imminent labor disturbance by the
employees of the Company's or its Subsidiaries' principal suppliers,
manufacturers or customers that, singly or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
4.23 Guarantees
Each Subsidiary Guarantor shall, on the date it executes and
delivers a Guarantee hereunder, have the full corporate power, authority and
capacity to execute and deliver such Guarantee and to perform all of its
obligations to be performed thereunder; all corporate and other acts, conditions
and things required to be done and performed or to have occurred prior to such
execution and delivery to constitute such Guarantee as a valid and legally
binding obligation of such Subsidiary Guarantor enforceable in accordance with
its terms shall have been done and performed and shall have occurred in due
compliance in all material respects with all applicable Laws; on the date of
such execution and delivery, the execution, delivery and performance of such
Guarantee by such Subsidiary Guarantor will not (i) violate any provision of Law
or any provision of the charter or bylaws of such Subsidiary Guarantor, or (ii)
result in a breach of, a default under (including, without limitation, any event
which with notice or lapse of time, or both, would constitute a breach of or a
default under), or the creation of any Lien on the properties or assets of such
Subsidiary Guarantor, the Company or any other Subsidiary of the Company under
any Contract to which such Subsidiary Guarantor or the Company or any other
Subsidiary of the Company is a party or by which the properties or assets of
such Subsidiary Guarantor, the Company or any other Subsidiary of the Company
may be bound except, in any case other than a violation of the charter or bylaws
of such Subsidiary Guarantor, for any breach, default or violation that could
not reasonably be expected to result in a Material Adverse Effect; on the date
of such execution and delivery, each Guarantee executed and delivered by a
Subsidiary Guarantor shall constitute legal, valid, binding and unconditional
obligations of the Subsidiary Guarantor executing and delivering it to the
Lenders hereunder, enforceable in accordance with its terms, except to the
<PAGE> 66
extent that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law); and
the foregoing representations and warranties of the Company shall be deemed for
all purposes to have been made on each date when a Guarantee is delivered
hereunder with respect solely to that Guarantee and the Subsidiary Guarantor so
issuing such Guarantee.
4.24 Senior Indenture; etc.
Each of the Company and the Subsidiary Guarantors shall (to the
extent such documents are executed), on the date it executes and delivers the
Senior Indenture and the Exchange Notes and the Demand Take-Out Notes and the
indenture governing the Demand Take-Out Notes (or the guarantees related
thereto, as the case may be), have the full corporate power, authority and
capacity to do so and to perform all of its obligations to be performed
thereunder; all corporate and other acts, conditions and things required to be
done and performed or to have occurred prior to such execution and delivery to
constitute them as valid and legally binding obligations of the Company
enforceable against the Company and the Subsidiary Guarantors in accordance with
their respective terms, except to the extent that the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law), shall have been done and performed and shall
have occurred in due compliance with all applicable Laws; on the date, if any,
of such execution and delivery by the Company and the Subsidiary Guarantors, the
Senior Indenture and the Exchange Notes and the Demand Take-Out Notes (and the
guarantees) and the indenture governing the Demand Take-Out Notes shall
constitute legal, valid, binding and unconditional obligations of the Company
and the Subsidiary Guarantors, as the case may be, enforceable against the
Company and the Subsidiary Guarantors, as the case may be, in accordance with
their respective terms, except to the extent that the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
4.25 Broker's or Finder's Fees
Except as set forth on Schedule H, no broker's or finder's fees or
commissions will be payable by the Company
<PAGE> 67
or any of its Subsidiaries with respect to any transaction contemplated hereby
and no similar fees or commissions will be payable by the Company or any of its
Subsidiaries for any other services rendered to the Company or any of its
Subsidiaries in connection with the transactions contemplated hereby and
thereby.
4.26 Security Interests
On and after the Closing Date, each of the Security Documents
creates (or after the execution and delivery thereof and, where applicable,
filing and/or recording thereof will create), as security for the Obligations, a
valid and enforceable perfected security interest in and Lien on all of the
Pledged Collateral subject thereto, superior to and prior to the rights of all
third Persons, and subject to no Liens other than Prior Liens and Liens
permitted under the Security Documents or under this Agreement. No filings or
recordings are required in order to perfect the security interests created under
any Security Document except for filings or recordings required in connection
with any such Security Document which shall have been made on or prior to the
Closing Date as contemplated by Section 3.1U or on or prior to the execution and
delivery thereof as contemplated by Section 5.15.
SECTION 5 AFFIRMATIVE COVENANTS
The Company covenants and agrees that, until the Loans and the Notes
and all other amounts due under this Agreement have been paid in full it shall
perform all covenants in this Section 5 required to be performed by it:
5.1 Financial Statements and Other Reports
The Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of consolidated financial
statements in conformity with GAAP. The Company will deliver to each Lender and
the Agent:
(i) as soon as available and in any event within 30 days after the
end of each month ending after the Closing Date, (1) the consolidated
balance sheet of the Company and its Subsidiaries and the consolidating
balance sheets of the Company and the Material Subsidiaries, in each case
as at the end of such month, and (2) the related consolidated and
consolidating statements of income, stockholders' equity and cash flows,
in each case for such month and for the period from the beginning of the
then current fiscal year to the end of such month, setting forth in each
case in
<PAGE> 68
comparative form the corresponding consolidated figures for the
corresponding periods of the previous fiscal year and the corresponding
figures from the consolidated plan and financial forecast for the current
fiscal year delivered pursuant to Section 5.1(x), all in reasonable detail
and certified by the chief financial officer or the controller of the
Company that they fairly present the financial condition of such entities
as at the dates indicated and the results of their operations and their
cash flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments;
(ii) as soon as available and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year, (1)
the consolidated balance sheet of the Company and its Subsidiaries and the
consolidating balance sheets of the Company and the Material Subsidiaries
as at the end of such fiscal quarter, (2) the related consolidated and
consolidating statements of income, stockholders' equity and cash flows
for such fiscal quarter and for the period from the beginning of the then
current fiscal year to the end of such fiscal quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding periods of the previous fiscal year and the corresponding
figures from the consolidated plan and financial forecast for the current
fiscal year delivered pursuant to Section 5.1(x), all in reasonable detail
and certified by the chief financial officer or the controller of the
Company that they fairly present, in all material respects, the financial
condition of each the Company and its Subsidiaries and the Company and the
Material Subsidiaries, as the case may be, at the dates indicated and the
results of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments, and (3) only if the Company does not file quarterly reports
on Form 10-Q with the Commission, a narrative report describing the
operations of the Company and its Subsidiaries (in the form of
management's discussion and analysis of such operations which would comply
with the disclosure requirements of the Exchange Act and rules and
regulations promulgated thereunder with respect to management's discussion
and analysis set forth in quarterly reports on Form 10-Q) prepared for
such fiscal quarter and for the period from the beginning of the then
current fiscal year to the end of such fiscal quarter;
(iii) as soon as available and in any event within 100 days after
the end of each fiscal year, (1) the consolidated balance sheet of the
Company and its Subsidiaries and the consolidating balance sheets of
<PAGE> 69
the Company and the Material Subsidiaries as at the end of such fiscal
year, (2) the related consolidated and consolidating statements of income,
stockholders' equity and cash flows for such fiscal year, setting forth in
each case in comparative form the corresponding figures for the previous
fiscal year and the corresponding figures from the consolidated plan and
financial forecast for the current fiscal year delivered pursuant to
Section 5.1(x) for the fiscal year covered by such financial statements,
all in reasonable detail and certified by the chief financial officer or
the controller of the Company that they fairly present in all material
respects the financial condition of the Company and its Subsidiaries and
the Company and the Material Subsidiaries, as the case may be, at the
dates and the results of their operations and their cash flows for the
periods indicated, (3) the Company's annual report on form 10-K for such
year, (4) only if the Company does not file annual reports on Form 10-K
with the Commission, a narrative report describing the operations of the
Company and its Subsidiaries (in the form of management's discussion and
analysis of such operations which would comply with the disclosure
requirements of the Exchange Act and rules and regulations promulgated
thereunder with respect to management's discussion and analysis set forth
in annual reports on Form 10-K) prepared for such fiscal year, and (5) in
the case of such consolidated financial statements, a report thereon of
independent certified public accountants of recognized national standing,
which report shall be unqualified as to scope of audit, shall express no
doubts about the ability of the Company and its Subsidiaries to continue
as a going concern, and shall state that such consolidated financial
statements fairly present in all material respects the consolidated
financial position of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years (except as otherwise disclosed in such financial
statements) and that the examination by such accountants in connection
with such consolidated financial statements has been made in accordance
with generally accepted auditing standards;
(iv) together with each delivery of financial statements pursuant to
Sections 5.1(ii) and (iii) above, an Officers' Certificate of the Company
stating that the signers have reviewed the terms of this Agreement and the
Notes and have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and condition of the
Company and its Subsidiaries during the accounting period
<PAGE> 70
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting period,
and that the signers do not have knowledge of the existence as of the date
of the Officers' Certificate, of any condition or event which constitutes
an Event of Default or Potential Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken, is taking and
proposes to take with respect thereto;
(v) together with each delivery of consolidated financial statements
pursuant to Section 5.1(iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating
whether, in connection with their audit examination, any condition or
event that constitutes an Event of Default that relates to accounting
matters has come to their attention and, if any such condition or event
has come to their attention, specifying the nature and period of existence
thereof; provided that such accountants shall not be liable by reason of
any failure to obtain knowledge of any such Event of Default that would
not be disclosed in the course of their audit examination, and (b) stating
that based on their audit examination nothing has come to their attention
that causes them to believe that the information set forth and as defined
in the certificates delivered therewith is not fairly stated, in all
material respects, in relation to the financial statements from which it
has been derived;
(vi) promptly upon receipt thereof (unless restricted by applicable
professional standards), copies of all reports in final form (other than
reports of a routine or ministerial nature which are not material)
submitted to the Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of the Company and its Subsidiaries made by such accountants,
including, without limitation, any comment letter submitted by such
accountants to management in connection with their annual audit;
(vii) promptly upon the sending or filing thereof, copies of (a) all
financial statements, reports, notices and proxy statements sent or made
available generally by the Company to their security holders or by any
Subsidiary of the Company to its security holders other than the Company
or another Subsidiary of the Company, (b) all regular and periodic reports
and all registration statements (other than on Form S-8 or a similar form)
and prospectuses, if any, filed by the
<PAGE> 71
Company or any of its Subsidiaries with any securities exchange or with
the Securities and Exchange Commission or any governmental authority
(other than reports of a routine or ministerial nature which are not
material), and (c) all press releases and other statements made available
generally by the Company or any of its Subsidiaries to the public
concerning material developments in the business of the Company or any of
its Subsidiaries;
(viii) promptly upon any executive officer of the Company obtaining
actual knowledge (a) of any condition or event which constitutes an Event
of Default or Potential Event of Default, or becoming aware that any
Lender or Agent has given any notice or taken any other action with
respect to a claimed Event of Default or Potential Event of Default under
this Agreement, (b) that any Person has given any notice to the Company or
any Subsidiary of the Company or taken any other action with respect to a
claimed default or event or condition which could reasonably be expected
to result in an Event of Default referred to in Section 7.2, or (c) of the
occurrence of any event or change that has caused or evidences, either in
any case or in the aggregate, a Material Adverse Effect, an Officers'
Certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action the
Company has taken, is taking and proposes to take with respect thereto;
(ix) promptly upon any executive officer of the Company obtaining
actual knowledge of (X) the institution of, or non-frivolous threat of,
any action, suit, proceeding (whether administrative, judicial or
otherwise), governmental investigation or arbitration against or affecting
the Company or any of its Subsidiaries or any property of the Company or
any of its Subsidiaries (collectively, "Proceedings") not previously
disclosed in writing by the Company to Lenders or (Y) any material
development in any Proceeding that, in any case:
(1) has a reasonable possibility of giving rise to a Material
Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
Transactions;
written notice thereof together with such other information as may be
reasonably available to the
<PAGE> 72
Company or any of its Subsidiaries to enable Lenders and their counsel to
evaluate such matters;
(x) as soon as practicable but in any event no later than 40 days
following the first day of each fiscal year a forecast for each of the
twelve months of the current year of the consolidated balance sheet and
the consolidated statements of income, cash flow and cash position of the
Company and its Subsidiaries and the consolidating balance sheet and the
consolidating statements of income, cash flow and cash position of the
Company and the Material Subsidiaries, together with an outline of the
major assumptions upon which the forecast is based. Together with each
delivery of financial statements pursuant to Sections 5.1(ii) and (iii)
above, the Company shall deliver a comparison of the current year to date
financial results against the budget required to be submitted pursuant to
this Section;
(xi) in writing, promptly upon an executive officer of the Company
obtaining actual knowledge that the Company or any of its Subsidiaries has
received notice of any claim, demand, action, report or investigation of
any potential or actual liability arising in connection with (x) the
non-compliance with or violation of the requirements of any Environmental
Law which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, (y) the release or threatened
release of any Hazardous Material, substance or constituent into the
environment which, in any such case referred to in (x) or (y), could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or which release the Company or any of its
Subsidiaries would have a duty to report to a Tribunal under an
Environmental Law, or (z) the existence of any Environmental Lien on any
properties or assets of the Company or any of its Subsidiaries;
(xii) promptly after the availability thereof, copies of all
material amendments to the certificate of incorporation or by-laws of the
Company or any of its Subsidiaries;
(xiii) promptly upon any Person becoming a Subsidiary of the
Company, a written notice setting forth with respect to such Person (a)
the date on which such Person became a Subsidiary of the Company and (b)
all of the data required to be set forth in Schedule B with respect to all
Subsidiaries of the Company; and
<PAGE> 73
(xiv) with reasonable promptness, such other information and data
with respect to the Company or any of its Subsidiaries or any of their
respective property, business or assets as from time to time may be
reasonably requested by any Lender; provided that no information or data
shall be required to be delivered hereunder or under any other provision
of this Agreement if it would violate any applicable attorney-client or
accountant-client privilege.
(xv) as soon as available, the audited, unaudited and pro forma
financial statements meeting the requirements of Regulation S-X under the
Securities Act of 1933, as amended, of the Company and each Subsidiary
Guarantor.
5.2 Corporate Existence, Etc.
The Company will at all times preserve and keep in full force and
effect its corporate existence and rights and franchises to its business and
those of each of its Subsidiaries, except as permitted by Section 6.7 or where
the failure to so preserve or keep will not, singly or in the aggregate, have a
Material Adverse Effect.
5.3 Payment of Taxes and Claims; Tax Consolidation
A. The Company will, and will cause each of its Subsidiaries to, pay
all material Taxes, assessments and other governmental charges imposed upon it
or any of its material properties or assets or in respect of any of its
franchises, business, income or property before any material penalty accrues
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or may become a Lien upon any of its properties or assets
prior to the time when any material penalty or fine shall be incurred with
respect thereto, provided that no such charge or claim need be paid if the
validity or amount of such charge or claim is being diligently contested in good
faith and if such reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor.
B. The Company will not, nor will it permit any of its Subsidiaries
to, file or consent to the filing of any consolidated income tax return with any
Person (other than the Company or any of its Subsidiaries so long as the filing
of such consolidated income tax return is permitted by applicable law).
5.4 Maintenance of Properties; Insurance
<PAGE> 74
The Company will maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of the Company and its Subsidiaries
and from time to time promptly will make or cause to be made all necessary
repairs, renewals and replacements thereof; provided that nothing in this
Section 5.4 shall prevent the Company or any of its Subsidiaries from
discontinuing the use, operation or maintenance of any such properties, or
disposing of any of them, if such action is in the ordinary course of business
or, in the reasonable good faith judgment of the Company, necessary or desirable
in the conduct of its business or otherwise permitted by this Agreement. The
Company will maintain or cause to be maintained, with financially sound and
reputable insurers or with self insurance programs, in each case to the extent
consistent with prudent business practices and customary in its industry,
insurance with respect to its properties and business and the properties and
businesses of its Subsidiaries against loss or damage of the kinds (including,
in any event, business interruption insurance) and in the amounts customarily
carried or maintained under similar circumstances by corporations of established
reputation engaged in similar businesses and owning similar properties in the
same general respective areas in which the Company and its Subsidiaries operate.
5.5 Inspection
The Company shall permit any authorized representatives designated
by the Agent to visit and inspect any of the properties of the Company or its
Subsidiaries, including, without limitation, its and their financial and
accounting records, and to receive copies and extracts therefrom, and to discuss
its and their affairs, finances and accounts with its and their officers and
independent public accountants (provided that representatives of the Company or
any of its Subsidiaries may, if it so chooses, be present at or participate in
any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and without undue disruption of normal business
operations and as often as may be reasonably requested.
5.6 Equal Security for Loans and Notes
If the Company or any of its Subsidiaries shall create, assume or
suffer to exist any Lien upon any of their respective property or assets,
whether now owned or hereafter acquired, other than Liens permitted by the
provisions of Section 6.2, the Company shall, at the request of the Agent, make
or cause to be made effective provision whereby the Obligations under this
Agreement will be secured by such Lien equally and ratably with any and all
other
<PAGE> 75
Indebtedness thereby secured as long as any such Indebtedness shall be secured;
provided that this covenant shall not be construed as or deemed to be a consent
by the Lenders to any violation of the provisions of Section 6.2; and provided,
further, that the Company shall under no circumstances be required to make or
cause to be made effective provision whereby the Obligations under this
Agreement will be secured, directly or indirectly, by Margin Stock.
5.7 Compliance with Laws, Etc.
The Company shall and shall cause each of its Subsidiaries to comply
with the requirements of all applicable Laws of any Tribunal, to the extent
noncompliance, singly or in the aggregate, could reasonably be expected to have
a Material Adverse Effect.
5.8 Maintenance of Accurate Records, Etc.
The Company shall keep, and will cause each of its Subsidiaries to
keep, true books and records and accounts in which full and correct entries will
be made of all its respective business transactions, and will reflect, and cause
each of its Subsidiaries to reflect, in its respective financial statements
adequate accruals and appropriations to reserves all in accordance with GAAP and
consistent with prior business practices.
5.9 Take-Out Financing
A. The Company agrees that upon request (a "Request") from the
holder or holders of a majority in aggregate principal amount of the Loans then
outstanding made at any time after January 1, 1998 and prior to the earlier of
(x) payment in full of the Loans and (y) the Conversion Date, the Company will
take all reasonable actions necessary or desirable, to the extent reasonably
within its power, so that the Take-Out Bank can, as soon as reasonably
practicable after such Request, publicly sell or privately place the Take-Out
Securities (the "Initial Request Date"). The Company further agrees that upon
reasonable notice by the Take-Out Bank, at any time and from time to time
following the Initial Request Date, the Company will issue and sell Demand
Take-Out Notes upon such terms and conditions as specified in such notice;
provided that (i) the interest rate thereon shall be determined by the Take-Out
Bank to be the rate reasonably necessary to enable the Demand Take-Out Notes to
be sold, in light of the then prevailing market conditions but in no event shall
the interest rate on the Demand Take-Out Notes exceed 15% per annum; (ii) the
Demand Take-Out Notes shall be issued through a private placement; (iii) the
maturity of any Demand Take-Out Notes shall not be earlier than the seventh
<PAGE> 76
anniversary of the Closing Date; and (iv) all other arrangements with respect to
the Demand Take-Out Notes shall be reasonably satisfactory in all respects to
the Take-Out Bank and the Company in light of the then prevailing market
conditions.
B. If it shall be reasonably determined by the Take-Out Bank based
upon the prevailing market conditions that it is necessary and advisable to sell
the Demand Take-Out Notes with an equity component, the Company shall issue
common equity or common equity equivalents to the purchasers of the Demand
Take-Out Notes in such amount as is reasonably necessary in order for the
Company to receive net proceeds from the sale of the Demand Take-Out Notes in an
amount sufficient to repay the Bridge Loan in full; provided that in no event
will the Company be required to issue common equity or common equity equivalents
representing more than 5% of its outstanding common equity (calculated on a
fully-diluted basis) pursuant to this sentence.
5.10 Exchange of Term Notes
The Company will, on the 5th Business Day following the written
request (the "Exchange Request") of the holders of a majority of the Term Notes
bearing interest at the Fixed Rate (which the majority shall be entitled to
deliver on a single occasion):
(i) Execute and deliver, cause each Subsidiary Guarantor to execute
and deliver, and use its best efforts to cause a bank or trust company
acting as trustee thereunder to execute and deliver, the Senior Indenture,
if such Senior Indenture has not previously been executed and delivered;
(ii) Execute and deliver to the holders in accordance with the
Senior Indenture notes in the form attached to the Senior Indenture (the
"Exchange Notes") bearing a fixed interest rate equal to the Fixed Rate in
exchange for such Term Notes dated the date of the issuance of such
Exchange Note, payable to the order of such holders in the same principal
amount as such Term Notes, and cause each Subsidiary Guarantor to endorse
its guarantee thereon; and
(iii) Execute and deliver, and cause each Subsidiary Guarantor to
execute and deliver, to such holders a Registration Rights Agreement, if
such Registration Rights Agreement has not previously been executed and
delivered or, if such Registration Rights Agreement has previously been
executed and delivered and such holders are not already party thereto,
permit such holders to become party thereto.
<PAGE> 77
Term Notes delivered to the Company under this Section 5.10 in
exchange for Exchange Notes shall be canceled and the corresponding amount of
the Term Loan deemed repaid and the Exchange Notes shall be governed by and
construed in accordance with the terms of the Senior Indenture.
The bank or trust company acting as trustee under the Senior
Indenture shall at all times be a corporation organized and doing business under
the laws of the United States of America or the State of New York, in good
standing and having its principal offices in the Borough of Manhattan, in The
City of New York, which is authorized under such laws to exercise corporate
trust powers and is subject to supervision or examination by Federal or State
authority and which has a combined capital and surplus of not less than $50.0
million.
5.11 ERISA Compliance
Each of the Company and its Subsidiaries will (i) make prompt
payment of all contributions which it is obligated to make under all Pension
Plans and which are required to meet the minimum funding standard set forth in
ERISA with respect to each of the Pension Plans, (ii) within 30 days after the
filing thereof, furnish to the Lenders each Schedule B to the annual
return/report (Form 5500 Series), required to be filed with the Department of
Labor and/or the Internal Revenue Service pursuant to ERISA, with respect to
each of the Pension Plans that is not a Multiemployer Plan for each Plan year,
and (iii) notify the Lenders promptly upon becoming aware of any fact, including
but not limited to, any Reportable Event arising in connection with any of the
Pension Plans that is not a Multiemployer Plan, which could be reasonably
expected to constitute grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such Pension Plan, together with a statement as to the action, if
any, proposed to be taken with respect thereto.
5.12 Register
The Company hereby designates the Agent to serve as the Company's
agent, solely for purposes of this Section 5.12, to maintain a register (the
"Register") on which it will record the Loans made by each of the Lenders and
each repayment in respect of the principal amount of the Loans of each Lender.
Failure to make any such recordation, or any error in such recordation shall not
affect the Company's obligations in respect of such Loans. With respect to any
Lender, the transfer of the Loan Commitments of such Lender and the rights to
the principal of, and interest on, any Loan made pursuant to such Loan
Commitments shall not be
<PAGE> 78
effective until such transfer is recorded on the Register maintained by the
Agent with respect to ownership of such Loan Commitments and Loans and prior to
such recordation all amounts owing to the transferor with respect to such Loan
Commitments and Loans shall remain owing to the transferor. The registration of
assignment or transfer of all or part of any Loan Commitments and Loans shall be
recorded by the Agent on the Register only upon the receipt by the Agent of a
properly executed and delivered assignment and assumption agreement pursuant to
Section 10.2A. Coincident with the delivery of such an assignment and assumption
agreement to the Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Lender shall surrender the Note evidencing such Loan, and thereupon
one or more new Notes of the same type and in the same aggregate principal
amount shall be issued to the assigning or transferor Lender and/or the new
Lender.
5.13 Lenders Meeting
The Company will participate in a meeting with the Lenders once
during each fiscal year during which any Obligations are outstanding hereunder
to be held at a location and a time selected by the Company and reasonably
satisfactory to the Required Lenders.
5.14 Additional Subsidiary Guarantors
The Company will cause any Person which becomes a Subsidiary of the
Company (whether by creation, acquisition or otherwise) to execute and deliver a
guarantee, in form and substance satisfactory to the Agent (and with such
documentation relating thereto as the Agent shall require, including, without
limitation, a supplement or amendment to this Agreement and opinions of counsel
as to the enforceability of such guarantee) pursuant to which such Subsidiary
shall become a Subsidiary Guarantor under the Bridge Notes and this Agreement in
accordance with Section 9 with the same effect and to the same extent as if such
Person had been named herein as a Subsidiary Guarantor.
5.15 Additional Security; Further Assurances; Pledge of Additional
Collateral
Promptly, and in any event within 30 days after the acquisition of
assets of the type that would have constituted Pledged Collateral (if the person
acquiring such assets had executed an appropriate Security Document on the
Closing Date) at the Closing Date (the "Additional Collateral"), the Company
will, and will cause each of the Subsidiary Guarantors to, at the request of the
Agent following consultation with the Company as to the value of any such
Additional Collateral, take all necessary action,
<PAGE> 79
including entering into the appropriate security documents and filing the
appropriate financing statements under the provisions of the UCC or applicable
foreign, domestic or local laws, rules or regulations in each of the offices
where such filing is necessary or appropriate to grant the Agent a perfected
Lien in such Pledged Collateral pursuant to and to the full extent required by
the Security Documents and this Agreement; provided that no such action will be
required by the Company or any Subsidiary Guarantor to the extent that any such
Additional Collateral is subject to a preexisting agreement which prohibits the
granting of any additional liens. All actions taken by the parties in connection
with the pledge of Additional Collateral, including, without limitation, costs
of counsel for the Agent, shall be for the account of the Company, which shall
pay all sums due on demand.
SECTION 6 NEGATIVE COVENANTS
The Company covenants and agrees that until the satisfaction in full
of the Loans and the Notes and all other Obligations due under this Agreement it
will fully and timely perform all covenants in this Section 6.
6.1 Indebtedness
The Company shall not, and shall not cause or permit any of its
Subsidiaries, directly or indirectly, to Incur after the Closing Date any
Indebtedness, except for the following ("Permitted Indebtedness"):
(i) the Company and the Subsidiary Guarantors may Incur the
Obligations;
(ii) the Company and the Subsidiary Guarantors may Incur the Bridge
Notes, Term Notes, Take-Out Securities and Exchange Notes;
(iii) the Company and the Subsidiary Guarantors may Incur
obligations under a credit facility (the "New Credit Facility") in an
amount not exceeding $10.0 million; provided, such New Credit Facility is
reasonably acceptable to the Agent;
(iv) the Company and its Subsidiaries may Incur Contingent
Obligations permitted by Section 6.5 and, upon any matured obligations
actually arising pursuant thereto, the Indebtedness corresponding to the
Contingent Obligations so extinguished;
(v) the Company and its Subsidiaries may Incur Indebtedness in
respect of Capital Leases; provided that the aggregate amount of
Indebtedness incurred
<PAGE> 80
under this Section 6.1(v) and Section 6.1(ix) (A) from and after the
Closing Date and on or prior to the Conversion Date, shall not exceed $1.5
million at any time outstanding, and (B) after the Conversion Date, shall
not exceed $3.0 million at any time outstanding;
(vi) the Company and its Subsidiaries may Incur Intercompany
Indebtedness;
(vii) the Company and its Subsidiaries may remain liable with
respect to the Indebtedness which is existing on the Closing Date and is
described on Schedule I;
(viii) the Company and its Subsidiaries may Incur Permitted
Refinancing Indebtedness;
(ix) the Company and its Subsidiaries may Incur Indebtedness to
finance (a) the purchase price of equipment, fixtures and any other
similar property or the remodeling or other improvement costs of any
facility of the Company or any of its Subsidiaries or (b) the purchase
price of any Real Property Assets; provided that the aggregate principal
amount of all such Indebtedness, together with all Indebtedness incurred
under Section 6.1(v) above, (A) from and after the Closing Date and on or
prior to the Conversion Date, shall not exceed $1.5 million at any time
outstanding and (B) after the Conversion Date, shall not exceed $3.0
million at any time outstanding;
(x) Subsidiaries of the Company acquired after the Closing Date may
remain liable with respect to Indebtedness existing immediately prior to
the time any such entity became a Subsidiary of Company in an amount which
does not exceed $1.0 million at any one time outstanding; provided that
such Indebtedness is not incurred in contemplation of such acquisition;
and
(xi) after the Conversion Date, the Company and its Subsidiaries may
Incur other Indebtedness in an aggregate principal amount not to exceed at
any time outstanding $1.0 million.
In addition to the foregoing, at any time after the Conversion Date,
if no Potential Event of Default with respect to payment of principal of, or
interest on, the Notes 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 if immediately
after giving effect to the incurrence of such Indebtedness the Fixed Charge
Coverage Ratio of the Company would be greater than 2.0 to 1.0.
<PAGE> 81
6.2 Liens
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset (including any
document or instrument in respect of goods or accounts receivable) of the
Company or of any of its Subsidiaries, whether now owned or hereafter acquired,
or assign or otherwise convey any right to receive any income or profits
therefrom, except:
(i) Permitted Encumbrances;
(ii) Liens securing the obligations under the New Credit Facility,
provided that such Liens encumber only the accounts receivable, and other
properties and assets related thereto (as determined in good faith by the
board of directors of the Company), of the Company and its Subsidiaries;
(iii) Liens on (a) Real Property Assets or (b) equipment, fixtures
and other similar property of Company and any of its Subsidiaries, in each
case securing Indebtedness described in Sections 6.1(v) and 6.1(ix);
provided that such Liens shall extend only to the equipment, fixtures, and
other similar property so financed (and improvements or attachments
thereto) and the proceeds thereof;
(iv) Liens securing Indebtedness permitted under Section 6.1(x),
which Liens are existing prior to the time the entity which incurred such
Indebtedness became a Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in contemplation of, the
acquisition of such Subsidiary and such Liens extend or cover only the
property and assets of such entity which were covered by such Liens and
which were owned by such entity, in each case at the time such entity
became a Subsidiary of the Company (and improvements or attachments
thereto);
(v) the replacement, extension or renewal of any Lien permitted by
this Section 6.2 upon or in the same property subject to such Lien and as
security for the same obligations or any refinancings thereof to the
extent such refinancings are permitted under Section 6.1; provided that
such Lien does not extend to or cover any property other than the property
covered by such Lien immediately prior to such replacement, extension or
renewal of such Lien (and improvements or attachments thereto) and the
principal of the obligations secured thereby is not increased; and
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(vi) after the Conversion Date, additional Liens securing
Indebtedness or other obligations at any one time outstanding not
exceeding $1.0 million.
6.3 Restricted Payments
(a) The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly (a) declare or pay any dividend, or make
any distribution, on any Capital Stock of the Company (other than dividends or
distributions payable solely in Qualified Capital Stock of the Company), (b)
purchase, redeem or otherwise acquire or retire for value any of the Company's
Capital Stock, or any warrants, rights or options to acquire shares of any class
of such Capital Stock or (c) make any principal payment on, purchase, defease,
redeem, prepay, or otherwise acquire or retire for value, other than any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Subordinated Indebtedness of the Company or of a Subsidiary Guarantor (any
such dividend, distribution, purchase, redemption, acquisition, retirement,
defeasance or prepayment set forth in clauses (a), (b) and (c) above a
"Restricted Payment").
(b) Notwithstanding the foregoing, if no Potential Event of Default
or Event of Default shall have occurred and be continuing or shall be caused as
a consequence thereof, the provisions set forth in the immediately preceding
paragraph will not prevent (1) the acquisition of any shares of Capital Stock of
the Company or the repurchase, redemption or other repayment of any Subordinated
Indebtedness of the Company or of a Subsidiary Guarantor in exchange for or
solely out of the proceeds of the substantially concurrent sale (other than to
the Company or a Subsidiary of the Company) of shares of Qualified Capital Stock
of the Company, (2) the repurchase, redemption or other repayment of any
Subordinated Indebtedness of the Company in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to the Company or a
Subsidiary of the Company) of Subordinated Indebtedness of the Company with a
Weighted Average Life to Maturity equal to or greater than the then remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness repurchased,
redeemed or repaid and (3) repurchases by the Company of Common Stock of the
Company from employees of the Company upon the death, disability or termination
of employment of such employees in an aggregate amount not to exceed $750,000.
6.4 Investments; Joint Ventures
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment (other than
Permitted
<PAGE> 83
Investments) in any Person, including any Joint Venture, except:
(i) the Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date in any Subsidiaries of
the Company and described on Schedule B;
(ii) the Company and its Subsidiaries may continue to own the
Investments owned by them and described on Schedule D;
(iii) the Company and its Subsidiaries may accept promissory notes
received in consideration of, or the deferral of a portion of the sales
price accepted with respect to, any Asset Sale permitted under Section
6.14;
(iv) the Company and its Subsidiaries may make and own Investments
received in connection with the bankruptcy of suppliers and customers or
received pursuant to a plan of reorganization of any supplier or customer,
in each case in settlement of delinquent obligations or disputes with such
suppliers or customers;
(v) the Company or any of its Subsidiaries may make loans to its
employees for the purpose of purchasing Common Stock of the Company; and
so long as no Potential Event of Default or Event of Default shall have
occurred and be continuing, the Company or any of its Subsidiaries may
make loans to its employees for other bona fide business purposes;
provided that the aggregate amount of such loans shall not exceed $1.0
million at any time outstanding; and
(vi) The Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed $1.0 million (including
the amount of any Indebtedness constituting the deferred purchase price
payable in connection with any Asset Sale and any amounts that may become
payable in connection therewith as a result of post-closing adjustments)
at any time outstanding.
6.5 Contingent Obligations
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, create or become or remain liable with
respect to any Contingent Obligation, except:
(i) the Company and its Subsidiaries may become and remain liable
with respect to Contingent
<PAGE> 84
Obligations outstanding on the Closing Date described in Schedule H;
(ii) the Subsidiary Guarantors may become and remain liable with
respect to Contingent Obligations under the Guarantees;
(iii) the Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with the Recapitalization, additional acquisitions of assets or
stock, Asset Sales or other sales of assets; provided that the maximum
assumable liability in respect of all such obligations in connection with
Asset Sales or other sales shall at no time exceed the gross proceeds
actually received by the Company and its Subsidiaries in connection with
such Asset Sales and other sales;
(iv) the Company and its Subsidiaries may become and remain liable
with respect to guarantees of Indebtedness or other obligations of a
Wholly-Owned Subsidiary of the Company and a Subsidiary of the Company may
become and remain liable with respect to guarantees of Indebtedness or
other obligations of the Company or a Wholly-Owned Subsidiary of the
Company; and
(v) after the Conversion Date, the Company and its Subsidiaries may
become and remain liable with respect to other Contingent Obligations;
provided that the maximum aggregate liability, contingent or otherwise, of
the Company and its Subsidiaries in respect of all such Contingent
Obligations shall at no time exceed $500,000.
6.6 Senior Indebtedness
Neither the Company nor any of the Subsidiary Guarantors shall,
directly or indirectly, Incur any Indebtedness that is by its terms (or by the
terms of any agreement governing such Indebtedness) subordinated in right of
payment to any other Indebtedness of the Company or of such Subsidiary Guarantor
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate in right of payment to
the Loans and the Notes and the Guarantees.
6.7 Restriction on Fundamental Changes
Subject to Section 5.2 and other than the sale of 100% of a
Subsidiary of the Company in accordance with Section 2.5A(ii)(a) and Section
6.14, the Company shall not,
<PAGE> 85
and shall not cause or permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction, or series of related transactions, of
merger, amalgamation, consolidation or combination, or consolidate, or
liquidate, windup or dissolve itself (or suffer any liquidation or dissolution),
or convey, sell, lease, sublease, transfer or otherwise dispose of, in one
transaction or in a series of transactions, all or substantially all of its
business, property or assets, whether now owned or hereafter acquired, except
that any Subsidiary of the Company may be merged, amalgamated, consolidated or
combined with or into the Company or any Wholly-Owned Subsidiary of the Company
(including any entity that will become a Wholly-Owned Subsidiary of the Company
as a result of such transaction) or be liquidated, wound up or dissolved, or all
or substantially all of its business, property or assets may be conveyed, sold,
leased, transferred or otherwise disposed of, in one transaction or in a series
of transactions, to the Company or to any Wholly-Owned Subsidiary of the
Company; provided that (A) no Potential Event of Default or Event of Default
shall have occurred and be continuing or would result therefrom, (B) in the case
of such a merger, amalgamation, consolidation or combination of the Company and
a Subsidiary of the Company, the Company shall be the continuing or surviving
corporation, and (C) the surviving entity (I) continues to be bound as such
under this Agreement or the Guarantee of such Subsidiary Guarantor, as the case
may be, and (II) executes and delivers to the Agent immediately upon
consummation of such transaction a written confirmation or acknowledgment to
such effect, in form and substance satisfactory to the Agent, together with
evidence of appropriate corporate power, authority and action and a written
legal opinion in form and substance satisfactory to the Agent to the effect that
this Agreement and such Guarantee continue to be a legal, valid and binding
obligation of such entity, enforceable against such entity in accordance with
its terms (subject to customary exceptions in respect of bankruptcy, insolvency
and other equitable remedies) and with respect to such other matters as the
Agent may reasonably request provided, further, that if such transaction and the
assumption contemplated by clause (C)(I) above occurs after the Conversion Date,
the Company (i) 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 pursuant to
Section 6.1.
6.8 Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit or
suffer to exist or
<PAGE> 86
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, such
Subsidiary's profits; (b) make loans or advances or pay any Indebtedness or
other obligation owed to the Company or to any Subsidiary of the Company; or (c)
transfer any of its property or assets to the Company or to any Subsidiary of
the Company (any such restriction or encumbrance a "Payment Restriction"),
except for such encumbrances or restrictions existing under or by reason of: (1)
any restrictions contained in (i) the Loan Documents, the Senior Indenture and
any agreement or instrument governing the New Credit Facility or the Take-Out
Securities or Exchange Notes to the extent Incurred in accordance with this
Agreement; (ii) the Indebtedness pertaining to a Subsidiary of the Company that
is not a Subsidiary of the Company on the Closing Date in existence at the time
such Subsidiary becomes a Subsidiary of the Company; provided that any such
Indebtedness was not incurred as a result of, in connection with or in
anticipation of the transaction pursuant to which such entity becomes a
Subsidiary of the Company and it does not apply to any Person, or the properties
of assets of any Person, other than the Subsidiary acquired and such
Indebtedness is otherwise permitted to be incurred pursuant to Section 6.1; or
(iii) secured Indebtedness otherwise permitted to be incurred pursuant to
Sections 6.1 and 6.2 that limits the right of the debtor to dispose of the
assets securing such Indebtedness; (2) customary non-assignment provisions of
any lease governing a leasehold interest of any Subsidiary of the Company or any
other contract governing the rights thereunder of a Subsidiary or the Company;
(3) customary net worth provisions contained in leases and other agreements
entered into by a Subsidiary in the ordinary course of business; (4) customary
restrictions with respect to a Subsidiary 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 Subsidiary; (5) applicable law; and (6) any
instrument that Refinances any Indebtedness effecting any such encumbrance or
restriction pursuant to clause (1) above; provided that the provisions relating
to any such encumbrance or restriction in any such instrument are not materially
less favorable to the Company or its Subsidiaries or the Lenders than those
contained in the agreements referred to in clause (1).
6.9 Transactions with Shareholders and Affiliates
(a) The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the
<PAGE> 87
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 such
transaction, an "Affiliate Transaction") or of any such holder other than (x)
Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are no less favorable 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
Subsidiary. With respect to all Affiliate Transactions involving aggregate
payments equal to or in excess of $100,000 and less than $1.0 million, the
Company or such Subsidiary, as the case may be, shall have delivered an
officers' certificate to the Agent certifying that such transaction or series of
transactions complies with clause (y) above. 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 and less than $3.0 million shall be approved by
the Board of Directors of the Company or such Subsidiary, as the case may be,
such approval to be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any 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 $3.0
million, the Company or such 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
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Agent.
(b) The foregoing restriction shall not apply to the following
"Permitted Affiliate Transactions": (i) any transaction exclusively between the
Company and any of the Subsidiary Guarantors or exclusively between any of the
Subsidiary Guarantors to the extent any are otherwise in compliance with all of
the terms of this Agreement, (ii) reasonable and customary fees paid to members
of the Board of Directors of the Company and of its Subsidiaries, (iii)
reasonable and customary fees and compensation paid to, and indemnity provided
on behalf of, officers, directors or employees of the Company or any of its
Subsidiaries, as determined by the Board of Directors of the Company or any such
Subsidiary or the senior management thereof in good faith, including, without
limitation, issuances of stock, payment of bonuses and other transactions
pursuant to employment or compensation agreements, stock option agreements,
indemnification agreements and other arrangements in effect on the Closing Date
or substantially
<PAGE> 88
similar thereto and (iv) management fees in an aggregate amount of $250,000 per
year.
6.10 Subsidiary Stock
Except for any sale of 100% of the Capital Stock or other equity
securities of any of the Company's Subsidiaries in compliance with the
provisions of Section 6.7, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of Capital Stock or other equity securities of
any of its Subsidiaries, except (i) to qualify directors if required by
applicable law, (ii) to the Company or to a Wholly-Owned Subsidiary of the
Company, or (iii) Asset Sales made in compliance with this Agreement.
6.11 Business Activities
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, materially alter the nature of the
consolidated business of the Company and its Subsidiaries from that in existence
immediately after giving effect to the Transactions and similar, related or
complementary businesses.
6.12 Amendments to Charter Documents
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, amend its certificate of incorporation or bylaws in any respect
which could be materially adverse to the interests of the Lenders.
6.13 Refinancing of the Loans in Part
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, Incur any Indebtedness to Refinance the Loans in part other
than the Demand Take-Out Notes or the Exchange Notes, unless the terms,
conditions, covenants, events of default and other provisions in respect of the
instruments evidencing the Indebtedness Incurred to Refinance the Loans in part
shall have been approved in writing by the Agent prior to the Incurrence of any
such Indebtedness (such approval not to be unreasonably withheld or delayed);
provided that, prior to the Conversion Date, no Refinancing in part shall result
in the amount of the Loans outstanding being less than $60.0 million and no
Refinancing in part shall occur at a time when the amount of the Loans
outstanding is less than $60.0 million.
6.14 Asset Sales
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly,
<PAGE> 89
consummate any Asset Sale unless (1) such Asset Sale occurs after the Conversion
Date, (2) the Company or such Subsidiary, as the case may be, receives
consideration therefor at the time thereof at least equal to the fair market
value at the time of such Asset Sale of the property, assets or stock that is
the subject of such Asset Sale, (3) at least 85% of the consideration received
therefor by the Company or such Subsidiary is in the form of cash or Cash
Equivalents and (4) all of the Net Cash Proceeds in respect thereof are applied
by the Company or a Subsidiary of the Company in accordance with Section
2.5A(ii)(a).
Nothing in this covenant shall be deemed to prevent the exercise of
remedies by secured creditors of the Company or any Subsidiary of the Company.
6.15 Transfer of Assets to Subsidiaries
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, transfer (other than in the ordinary
course of business and other than pursuant to a Permitted Investment) any assets
or property to any Subsidiary of the Company unless such Subsidiary pays fair
market value therefor to the Company or to a Wholly-Owned Subsidiary of the
Company and except as provided in Sections 6.3, 6.4, 6.5, 6.7 and 6.9. For
purposes of this Section 6.16, except to the extent permitted by any of such
Sections the fair market value paid by such Subsidiary shall not consist in
whole or in part of any securities or debt instruments of such Subsidiary or of
any Affiliate of such Subsidiary.
SECTION 7 EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
7.1 Failure To Make Payments When Due
Failure to pay any installment of principal of the Loans when due,
whether at stated maturity, by acceleration, by notice of prepayment or
otherwise; or failure to pay any interest on the Loans or any other amount due
under this Agreement within (A) prior to the time the Term Loan shall accrue
interest at a Fixed Rate, ten days or more after the date due or (B) after such
time as the Term Loan shall accrue interest at a Fixed Rate, 30 days after the
date due; or
7.2 Default in Other Agreements
(A) Failure of the Company or any of its Subsidiaries to pay at
final maturity principal on one or
<PAGE> 90
more issues of Indebtedness of the Company or of any of its Subsidiaries (other
than Indebtedness referred to in Section 7.1) or (B) breach or default by the
Company or any of its Subsidiaries with respect to any other term of any one or
more issues of Indebtedness of the Company or of any of its Subsidiaries or any
agreement or instrument evidencing or securing such Indebtedness and such breach
or default results in the acceleration of that Indebtedness prior to its stated
maturity and, in any case, the principal amount of such Indebtedness and all
other such Indebtedness of the Company and its Subsidiaries in respect of which
there is such a failure to pay principal or which has been so accelerated equals
$1.0 million or more; or
7.3 Breach of Certain Covenants
Failure of the Company to perform or comply with any covenant, term
or condition contained in Section 2.5A(ii), 2.5A(iv) or 5.2; or
7.4 Breach of Warranty
Any representation, warranty or certification made by the Company in
any Loan Document or in any statement or certificate at any time given by the
Company in writing pursuant hereto or thereto or in connection herewith or
therewith shall be false or incorrect in any material respect on the date as of
which made or deemed made; or
7.5 Other Defaults Under Agreement or Loan Documents
The Company shall default in the performance of or compliance with
any covenant, term or condition contained in this Agreement or the other Loan
Documents (other than those covered by Section 7.1, 7.3, 7.4 or 7.10) and such
default shall not have been remedied or waived in accordance with this Agreement
within 30 days after the date of written notice from the holder or holders of
not less than 25% in aggregate principal amount of the Loans then outstanding of
such default; or
7.6 Involuntary Bankruptcy; Appointment of Custodian, Etc.
A court of competent jurisdiction enters a Bankruptcy Order under
any Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary in
an involuntary case or proceeding, or
<PAGE> 91
(B) appoints a Custodian of the Company or any Material Subsidiary
for all or substantially all of its properties, or
(C) orders the liquidation of the Company or any Material
Subsidiary;
and in each case the order or decree remains unstayed and in effect for 60 days;
or
7.7 Voluntary Bankruptcy; Appointment of Custodian, Etc.
The Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding, or
(B) consents to the entry of a Bankruptcy Order for relief against
it in an involuntary case or proceeding, or
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors or
files a proposal or scheme of arrangement involving the rescheduling or
composition of its indebtedness, or
(E) consents to the filing of a petition in bankruptcy against it,
or
(F) shall generally not pay its debts when such debts become due or
shall admit in writing its inability to pay its debts generally; or
7.8 Judgments and Attachments
Any money judgment, writ or warrant of attachment, or similar
process involving in any individual case or in the aggregate at any time an
amount in excess of $1.0 million (to the extent not covered by third-party
insurance as to which the insurance company has acknowledged coverage) shall be
entered or filed against the Company or any of its Subsidiaries or any of their
respective properties or assets and shall remain undischarged, unvacated,
unbonded or unstayed for a period of 60 days or in any event later than five
days prior to the date of any proposed sale thereunder; or
7.9 Dissolution
<PAGE> 92
Any order, judgment or decree shall be entered against the Company
or any Material Subsidiary decreeing the dissolution or split-up of the Company
or that Material Subsidiary and such order shall remain undischarged or unstayed
for a period in excess of 60 days; or
7.10 Guarantee
(i) Any Guarantee or any material provision thereof shall cease to
be in full force or effect (other than in accordance with its express terms), or
(ii) any Subsidiary Guarantor or any Person acting by or on behalf of such
Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's
obligations under its Guarantee, or (iii) any Subsidiary Guarantor shall default
in the due performance or observance of any term, covenant or agreement on its
part to be performed or observed, after giving effect to any applicable grace
periods, pursuant to its Guarantee.
THEN (i) upon the occurrence of any Event of Default described in
the foregoing Sections 7.6 or 7.7, all of the unpaid principal amount of and
accrued interest on the Loans and all other outstanding Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company, and the commitments of the Lenders hereunder shall
thereupon terminate, and (ii) upon the occurrence of any other Event of Default,
the Agent shall, upon written notice of the holder or holders of a majority in
aggregate principal amount of the Loans then outstanding, by written notice to
the Company, declare all of the unpaid principal amount of and accrued interest
on the Loans and all other outstanding Obligations to be, and the same shall
forthwith become, due and payable, and the obligations of the Lenders hereunder
shall thereupon terminate. Nevertheless, if at any time after acceleration of
the maturity of the Loans, the Company shall pay all arrears of interest and all
payments on account of the principal thereof which shall have become due
otherwise than by acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement
or the Notes) and all Events of Default and Potential Events of Default (other
than non-payment of principal of and accrued interest on the Loans and the Notes
due and payable solely by virtue of acceleration) shall be remedied or waived
pursuant to Section 10.6, then the Agent shall, upon written notice of the
holders of a majority in aggregate principal amount of the Loans then
outstanding, by written notice to the Company rescind and annul the acceleration
and its consequences; but such action shall not affect any subsequent Event of
Default or Potential Event of Default or impair any right consequent thereon.
<PAGE> 93
SECTION 8 THE AGENT
8.1 Appointment
Each Lender hereby irrevocably designates and appoints BTCo as Agent
of such Lender to act as specified herein and in the other Loan Documents, and
each Lender hereby irrevocably authorizes BTCo as the Agent to take such action
on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
The Agent agrees to act as such upon the express conditions contained in this
Section 8. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other Loan
Documents, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Agent. The provisions
of this Section 8 are solely for the benefit of the Agent and the Lenders, and
neither the Company nor any of its Subsidiaries shall have any rights as a third
party beneficiary of any of the provisions hereof. In performing its functions
and duties under this Agreement, the Agent shall act solely as agent of the
Lenders and the Agent does not assume and shall not be deemed to have assumed
any obligation or relationship of agent or trust with or for the Company or any
of its Subsidiaries.
8.2 Delegation of Duties
The Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care except to the
extent otherwise required by Section 8.3.
8.3 Exculpatory Provisions
Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or the other Loan Documents (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Lenders for any recitals, statements, representations
<PAGE> 94
or warranties made by the Company, any of its Subsidiaries or any of their
respective officers contained in this Agreement, any other Loan Documents, or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for any failure of the Company, any of its Subsidiaries
or any of their respective officers to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or the other Loan
Documents, or to inspect the properties, books or records of the Company or any
of its Subsidiaries. The Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any other Loan Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection herewith
or therewith furnished or made by the Agent to the Lenders or by or on behalf of
the Company or any of its Subsidiaries to the Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Potential Event of Default or Event of Default.
8.4 Reliance by Agent
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, facsimile, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons, and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company or any of its Subsidiaries), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
As between the Agent and the Lenders, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Loan Documents in
<PAGE> 95
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders.
8.5 Notice of Default
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Event of Default or Event of Default hereunder
unless the Agent has actually received notice from a Lender or the Company
referring to this Agreement, describing such Potential Event of Default or Event
of Default and stating that such notice is a "notice of default." In the event
that the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Lenders. The Agent shall take such action with respect to such
Potential Event of Default or Event of Default as shall be reasonably directed
by the Required Lenders; provided that, as between the Agent and the Lenders
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Potential Event of Default or Event of Default as
it shall deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agent and Other Lenders
Each Lender expressly acknowledges that neither the Agent nor any of
its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
the Agent hereinafter taken, including any review of the affairs of the Company
or any of its Subsidiaries, shall be deemed to constitute any representation or
warranty by the Agent to any Lender. Each Lender represents to the Agent that it
has, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, assets, operations,
property, financial and other condition, prospects and creditworthiness of the
Company and its Subsidiaries and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such investigation
as it deems necessary to inform itself as to the business, assets, operations,
property, financial and other condition, prospects and creditworthiness of the
Company and its Subsidiaries. The Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations,
<PAGE> 96
assets, property, financial and other condition, prospects or creditworthiness
of the Company or any of its Subsidiaries which may come into the possession of
the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
8.7 Indemnification
The Lenders agree to indemnify the Agent in its capacity as such
ratably according to their respective "percentages" as used in determining the
Required Lenders at such time, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment in full
of the Obligations) be imposed on, incurred by or asserted against the Agent in
its capacity as such in any way relating to or arising out of this Agreement or
any other Loan Document, or any documents contemplated by or referred to herein
or the transactions contemplated hereby of any action taken or omitted to be
taken by the Agent under or in connection with any of the foregoing, but only to
the extent that any of the foregoing is not paid by the Company or any of its
Subsidiaries; provided that no Lender shall be liable to the Agent for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Agent. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section 8.7 shall
survive the payment in full of all Obligations.
8.8 Agent in Its Individual Capacity
The Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company and its
Subsidiaries as though the Agent were not the Agent hereunder. With respect to
the Loans made by it and all Obligations owing to it, the Agent shall have the
same rights and powers under this Agreement as any Lender and may exercise the
same as though it were not the Agent and the terms "Lender" and "Lenders" shall
include the Agent in its individual capacity.
8.9 Resignation of the Agent; Successor Agent
The Agent may resign as the Agent upon 20 days' notice to the
Lenders and the Company. Upon the resignation of the Agent, the Required Lenders
shall appoint from among
<PAGE> 97
the Lenders a successor Agent which is a bank or a trust company for the Lenders
subject to prior approval by the Company (such approval not to be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall include such
successor agent effective upon its appointment, and the resigning Agent's
rights, powers and duties as the Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the resignation of the Agent hereunder, the provisions of
this Section 8 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement.
SECTION 9 GUARANTEE
9.1 Unconditional Guarantee
Each Subsidiary Guarantor hereby unconditionally, jointly and
severally, guarantees (such guarantee to be referred to herein as the
"Guarantee"), to each of the Lenders and to the Agent and their respective
successors and assigns that (i) the principal of and interest on the Loans will
be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration or otherwise and interest on the overdue
principal, if any, and interest on any interest, to the extent lawful, of the
Loans and all other obligations of the Company to the Lenders or the Agent
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (ii) in case of any extension
of time of payment or renewal of any of the Loans or of any such other
obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any applicable
grace period, whether at stated maturity, by acceleration or otherwise. Each
Subsidiary Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Loans or this Agreement, the absence of any action to enforce the same, any
waiver or consent by any of the Lenders with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Subsidiary Guarantor. Each Subsidiary
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice (except
as contemplated by this Agreement) and all demands whatsoever and covenants that
this Guarantee will
<PAGE> 98
not be discharged except by complete performance of the obligations contained in
the Loans, this Agreement and in this Guarantee. If any Lender or the Agent is
required by any court or otherwise to return to the Company, any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Subsidiary Guarantor, any amount paid
by the Company or any Subsidiary Guarantor to the Agent or such Lender, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between each
Subsidiary Guarantor, on the one hand, and the Lenders and the Agent, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 7 for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Section 7, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of this Guarantee.
9.2 Severability
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
9.3 Release of a Subsidiary Guarantor
Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Company and which sale
or disposition is otherwise in compliance with the terms of this Agreement, such
Subsidiary Guarantor shall be deemed released from all obligations under this
Section 9 without any further action required on the part of the Agent or any
Lender; provided that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
The Agent shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with this Section 9.3. Any
Subsidiary Guarantor not so released remains liable for the full amount of
principal of and interest on the Loans as provided in this Section 9.
<PAGE> 99
9.4 Limitation of Subsidiary Guarantor's Liability
Each Subsidiary Guarantor and by its acceptance hereof each of the
Lenders hereby confirms that it is the intention of all such parties that the
guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute
a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar Federal or state law. To effectuate the foregoing intention, the Lenders
and such Subsidiary Guarantor hereby irrevocably agree that the obligations of
such Subsidiary Guarantor under the Guarantee shall be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to Section 9.7, result in the obligations of such
Subsidiary Guarantor under the Guarantee not constituting such fraudulent
transfer or conveyance.
9.5 Subsidiary Guarantors May Consolidate, etc., on Certain Terms
(a) Nothing contained in this Agreement or in the Loans shall
prevent any consolidation or merger of a Subsidiary Guarantor with or into the
Company or another Subsidiary Guarantor or shall prevent any sale or conveyance
of the property of a Subsidiary Guarantor as an entirety or substantially as an
entirety, to the Company or another Subsidiary Guarantor. Upon any such
consolidation, merger, sale or conveyance, the Guarantee given by such
Subsidiary Guarantor shall no longer have any force or effect.
(b) Except as set forth in Section 6.7, nothing contained in this
Agreement or in the Loans shall prevent any consolidation or merger of a
Subsidiary Guarantor with or into a corporation or corporations other than the
Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor); provided that, subject to Sections 9.4 and 9.5(a), (i)
immediately after such transaction, and giving effect thereto, no Potential
Event of Default or Event of Default shall have occurred as a result of such
transaction and be continuing, and (ii) upon any such consolidation, merger,
sale or conveyance, the Guarantee of such Subsidiary Guarantor set forth in this
Section 9, and the due and punctual performance and observance of all of the
covenants and conditions of this Agreement to be performed by such Subsidiary
Guarantor, shall be expressly assumed (in the event that the Subsidiary
Guarantor is not the surviving corporation in the merger),
<PAGE> 100
by supplemental indenture satisfactory in form to the Agent, executed and
delivered to the Agent, by the corporation formed by such consolidation, or into
which the Subsidiary Guarantor shall have merged, or by the corporation that
shall have acquired such property. In the case of any such consolidation,
merger, sale or conveyance and upon the assumption by the successor corporation,
by supplemental indenture executed and delivered to the Agent and satisfactory
in form and substance to the Agent of the due and punctual performance of all of
the covenants and conditions of this Agreement to be performed by the Subsidiary
Guarantor, such successor corporation shall succeed to and be substituted for
the Subsidiary Guarantor with the same effect as if it had been named herein as
a Subsidiary Guarantor.
9.6 Contribution
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Subsidiary Guarantor") under its Guarantee, such Funding Subsidiary
Guarantor shall be entitled to a contribution from all other Subsidiary
Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all
payments, damages and expenses incurred by that Funding Subsidiary Guarantor in
discharging the Company's obligations with respect to the Obligations. "Adjusted
Net Assets" of such Subsidiary Guarantor at any date shall mean the lesser of
(x) the amount by which the fair value of the property of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date and (y) the amount by
which the present fair salable value of the assets of such Subsidiary Guarantor
at such date exceeds the amount that will be required to pay the probable
liabilities of such Subsidiary Guarantor on its debts (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date and
after giving effect to any collection from any Subsidiary of such Subsidiary
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they
become absolute and matured.
9.7 Waiver of Subrogation
Each Subsidiary Guarantor hereby irrevocably waives, until such time
as all Obligations (other than reimbursement and indemnity obligations for which
no claim has been made) payable under this Agreement have been paid,
<PAGE> 101
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
such Subsidiary Guarantor's obligations under its Guarantee and this Agreement,
including, without limitation, any right of subrogation, reimbursement,
exoneration, indemnification, and any right to participate in any claim or
remedy of any Lender against the Company, whether or not such claim, remedy or
right arises in equity, or under 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 Subsidiary Guarantor in violation of the preceding sentence
and the Loans shall not have been paid in full, such amount shall be deemed to
have been paid to such Subsidiary Guarantor for the benefit of, and held in
trust for the benefit of, the Lenders, and shall, forthwith be paid to the Agent
for the benefit of such Lenders to be credited and applied upon the Loans,
whether matured or unmatured, in accordance with the terms of this Agreement.
Each Subsidiary Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Agreement and that
the waiver set forth in this Section 9.7 is knowingly made in contemplation of
such benefits.
9.8 Evidence of Guarantee
To evidence their guarantees to the Lenders set forth in this
Section 9, each of the Subsidiary Guarantors hereby agrees to execute the
notation of Guarantee in substantially the form included in Exhibit VIII. Each
such notation of Guarantee shall be signed on behalf of each Subsidiary
Guarantor by two Officers, or an Officer and an assistant Secretary or one
Officer shall sign and one Officer or an assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such notation of Guarantee.
9.9 Waiver of Stay, Extension or Usury Laws
Each Subsidiary Guarantor 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 advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive such
Subsidiary Guarantor from performing its Guarantee as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Agreement; and each Subsidiary Guarantor
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede
<PAGE> 102
the execution of any power herein granted to the Agent, but will suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 10 MISCELLANEOUS
10.1 Representation of the Lenders
Each Lender hereby represents that it is a commercial lender which
makes loans in the ordinary course of its business and that it will make the
Loans hereunder for its own account or the account of its affiliates in the
ordinary course of such business.
10.2 Participations in and Assignments of Loans and Notes
A. Each Lender shall have the right at any time to sell, assign,
transfer or negotiate all or any portion of its Notes or its Loan Commitment in
an aggregate amount of not less than $2.5 million to any Eligible Assignee,
other than to an Eligible Assignee which has, or has an Affiliate which has, a
principal line of business similar to any principal line of business of the
Company or any of its Subsidiaries. In the case of any sale, transfer or
negotiation of all or part of the Notes or any Loan Commitment authorized under
this Section 10.2A, the assignee, transferee or recipient shall become a party
to this Agreement as a Lender by execution of an assignment and assumption
agreement; provided that (i) at such time Section 2.1A or 2.2A, as the case may
be, shall be deemed modified to reflect the Loan Commitment of such new Lender
and of the existing Lenders, (ii) upon surrender of the Notes, new Notes will be
issued, at the Company's expense, to such new Lender and to the assigning
Lender, such new Notes to be in conformity with the requirements of Section 2.1D
or 2.2E as the case may be (with appropriate modifications) to the extent needed
to reflect the revised Loan Commitment, and (iii) the Agent shall receive at the
time of each such assignment, from the assigning or assignee Lender, the payment
of a non-refundable assignment fee of $3,500; and provided, further, that such
transfer or assignment will not be effective until recorded by the Agent on the
Register pursuant to Section 5.12. To the extent of any assignment pursuant to
this Section 10.2A, the assigning Lender shall be relieved of its obligations
hereunder with respect to its assigned Loan Commitment, and the assignee,
transferee or recipient shall have, to the extent of such sale, assignment,
transfer or negotiation, the same rights, benefits and obligations as it would
if it were a Lender with respect to such Notes or Loan Commitment, including,
without limitation, the right to approve or disapprove actions which, in
accordance with the terms hereof, require
<PAGE> 103
the approval of a Lender. At the time of each assignment pursuant to this
Section 10.2A to an Eligible Assignee which is not already a Lender hereunder
and which is not a United States Person (as such term is defined in Section
7701(a)(30) of the Internal Revenue Code) for Federal income tax purposes, the
respective Eligible Assignee shall provide to the Company and the Agent the
appropriate Internal Revenue Service Forms (and, if applicable, a Section
10.2E(ii) Certificate) described in Section 10.2E.
B. Each Lender may grant participations in all or any part of its
Notes or its Loan Commitment in an aggregate amount of not less than $2.5
million to any Eligible Assignee, other than to an Eligible Assignee which has,
or has an Affiliate which has, a principal line of business similar to any
principal line of business of the Company or any of its Subsidiaries; provided,
that no Lender shall transfer or grant any participation under which the
participant shall have rights to approve any amendment to or waiver of any
Credit Document except to the extent such amendment or waiver would (i) extend
the Maturity Date, or reduce the rate or extend the time of payment of interest
or Fees on Loans in which such participant is participating or reduce the
principal amount thereof, (ii) consent to the assignment or transfer by the
Company of its rights and obligations under this Agreement or (iii) release
substantially all of the Pledged Collateral under all of the Security Agreement.
No participant shall be entitled to receive any payment in respect of its
participation under Section 10.2 or 10.19 than the applicable Lender would have
been entitled to receive with respect to the rights participated.
C. The Company shall, at its own cost and expense, provide such
certificates, acknowledgments and further assurances in respect of this
Agreement and the Loans as any Lender may reasonably require in connection with
any participation, transfer or assignment pursuant to this Section 10.2.
D. Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loan and Notes hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank.
E. Each Lender that is an assignee or transferee of an interest
under this Agreement pursuant to Section 10.2A (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer) and
that is not a United States Person (as such term is defined in Section
7701(a)(30) of the Internal Revenue Code) agrees to deliver to the Company and
the Agent, on the date of such assignment or transfer to such Lender, (i) two
accurate and complete original signed copies
<PAGE> 104
of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to
such Lender's entitlement to a complete exemption from United States withholding
tax with respect to payments to be made under this Agreement and under any Note,
or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Internal Revenue Code and cannot deliver either Internal Revenue Service
Form 1001 or 4224 pursuant to clause (i) above, two accurate and complete
original signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments of interest to be made under
this Agreement and under any Note. In addition, each Lender agrees that, when a
lapse in time or change in circumstances renders the previous certification
obsolete or inaccurate in any material respect, it will deliver to the Company
and the Agent two new accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001, or Form W-8, as the case may be, and such
other forms as may be required in order to confirm or establish the entitlement
of such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement and any Note, or
it shall immediately notify the Company and the Agent of its inability to
deliver any such Form or Certificate. Subject to Section 10.2A and the
immediately succeeding sentence, the Company shall be entitled, to the extent it
is required to do so by law, to deduct or withhold income or similar taxes
imposed by the United States (or any political subdivision or taxing authority
thereof or therein) from interest, fees or other amounts payable hereunder or
made on any other Loan Document for the account of any Lender which is not a
United States Person (as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code) for U.S. Federal income tax purposes to the extent that
such Lender has not provided to the Company U.S. Internal Revenue Service Forms
that establish a complete exemption from such deduction or withholding.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 10.2E and except as set forth in Section 10.2A, the
Company agrees to pay additional amounts and to indemnify and hold harmless each
Lender (without regard to the identity of the jurisdiction requiring the
deduction or withholding), and reimburse such Lender upon its written request,
in respect of any amounts deducted or withheld by it as described in the
immediately preceding sentence as a result of any changes after the date of any
assignment or transfer in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of income or similar Taxes.
10.3 Expenses
<PAGE> 105
Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees to promptly pay (i) all the actual and
reasonable costs and expenses of preparation of the Loan Documents and of
furnishing all opinions by counsel for the Company (including without limitation
any opinions requested by the Lenders as to any legal matters arising
hereunder), and of the Company's performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with; (ii) the reasonable fees, expenses and disbursements of counsel
to the Lenders (including reasonable allocated costs of internal counsel) in
connection with the negotiation, preparation and execution of the Loan Documents
and the Loans hereunder, and any amendments, modifications and waivers hereto or
thereto and consents to departures from the terms hereof and thereof; and (iii)
after the occurrence of an Event of Default, all costs and expenses (including
actual and reasonable attorneys fees, including allocated costs of internal
counsel, and costs of settlement) incurred by the Lenders or the Agent in
enforcing any Obligations of or in collecting any payments due from the Company
hereunder or under the Notes by reason of such Event of Default or in connection
with any refinancing or restructuring of the credit arrangements provided under
this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings.
10.4 Indemnity
In addition to the payment of expenses pursuant to Section 10.3 (but
without duplication thereof), whether or not the transactions contemplated
hereby shall be consummated, the Company agrees to indemnify, pay and hold each
of the Lenders, the Agent and any holder of any of the Notes, and each of their
respective officers, directors, employees, agents, representatives and
affiliates (collectively called the "Indemnitees"), harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated as a party thereto), which
may be suffered by, imposed on, incurred by, or asserted against that
Indemnitee, in any manner resulting from, connected with, in respect of,
relating to or arising out of this Agreement, the other Loan Documents, the
Commitment Letter, the Lenders' agreements to make the Loans or the use or
intended use of any of the proceeds of the Loans hereunder, the issuance of the
Exchange Notes or the Take-Out Securities or the Recapitalization (the
"Indemnified Liabilities"); provided that the Company shall
<PAGE> 106
have no obligation to an Indemnitee hereunder with respect to Indemnified
Liabilities (i) to the extent such liabilities are finally judicially determined
to have resulted solely from (A) the gross negligence or willful misconduct of
that Indemnitee or (B) the failure of such Indemnitee to perform its obligations
under any Loan Document or (C) such Indemnitee's violation of law or (ii) in
connection with the obligations of any Indemnitee under any Loan Document or for
any transfer fees. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Company shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.
10.5 Setoff
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence of any
Event of Default, each Lender, the Agent and each subsequent holder of any Note
is hereby authorized by the Company at any time or from time to time, without
notice to the Company, or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured but not
including trust accounts or any other accounts held for the benefit of another
Person) and any other Indebtedness at any time held or owing by such Person or
any such subsequent holder to or for the credit or the account of the Company
against and on account of the obligations and liabilities of the Company to such
Person or such subsequent holder under this Agreement and the Notes, including,
but not limited to, all claims of any nature or description arising out of or
connected with this Agreement or the Notes, irrespective of whether or not (a)
such Person or such subsequent holder shall have made any demand hereunder or
(b) such Person or such subsequent holder shall have declared the principal of
or the interest on its portion of the Loans and its Notes and other amounts due
hereunder to be due and payable as permitted by Section 7 and although said
obligations and liabilities, or any of them, may be contingent or unmatured.
10.6 Amendments and Waivers
No amendment, modification, termination or waiver of any term or
provision of this Agreement, of the Notes, any Guarantee or, prior to the
execution and delivery thereof, of the form of the Registration Rights Agreement
or the Senior Indenture or consent to any departure by the
<PAGE> 107
Company or any Subsidiary Guarantor therefrom, shall in any event be effective
without the prior written concurrence of the Company or such Subsidiary
Guarantor, as the case may be, and the Required Lenders; provided that,
notwithstanding the third sentence of Section 10.15, without the prior written
consent of each Lender affected, an amendment, modification, termination or
waiver of this Agreement, any Notes, any Guarantee, and, prior to the execution
and delivery thereof, of the form of Registration Rights Agreement and the form
of Senior Indenture or consent to departure from a term or provision hereof or
thereof may not: (i) reduce the principal amount of Notes whose holders must
consent to any such amendment, modification, termination, waiver or consent;
(ii) reduce the rate of or extend the time for payment of principal or interest
on any Note; (iii) reduce the principal amount of any Note; (iv) make any Note
payable in money other than that stated in the Note; (v) make any change in
Section 2.5A(iv) or in the definition of Change of Control, in the last
paragraph of Section 7; (vi) reduce the rate or extend the time of payment of
fees or other compensation payable to the Lenders hereunder; or (vii) waive
performance by the Company of its obligations under, or consent to any departure
from any of the terms and provisions of, Section 2.5A(iv); and provided,
further, that without the consent of the Agent, no such amendment, modification,
termination or waiver may amend, modify, terminate or waive any provision of
Section 8 as the same applies to the Agent or any other provision of this
Agreement as it relates to the rights or obligations of the Agent. No notice to
or demand on the Company in any case shall entitle the Company to any further
notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 10.6
shall be binding upon each holder of the Notes at the time outstanding, each
further holder of the Notes, and, if signed by the Company or a Subsidiary
Guarantor, on the Company and such Subsidiary Guarantor.
10.7 Independence of Covenants
All covenants hereunder shall be given independent effect so that if
a particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitation of, another covenant shall not avoid the occurrence of an Event of
Default or Potential Event of Default if such action is taken or condition
exists.
10.8 Entirety
The Loan Documents, the Commitment Letter and the Assignment
Agreement embody the entire agreement of the parties and supersede all prior
agreements and
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understandings, if any, relating to the subject matter hereof and thereof.
10.9 Notices
Unless otherwise provided herein, any notice or other communications
herein required or permitted to be given shall be in writing and may be
personally served, telecopied or sent by mail and shall be deemed to have been
given when delivered in person, upon receipt of telecopy against receipt of
answer back or four Business Days after depositing it in the mail, registered or
certified, with postage prepaid and properly addressed; provided that notices
shall not be effective until received. For the purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as provided in
this Section 10.9) shall be set forth under each party's name on the signature
pages hereto.
10.10 Survival of Warranties and Certain Agreements
A. All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement and the Commitment Letter,
the making of the Loans hereunder and the execution and delivery of the Notes
and, notwithstanding the making of the Loans, the execution and delivery of the
Notes or any investigation made by or on behalf of any party, shall continue in
full force and effect. The closing of the transactions herein contemplated shall
not prejudice any right of one party against any other party in respect of
anything done or omitted hereunder or in respect of any right to damages or
other remedies.
B. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of the Company set forth in Sections 10.3, 10.4,
10.14, 10.15, 10.17, 10.19 and 10.22 shall survive the payment of the Loans and
the Notes and the termination of this Agreement.
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative
No failure or delay on the part of the Agent or any Lender or any
holder of any Note in the exercise of any power, right or privilege hereunder,
under a Guarantee or under the Notes shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement, under a Guarantee or the
Notes are
<PAGE> 109
cumulative to and not exclusive of any rights or remedies otherwise available.
10.12 Severability
In case any provision in or obligation under this Agreement, under a
Guarantee or the Notes shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.13 Headings
Section and Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.14 Applicable Law
THIS AGREEMENT, EACH GUARANTEE AND THE NOTES SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
10.15 Successors and Assigns; Subsequent Holders of Notes
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lenders. The terms and provisions
of this Agreement and each Guarantee shall inure to the benefit of any assignee
or transferee of the Notes pursuant to Section 10.2A, and in the event of such
transfer or assignment, the rights and privileges herein conferred upon the
Lenders shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. Except as provided in
Section 10.6, in determining whether the holders of a sufficient aggregate
principal amount of the Loans shall have consented to any action under this
Agreement, any amount of the Loans owned or held by the Company, any Subsidiary
Guarantor or any of their respective Affiliates shall be disregarded. The
Company's rights or any interest therein hereunder may not be assigned without
the prior express written consent of each of the Lenders.
10.16 Counterparts; Effectiveness
This Agreement and any amendments, waivers, consents or supplements
may be executed in any number of
<PAGE> 110
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, and delivery thereof to the Agent or, in the case of
the Lenders, written telex or facsimile notice or telephonic notification
(confirmed in writing) of such execution and delivery. The Agent will give the
Company and each Lender prompt notice of the effectiveness of this Agreement.
10.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial
A. Any legal action or proceeding with respect to this Agreement,
any Note or any Guarantee may be brought in the courts of the State of New York
sitting in New York City or of the United States for the Southern District of
New York, and, by execution and delivery of this Agreement, each of the parties
to this Agreement hereby irrevocably accepts for itself and in respect of its
respective property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each of the parties to this Agreement hereby further
irrevocably waives any claim that any such courts lack jurisdiction over such
party, and agrees not to plead or claim, in any legal action or proceeding with
respect to this Agreement, the Notes or the Guarantees brought in any of the
aforesaid courts, that any such court lacks jurisdiction over such party. Each
of the parties to this Agreement irrevocably consents to the service of process
in any such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to such party, at its respective address for
notices pursuant to Section 10.9, such service to become effective 30 days after
such mailing. To the extent permitted by law, each of the parties to this
Agreement hereby irrevocably waives any objection to such service of process and
further irrevocably waives and agrees not to plead or claim in any action or
proceeding commenced hereunder or under any Note or any Guarantee that service
of process was in any way invalid or ineffective. Nothing herein shall affect
the right of any party to this Agreement to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
any party in any other jurisdiction.
B. Each of the parties to this Agreement hereby irrevocably waives
any objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection with
this Agreement, the Notes or the Guarantees brought in the courts referred to in
clause A above and hereby further irrevocably waives and agrees not to plead or
<PAGE> 111
claim in any such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.
C. Each of the parties to this Agreement hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Agreement, the Notes or the Guarantees or the
transactions contemplated hereby or thereby.
10.18 Payments Pro Rata
A. The Agent agrees that promptly after its receipt of each payment
of any interest or premium on or principal of the Notes from or on behalf of the
Company or any Subsidiary Guarantor, it shall, except as otherwise provided in
this Agreement, distribute such payment to the Lenders (other than any Lender
that has consented in writing to waive its pro rata share of such payment) pro
rata based upon their respective pro rata shares, if any, of such payment.
B. Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, the
Loans of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligation then owed
and due to such Lender bears to the total of such Obligation then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Company to
such Lenders in such amount as shall result in a proportional participation by
all of the Lenders in such amount; provided that, if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
10.19 Taxes
A. Any and all payments by the Company hereunder or under any of the
other Loan Documents shall be made free and clear of and without deduction or
withholding for any and all present or future Taxes, unless such Taxes are
required by law or the administration thereof to be deducted or withheld and
excluding (i) in the case of each Lender and the Agent, Taxes imposed on its net
income and franchise taxes imposed on it by the jurisdiction under the laws of
<PAGE> 112
which such Person is organized or any political subdivision thereof, (ii) in the
case of each such Lender and the Agent, any Taxes that are in effect and that
would apply to a payment to such Person, as applicable, as of the Closing Date,
and (iii) if any Person acquires any interest in this Agreement (a
"Transferee"), any Taxes to the extent that they are in effect and would apply
to a payment to such Transferee as of the date of the acquisition of such
interest, as the case may be (all such nonexcluded Taxes being hereinafter
referred to as "Covered Taxes"). If the Company shall be required by Law or the
administration thereof to deduct or withhold any Covered Taxes from or in
respect of any sum payable hereunder or under any other Loan Document, (a)
unless such requirement results from the failure of the payee to perform its
obligations under Section 10.2E, the sum payable shall be increased as may be
necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this paragraph), the Lender receives an amount equal to the sum it would
have received if no such deduction or withholding had been made; (b) the Company
shall make such deductions or withholdings; and (c) the Company forthwith shall
pay the full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable Law.
B. The Company agrees to pay forthwith any present or future stamp
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies being herein referred to as "Other
Taxes") imposed by any jurisdiction (or any political subdivision or taxing
authority thereof or therein) which arise from any payment made by the Company
hereunder or under any of the other Loan Documents or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
of the other Loan Documents.
C. The Company agrees to indemnify the Agent and each of the Lenders
for the full amount of Covered Taxes or Other Taxes not deducted or withheld and
paid by the Company in accordance with Sections 10.19A and 10.19B to the
relevant taxation or other authority and any Taxes other than Covered Taxes or
Other Taxes imposed by any jurisdiction on amounts payable by the Company under
this Section 10.19 paid by the Lender or the Agent and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not any such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
the Agent or such Lender makes written demand therefor. A certificate as to the
amount of such Taxes or Other Taxes and evidence of payment thereof submitted to
the Company shall be prima facie evidence,
<PAGE> 113
absent manifest error, of the amount due from the Company to the Agent or such
Lender.
D. The Company shall furnish to the Agent and each of the Lenders
the original or a certified copy of a receipt evidencing any payment of Taxes or
Other Taxes made by the Company as soon as such receipt becomes available.
E. The provisions of this Section 10.19 shall survive the
termination of the Agreement and repayment of all Obligations.
10.20 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 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 Loans as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Agreement; 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 Agent, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
10.21 Requirements of Law
(a) In the event that any change in law occurring after the date
that any lender becomes a Lender party to this Agreement with respect to such
Lender shall, in the opinion of such Lender, require that any Bridge Loan
Commitment of such Lender be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
such Lender or any corporation controlling such Lender, and such change in law
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital, as the case may be, as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation, as the case may be, could have achieved but for such change in law
(taking into account such Lender's or such corporation's policies, as the case
may be, with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time following notice by such Lender to the
Company of such change in law as provided in paragraph (b) of this Section
10.21, within 15 days after demand by such Lender, the Company shall pay to such
Lender such additional amount
<PAGE> 114
or amounts as will compensate such Lender or such corporation, as the case may
be, for such reduction.
(b) The Company shall not be required to make any payments to any
Lender for any additional amounts pursuant to this Section 10.21 unless such
Lender has given written notice to the Company, through the Agent, of its intent
to request such payments prior to or within 60 days after the date on which such
Lender became entitled to claim such amounts. If any Lender requests
compensation from the Company under this Section 10.21, the Company may, by
notice to such Lender (with a copy to the Agent), suspend the obligation of such
Lender thereafter to make or continue Loans, until the requirement of law giving
rise to such request ceases to be in effect; provided that such suspension shall
not affect the right of such Lender to receive the compensation so requested.
10.22 Confidentiality
Each Lender shall hold all non-public information obtained pursuant
to the requirements of or in connection with this Agreement which has been
identified as confidential by the Company in accordance with such Lender's
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, it being understood and agreed
by the Company that (i) in any event, subject to the last sentence of this
Section 10.22, a Lender may make disclosures reasonably required by any bona
fide assignee, transferee or participant in connection with the contemplated
assignment or transfer by such Lender of any Loans or any participation therein
or as required or requested by any governmental agency or representative thereof
or pursuant to legal process; provided that unless specifically prohibited by
applicable law or court order, each Lender shall notify the Company of any
request by any governmental agency or representative thereof (other than any
such request in connection with any examination of the financial condition of
such Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information and (ii) a Lender may share
with any of its affiliates, and such affiliates may share with any Lender, any
information related to the Company or the Company's or their respective
affiliates (including information relating to creditworthiness), the
Recapitalization or the financing therefor; and provided, further, that in no
event shall any Lender be obligated or required to return any materials
furnished by the Company or any Subsidiaries of the Company. In connection with
any actual or prospective sales, assignments or transfers referred to in Section
10.2A, a Lender shall obtain agreements from the actual or prospective
purchasers, assignees or transferees, as the
<PAGE> 115
case may be, reasonably satisfactory to the Company, that such parties will
comply with this Section 10.22.
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
COMPANY:
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
---------------------------------
Name: Charles D. Weil
Title: President
Notice Address:
717 Faxon Road--
Young America, MN 55397
Attn.: Chief Financial Officer
Telephone: (612) 467-1100
Telecopy: (612) 467-3895
cc:
BT Capital Partners, Inc.
130 Liberty Street
New York, NY 10006
Attn.: Richard Gersten
SUBSIDIARY GUARANTOR:
YAC CORP.
By: /s/ Charles D. Weil
---------------------------------
Name: Charles D. Weil
Title: President
AGENT:
BANKERS TRUST COMPANY,
as agent
By: /s/ Mary Kay Coyle
---------------------------------
Name: Mary Kay Coyle
Title: Managing Director
<PAGE> 116
Title:
Notice Address:
One Bankers Trust Plaza
130 Liberty Plaza
New York, NY 10006
Attention: Mary Kay Coyle
Telephone: (212) 250-2500
Telecopy: (212) 250-7218
LENDERS:
Commitment: $80,000,000 BANKERS TRUST NEW YORK
CORPORATION
By: /s/ Mary Kay Coyle
--------------------------------
Name: Mary Kay Coyle
Title: Managing Director
Notice Address:
130 Liberty Street
New York, NY 10006
Attn.: Mary Kay Coyle
Telephone: (212) 250-2500
Telecopy: (212) 250-7218
<PAGE> 117
LENDERS:
Commitment: $80,000,000 BANKERS TRUST NEW YORK
CORPORATION
By: /s/ J. Gilbert
---------------------------
Name: J. Gilbert
Title:
Notice Address:
130 Liberty Street
New York, NY 10006
Attn.: Mary Kay Coyle
Telephone: (212) 250-2500
Telecopy: (212) 250-6314
<PAGE> 1
NON-COMPETITION AGREEMENT
(this "Agreement") dated as of
November 21, 1997, between YOUNG
AMERICA CORPORATION, a Minnesota
corporation (the "Corporation"), JAY
F. ECKLUND (the "Principal
Stockholder") and each of the other
parties set forth on the signature
page hereto (collectively with the
Principal Stockholder, the "Selling
Stockholders").
WHEREAS, the Selling Stockholders are parties to that certain
Recapitalization Agreement dated as of the date hereof (the "Recapitalization
Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent for the consummation of the transactions contemplated by the
Recapitalization Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto agree as
follows:
1. Consulting Arrangements
The Principal Stockholder hereby agrees to provide consulting services to
the Corporation on the following terms and conditions:
1.1. Term. The Principal Stockholder shall provide consulting services to
the Corporation from the date hereof until the first anniversary of
the date hereof.
1.2. Commitment. The Principal Stockholder shall provide such consulting
services for up to 20 hours per week (which may be via telephone
unless otherwise requested by the Corporation, in which case, the
Corporation shall reimburse the Principal Stockholder for any travel
expenses incurred).
1.3. Compensation. In consideration of the consulting services to be
provided hereunder, the Corporation shall pay to the Principal
Stockholder $100,000 per annum, payable in equal monthly
installments.
2. Disclosure of Information
2.1. The Selling Stockholders shall not use or disclose to any person,
firm, corporation or other business entity (other than any officer,
director, Selling Stockholders, affiliate or representative of the
Corporation), except as required in connection with the performance
of the Selling Stockholders' duties under and in compliance with the
terms of this Agreement and as required by law or judicial process,
any
<PAGE> 2
Confidential Information (as hereinafter defined) for any reason or
purpose whatsoever, nor shall the Selling Stockholders make use of
any of the Confidential Information for the Selling Stockholders'
purposes or for the benefit of any person or entity except the
Corporation or any subsidiary thereof.
2.2. For purposes of this Agreement, "Confidential Information" shall
mean (i) the Intellectual Property Rights (as hereinafter defined)
of the Corporation and its subsidiaries and (ii) all other
information of a proprietary nature relating to the Corporation or
any subsidiary thereof, or the business or assets of the Corporation
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 the
Selling Stockholders or at the time of use or disclosure of such
Confidential Information by the Selling Stockholders other than as a
result of the breach by the Selling Stockholders of the Selling
Stockholders' agreement hereunder.
2.3. 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 convenience and necessity, franchises,
licenses, trade secrets, proprietary processes and formulae,
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.
3. Restrictive Covenants
3.1 The Selling Stockholders acknowledge and recognize that they have
been privy to Confidential Information. Accordingly, in
consideration of the premises contained herein and the consideration
to be received by the Selling Stockholders pursuant to the
Recapitalization Agreement, the Selling Stockholders shall not, at
any time prior to expiration of the fifth anniversary of the date
hereof (the "Term"), (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 employees of the
Corporation or any subsidiary or affiliate thereof to terminate
their employment with the Corporation or any such subsidiary or
affiliate or to engage in any Competing Business or (iv) induce any
entity or person with which the Corporation 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
2
<PAGE> 3
States if such business is competitive, directly or indirectly, at
any time during the five year term of this Agreement with (A) the
business of the Corporation or any affiliate thereof or (B) any of
the products or business being developed or conducted by the
Corporation or any Subsidiary thereof.
3.2. The Principal Stockholder understands that the foregoing
restrictions may limit his ability to earn a livelihood in a
business similar to the business of the Corporation or any
subsidiary or affiliate thereof, but he nevertheless believes that
he has received and will receive sufficient consideration and other
benefits as a Selling Stockholder and as otherwise provided
hereunder to justify clearly such restrictions which, in any event
(given his education, skills and ability), the Principal Stockholder
does not believe would prevent him from earning a living.
4. Right to Inventions
4.1. The Principal Stockholder hereby grants and assigns to the
Corporation for its sole use and benefit any and all inventions,
improvements, technical information and suggestions reasonably
relating to the business of the Corporation or any subsidiary or
affiliate thereof (collectively, the "Inventions") which the Selling
Stockholders may have developed or acquired, 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) the Principal Stockholder recognizes and agrees that the
Inventions shall be the sole property of the Corporation, and
the Corporation 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) the Principal Stockholder hereby assigns to the Corporation
any rights the Principal Stockholder may have in or acquire to
the Inventions;
(c) the Principal Stockholder shall, at the expense of the
Corporation, promptly execute and deliver such applications,
assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Corporation to vest
title to the Inventions and any patent applications, patents,
copyrights, reissues or other proprietary rights related
thereto in the Corporation and to enable it to obtain and
maintain the entire right and title thereto throughout the
world;
(d) the Principal Stockholder 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) the Principal Stockholder shall render to the Corporation, 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
3
<PAGE> 4
or defense of interferences which may be declared involving
any said applications, patents, copyrights or other
proprietary rights and in any litigation in which the
Corporation may be involved relating to the Inventions.
5. Miscellaneous Provisions
5.1. Entire Agreement; Amendments. This Agreement and the other
agreements referred to herein contain the entire agreement between
the parties hereto with respect to the transactions contemplated
hereby 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.
5.2. Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any
provisions of this Agreement.
5.3. 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 addresses
set forth in the Recapitalization Agreement (or at such other
address for a party as shall be specified by like notice).
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.
5.4. 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.
5.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota applicable to
contracts made and performed wholly therein.
5.6. 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 Agreement shall
4
<PAGE> 5
not be assignable by the Selling Stockholders without the consent of
the Corporation.
5.7. 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.
5.8. 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.
5.9. Remedies. All remedies hereunder are cumulative, are in addition to
any other remedies provided for by law and may, to the extent
permitted by law, be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed to be an election of
such remedy or to preclude the exercise of any other remedy. The
Selling Stockholders acknowledge that in the event of a breach of
any of the Selling Stockholders' covenants contained in Sections 2,
3 or 4, the Corporation shall be entitled to immediate relief
enjoining such violations in any court or before any judicial body
having jurisdiction over such a claim.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
YOUNG AMERICA CORPORATION
By: /s/ Charles D. Weil
----------------------------
Name: Charles D. Weil
Title: 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
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
<PAGE> 7
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> 1
RELEASE AND INDEMNITY
AGREEMENT
THIS RELEASE AND INDEMNITY AGREEMENT (the "Agreement") is made and entered
into as of this 21st day of November, 1997, by and between Young America
Corporation (the "Company"), Jay F. Ecklund, an individual resident of the State
of Florida ("Principal Stockholder"), 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 (together with the Principal
Stockholder, the "Selling Stockholders") and each of Albert 0. Foster, Jerome J.
Jenko, Thomas 0. Moe and R. Gary St. Marie, the independent directors on the
Company's Board of Directors (collectively, the "Independent Directors").
WHEREAS, the Company plans to enter into that certain Recapitalization
Agreement ("Recapitalization Agreement") by and among the Company, the Selling
Stockholders and BT Capital Partners, Inc.; and
WHEREAS, the Independent Directors have no financial interest in the
transactions contemplated by the Recapitalization Agreement and, in light
thereof, the Company and the Selling Stockholders have agreed to release the
Independent Directors from any claims that either party may have against the
Independent Directors under Minnesota law or otherwise in connection with their
service as directors (except certain excluded claims specified below).
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Company, the Selling
Stockholders and the Independent Directors agree as follows:
1. The Company and the Selling Stockholders hereby agree, for themselves
and their successors and assigns, to fully and completely release and waive any
and all claims, complaints, rights, causes of action or demands of whatever
kind, whether known or unknown (collectively, a "Claim"), which the Company or
the Selling Stockholders have or may have against the Independent Directors and
their heirs, successors and assigns (hereinafter collectively called the
"Released Parties") arising out of or relating to any actions, conduct,
promises, decisions, statements, behavior or events occurring at any time prior
to the effective time of the resignation of the Independent Directors including,
without limitation, any Claim alleging a breach of the duty of due care or good
faith; provided, however, that this release shall not apply to any Claim
alleging a breach of the duty of loyalty, self dealing, bad faith, intentional
misconduct or fraud ("Excluded Claims").
<PAGE> 2
2. The Principal Stockholder hereby agrees to indemnify and hold the
Independent Directors harmless from and against any loss, cost, liability,
charge or expense (including reasonable attorneys' fees and expenses),
judgments, fines, and amounts paid in settlement resulting from or relating to
any actions, conduct, promises, decisions, statements, behavior or events
occurring at any time prior to the effective time of the resignation of the
Independent Directors (other than those arising out of or relating to any
Excluded Claims).
3. The parties agree that this Agreement shall not affect in any way the
rights of the Independent Directors to (a) indemnification from the Company
under applicable law, the Company's Articles of Incorporation, as amended, the
Company's Bylaws, as amended, or any other agreement, contract or right existing
between the Independent Directors and the Company, and (b) any rights under
directors and officers insurance policies maintained by the Company from time to
time.
4. Each Independent Director hereby agrees, for himself and his successors
and assigns, to fully and completely release and waive any and all claims,
complaints, rights, causes of action, or demands of whatever kind, whether known
or unknown, which such Independent Director has or may have against the Company
for payment of directors' fees or other compensation for services rendered.
5. This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the laws of the State of
Minnesota, without giving effect to the conflicts of laws provisions thereof.
6. This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterpart,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute one and the same amendment.
7. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by written
amendment signed by the parties hereto.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
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
---------------------------------
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
---------------------------------
Charles M. Thompson, as Trustee
of the Trust and not individually
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
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
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> 5
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, 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, 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> 6
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> 7
THE INDEPENDENT DIRECTORS
/s/ Albert 0. Foster
---------------------------------
Albert 0. Foster
/s/ Jerome J. Jenko
---------------------------------
Jerome J. Jenko
/s/ Thomas O. Moe
---------------------------------
Thomas O. Moe
/s/ R. Gary St. Marie
---------------------------------
R. Gary St. Marie
<PAGE> 1
Exhibit 10.29
PCS&F DRAFT: 5/20/98
June __, 1998
EXCHANGE AGENT AGREEMENT
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
Ladies and Gentlemen:
Young America Corporation, a Minnesota corporation ("the Company"), and
Young America Holdings, Inc., a Minnesota corporation ("Holdings"), propose to
make an offer (the "Exchange Offer") to exchange the Company's registered
11-5/8% Senior Subordinated Notes Due 2006 (the "New Notes") for its outstanding
11-5/8% Senior Subordinated Notes Due 2006 (the "Old Notes"). The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated June __, 1998 (the "Prospectus"), proposed to be distributed
to all record holders of the Old Notes. The Old Notes and the New Notes are
collectively referred to herein as the "Notes" or the "Securities."
The Company hereby appoints Marine Midland Bank to act as exchange
agent (the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to Marine Midland Bank.
The Exchange Offer is expected to be commenced by the Company on or
about June __, 1998. The Letter of Transmittal accompanying the Prospectus is to
be used by the holders of the Old Notes to accept the Exchange Offer, and
contains instructions with respect to the delivery of Old Notes tendered.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
July __, 1998 or on such later date or time to which the Company and Holdings
may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company and Holdings, expressly
reserve the right to extend the Exchange Offer from time to time and may extend
the Exchange Offer by giving oral (confirmed in writing) or written notice to
you at any time before 9:00 a.m., New York City time, on the business day
following the
<PAGE> 2
previously scheduled Expiration Date, and in such case the term "Expiration
Date" shall mean the time and date on which such Exchange Offer as so extended
shall expire.
The Company and Holdings expressly reserve the right to delay, amend or
terminate the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, in among other cases upon the occurrence of
any of the conditions of the Exchange Offer specified in the Prospectus under
the captions "The Exchange Offer -- Expiration Date; Extensions; Amendments", "
- - Conditions" and "-- Terms of the Exchange Offer." The Company and Holdings
will give to you as promptly as practicable oral (confirmed in writing) or
written notice of any delay, amendment, termination or nonacceptance.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth herein or in the section of the Prospectus captioned the
"The Exchange Offer" and such duties which are necessarily incidental thereto.
2. You will establish an account with respect to the Old Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into your account in
accordance with the Book-Entry Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and Old Notes
(or confirmation of book-entry transfer into your account at the Book-Entry
Transfer Facility) and any other documents delivered or mailed to you by or for
holders of the Old Notes to ascertain whether: (i) the Letters of Transmittal
and any such other documents are duly executed and properly completed in
accordance with instructions set forth therein and in the Prospectus and (ii)
the Old Notes have otherwise been properly tendered. In each case where the
Letter of Transmittal or any other document has been improperly completed or
executed or any of the Old Notes are not in proper form for transfer or some
other irregularity in connection with the acceptance of the Exchange Offer
exists, you will endeavor to inform the presenters of the need for fulfillment
of all requirements and to take any other action as may be necessary or
advisable to cause such irregularity to be corrected.
4. With the approval of the Chairman of the Board, the Chief Executive
Officer, the President, or any Vice President of the Company (such approval, if
given orally, promptly to be confirmed in writing) or any other party designated
by such officer in writing, you are authorized to waive any irregularities in
connection with any tender of Old Notes pursuant to the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer
- -- Procedures for Tendering"
2
<PAGE> 3
and Old Notes shall be considered properly tendered to you only when tendered in
accordance with the procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Notes
which the Chairman of the Board, the Chief Executive Officer, the President or
any Vice President of the Company or any other party designated by any such
officer in writing shall approve as having been properly tendered shall be
considered to be properly tendered (such approval, if given orally, promptly
shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Notes delivered
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so
indicated and as permitted in the Letter of Transmittal and deliver the Old
Notes to the transfer agent for split-up and return any untendered Old Notes to
the holder (or such other person as may be designated in the Letter of
Transmittal) as promptly as practicable after expiration or termination of the
Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, promptly to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Old Notes properly tendered and you, on behalf of the Company, will exchange
such Old Notes for New Notes and cause such Old Notes to be canceled. Delivery
of New Notes will be made on behalf of the Company by you at the rate of $1,000
principal amount of New Notes for each $1,000 principal amount of the Old Notes
tendered promptly after notice (such notice if given orally, promptly to be
confirmed in writing) of acceptance of said Old Notes by the Company; provided,
however, that in all cases, Old Notes tendered pursuant to the Exchange Offer
will be exchanged only after timely receipt by you of certificates for such Old
Notes (or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or facsimile thereof or an Agent's Message in lieu thereof) with
any required signature guarantees and any other required document. You shall
issue New Notes only in denominations of $1,000 or any integral multiple
thereof.
3
<PAGE> 4
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Notes
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Old Notes tendered
shall be given (such notices if given orally, promptly shall be confirmed in
writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the
captions "The Exchange Offer -- Terms of the Exchange," "-- Expiration Date;
Extensions; Amendments" or "Conditions" or otherwise, you shall as soon as
practicable after the expiration or termination of the Exchange Offer return
those certificates for unaccepted Old Notes (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons who
deposited them.
12. All reissued Old Notes, unaccepted Old Notes or New Notes shall be
forwarded by (a) first-class mail, postage pre-paid under a blanket surety bond
protecting you and the Company from loss or liability arising out of the
non-receipt or non-delivery of such certificates or (b) by registered mail
insured separately for the replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any persons to solicit tenders.
14. As Exchange Agent hereunder you:
(a) will be regarded as making no representations and having
no responsibilities as to the validity, sufficiency, value or genuineness of any
of the Old Notes deposited with you pursuant to the Exchange Offer, and will not
be required to and will make no representation as to the validity, value or
genuineness of the Exchange Offer;
(b) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or liability, unless
you shall have been furnished with reasonable indemnity;
(c) shall not be liable to the Company or Holdings for any
action taken or omitted by you, or any action suffered by you to be taken or
omitted, without negligence, misconduct or bad faith on your part, by reason of
or as a result of the administration of your duties hereunder in accordance with
the terms and conditions of this Agreement or by reason of your compliance with
the instructions set forth herein or with any written or oral instructions
delivered to you pursuant hereto, and may reasonably rely on and shall be
protected in acting in
4
<PAGE> 5
good faith in reliance upon any certificate, instrument, opinion, notice,
letter, facsimile or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper party or
parties;
(d) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith reasonably believe to be genuine or to have been signed or represented by
a proper person or persons;
(e) may rely on and shall be protected in acting upon written
notice or oral instructions (confirmed in writing) from any officer of the
Company or Holdings with respect to the Exchange Offer;
(f) shall not advise any person tendering Old Notes pursuant
to the Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Notes;
(g) may consult with counsel and the written advice or opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by you hereunder in good faith
and in reliance thereon.
15. You shall send to all holders of Old Notes a copy of the
Prospectus, the Letter of Transmittal, the Notice of Guaranteed Delivery, as
used in the Prospectus, and such other documents (collectively, the "Exchange
Offer Documents") as may be furnished by the Company to commence the Exchange
Offer and take such other action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Exchange Offer Documents or such other
forms as may be approved from time to time by the Company, to all holders of Old
Notes and to all persons requesting such documents and to accept and comply with
telephone requests for information relating to the Exchange Offer, provided that
such information shall relate only to the procedures for accepting (or
withdrawing from) the Exchange Offer. The Company will furnish you with copies
of such documents at your request. All other requests for information relating
to the Exchange Offer shall be directed to the Company, Attention: President, at
the Company's offices at 717 Faxon Road, Young America, Minnesota 55397;
telephone (612) 467-1100.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to the President of the Company, and such
other person or persons as the Company may request in writing, not later than
7:00 p.m., New York City time, each business day, and more frequently if
reasonably requested, up to and including the Expiration Date, as to the number
of Old Notes which have been tendered pursuant to the Exchange Offer and the
items received by you pursuant to this Agreement, separately reporting and
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons as the Company requests in
writing from time to time prior to the Expiration Date of such other
5
<PAGE> 6
information as it reasonably requests. Such cooperation shall include, without
limitation, the granting by you to the Company and such person as the Company
may request of access to those persons on your staff who are responsible for
receiving tenders, in order to ensure that immediately prior to the Expiration
Date the Company shall have received information in sufficient detail to enable
it to decide whether to extend the Exchange Offer. You shall prepare a final
list of all persons whose tenders were accepted, the aggregate principal amount
of Old Notes tendered and the aggregate principal amount of Old Notes accepted
and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
customarily preserve other records pertaining to the transfer of securities. You
shall dispose of unused Letters of Transmittal and other surplus materials in
accordance with your customary procedures.
18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder you shall be
entitled to such compensation and reimbursement of out-of-pocket expenses as set
forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus, the Letter of
Transmittal and the other documents associated with the Exchange Offer attached
hereto and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus, the
Letter of Transmittal and such other forms (as they may be amended from time to
time), on the other hand, shall be resolved in favor of the Prospectus, the
Letter of Transmittal and such other forms, except with respect to the duties,
liabilities and indemnification of you as Exchange Agent which shall be
controlled by this Agreement.
21. The Company and Holdings, jointly and severally, agree to indemnify
and hold you harmless in your capacity as Exchange Agent hereunder against any
liability, cost or expense, including reasonable attorneys' fees and expenses,
arising out of or in connection with your appointment as Exchange Agent and the
performance of your duties hereunder, including, without limitation, any act,
omission, delay or refusal made by you in reasonable reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Notes reasonably believed by you in good faith to be authorized,
and in delaying or refusing in good faith to accept any tenders or effect any
transfer of Old Notes; provided, however, that neither the Company nor Holdings
shall be liable for indemnification or otherwise for any loss, liability, cost
or expense to the extent arising out of your negligence, willful misconduct or
bad faith. The Company's and Holdings' obligations under this paragraph 21 shall
survive the termination of this Agreement and the discharge of your
6
<PAGE> 7
obligation hereunder and any other termination of this Agreement under any
federal or state bankruptcy law.
22. You shall deliver or cause to be delivered, in a timely manner, to
each governmental authority to which any transfer taxes are payable in respect
of the exchange of Old Notes your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Notes; provided,
however, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such refund
is received by you.
23. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
24. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
25. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
26. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
27. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile)
and shall be given to such party, addressed to it, as its address or telecopy
number set forth below:
If to the Company or Holdings:
Young America Corporation
717 Faxon Road
Young America, Minnesota 55397
Facsimile: (612) _________
Attention: President
If to the Exchange Agent:
7
<PAGE> 8
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
Facsimile: (212) 658-2298
Attention: Corporate Trust Operations
28. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 18, 19, 21 and 22 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Company any certificates for Old Notes, funds or property (including,
without limitation, Letters of Transmittal and any other documents relating to
the Exchange Offer) then held by you as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the date
hereof.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
YOUNG AMERICA CORPORATION
By:________________________________
Name:
Title:
YOUNG AMERICA HOLDINGS, INC.
By:________________________________
Name:
Title:
Accepted as the date first above written:
MARINE MIDLAND BANK
By:_________________________
Name:
Title:
8
<PAGE> 9
YOUNG AMERICA CORPORATION
YOUNG AMERICA HOLDINGS, INC.
Exchange Agency
Fee Schedule
<TABLE>
<S> <C>
Flat Fee........................................................ $ 5,000.00
</TABLE>
Out-Of-Pocket Expenses
Fees quoted do not include out-of-pocket expenses including, but not
limited to, reasonable legal fees and expenses, facsimile, stationery, postage,
telephone, overnight courier and messenger costs, all of which shall be paid by
the Company or Holdings.
<PAGE> 1
Exhibit 12.1
The following illustrates the computation of the ratio of earnings to fixed
charges:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------------------------------
Pro Forma Pro Forma
1998 1998 1997 1997 1997 1996 1995 1994 1993
------ ------ ------ -------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges --
Interest expense 2,336 2,385 -- $ 9,305 $ 981 $ 91 $ 252 $ 163 $ 243
Amortization of
deferred financing
costs 94 3,329 -- 375 48
Interest component
of operating leases 338 338 219 1,080 1,080 608 442 256 228
------- ------ ------ ------- ------- ------- -------- ------- -------
II. Total Fixed
Charges 2,766 6,062 219 $10,760 $ 2,109 $ 699 $ 694 $ 419 $ 471
======= ====== ====== ======= ======= ======= ======== ======= =======
Earnings --
Income before income
taxes (370) (3,654) 6,069 $ 6,606 $(5,502) $ 8,432 $ 1,014 $ 3,506 $ 279
Fixed charges 338 338 219 10,780 2,109 699 694 419 471
------- ------ ------ ------- ------- ------- -------- ------- -------
I. Total Earnings (32) (3.316) 6,288 $17,386 ($3,393) $ 9,131 $ 1,708 $ 3,925 $ 750
======= ====== ====== ======= ======= ======= ======== ======= =======
Ratio of Earnings to
Fixed Charges
(I divided by II) (b) (c) 28.7 1.6 (a) 13.1 2.5 9.4 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. This
shortfall was attributable to the expenses incurred in connection with the
Recapitalization, including compensation charges of $17,924 for
bonuses and phantom stock payments and transaction fees and expenses of
$1,967.
(b) Earnings were inadequate to cover fixed charges by $370.
(c) Earnings were inadequate to cover fixed charges by $3,654. This shortfall
was largely attributable to the write-off of deferred financing costs
incurred relating to the Bridge Facility.
<PAGE> 1
Exhibit 16.1
[LETTERHEAD OF McGLADREY & PULLEN, LLP]
Securities and Exchange Commission
Washington, D.C. 20549
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
dismissed 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 June 18, 1998, and we agree with such
statements.
McGLADREY & PULLEN, LLP
/s/ McGLADREY & PULLEN, LLP
<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
June 17, 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
June 17, 1998
<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>
<NAME> YOUNG AMERICA HOLDINGS INC.
<CIK> 0001058952
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<EXCHANGE-RATE> 1,000<F1> 1,000
<CASH> 17,940 14,003
<SECURITIES> 0 0
<RECEIVABLES> 11,527 12,116
<ALLOWANCES> (45) (49)
<INVENTORY> 615 510
<CURRENT-ASSETS> 30,555 27,202
<PP&E> 17,556 19,132
<DEPRECIATION> (9,661) (10,123)
<TOTAL-ASSETS> 41,742 40,531
<CURRENT-LIABILITIES> 19,419 20,486
<BONDS> 80,000 80,000
0 0
0 0
<COMMON> 1,920 1,920
<OTHER-SE> (59,597) (61,875)
<TOTAL-LIABILITY-AND-EQUITY> 41,742 40,531
<SALES> 0 0
<TOTAL-REVENUES> 175,297 50,630
<CGS> 0 0
<TOTAL-COSTS> 160,917<F2> 48,791
<OTHER-EXPENSES> 0 15
<LOSS-PROVISION> 24 0
<INTEREST-EXPENSE> 1,029 5,714
<INCOME-PRETAX> 14,389<F3> (3,654)
<INCOME-TAX> 423 (1,352)
<INCOME-CONTINUING> 13,966 (2,302)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (19,891)<F4> 0
<CHANGES> 0 0
<NET-INCOME> (5,924) (2,302)
<EPS-PRIMARY> (3.09) (1.20)
<EPS-DILUTED> (3.09) (1.20)
<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>
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 5/8% SENIOR SUBORDINATED NOTES DUE 2006
OF
YOUNG AMERICA CORPORATION
AND
YOUNG AMERICA HOLDINGS, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
TO: MARINE MIDLAND BANK, AS EXCHANGE AGENT
140 BROADWAY
LEVEL A WINDOW
NEW YORK, NEW YORK 10005-1180
ATTENTION: CORPORATE TRUST OPERATIONS
FACSIMILE: 212-658-2292
TELEPHONE: 212-658-5931
Delivery of this instrument to an address other than as set forth above or
transmission via a facsimile number other than the one listed above will not
constitute a valid delivery. The instructions accompanying this Letter of
Transmittal should be read carefully before this Letter of Transmittal is
completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Young America Corporation and
Young America Holdings, Inc. (together, the "Issuers") and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the
Issuers' offer (the "Exchange Offer") to exchange their 11 5/8% Series B Senior
Subordinated Notes due 2006 (the "New Notes") for an equal principal amount of
their 11 5/8% Senior Subordinated Notes due 2006 (the "Old Notes" and, together
with the New Notes, the "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 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 in the Prospectus). The term "Expiration Date" shall mean
5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is
extended as provided in the Prospectus, in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended.
Capitalized terms used but not defined herein have the meanings given to them in
the Prospectus.
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, this Letter of
Transmittal or an Agent's Message (as defined in the Prospectus) or any other
documents required by this 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 under the caption "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus. See Instruction 5.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Issuers or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the
1
<PAGE> 2
undersigned desires to take with respect to the Exchange Offer. Holders who wish
to tender their Old Notes must complete this Letter of Transmittal in its
entirety.
If the undersigned is a 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 market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers), the
undersigned may be deemed to be an "underwriter" under the Securities Act and
the undersigned acknowledges, therefore, that it will deliver a prospectus in
connection with any resale of such New Notes. 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.
2
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING THIS LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
DESCRIPTION OF 11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE PRINCIPAL TENDERED (MUST BE
AMOUNT IN INTEGRAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLES OF
(PLEASE FILL IN, IF BLANK) NUMBERS CERTIFICATE(S) $1,000)*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers
and principal amounts on a separate signed schedule and affix such schedule to
this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount. All other
tenders must be in integral multiples of $1,000.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTION 5):
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO AND COMPLETE THE FOLLOWING:
Name:
-----------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
3
<PAGE> 4
------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 7, 8 AND 9)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered, or New Notes issued in exchange for Old Notes
accepted for exchange, are to be issued in the name of someone other than
the undersigned.
Issue certificate(s) to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------
-----------------------------------------------------
(INCLUDE ZIP CODE)
-----------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 7, 8 AND 9)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered, or New Notes issued in exchange for Old Notes
accepted for exchange, are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown
above.
Deliver certificate(s) to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
----------------------------------------------------
----------------------------------------------------
(INCLUDE ZIP CODE)
----------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
----------------------------------------------------
4
<PAGE> 5
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Issuers the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Issuers
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
its agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuers) with respect to the tendered Old Notes with
full power of substitution (i) to deliver certificates for such Old Notes to the
Issuers and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Issuers and (ii) to present such Old Notes for
transfer on the books of the Issuers, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuers will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are acquired by the Issuers. The
undersigned and any beneficial owner of Old Notes tendered hereby further
represent and warrant that (i) the New Notes acquired by the undersigned and any
such beneficial owner 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 undersigned nor any such beneficial owner has an
arrangement with any person to participate in the distribution of such New
Notes, (iii) neither the undersigned nor any 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 undersigned nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
the Issuers. The undersigned and each beneficial owner acknowledge and agree
that any person who is an affiliate of the Issuers or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a resale transaction of the New Notes
acquired by such person and may not rely on the position of the staff of the
Securities and Exchange Commission set forth in the no-action letters discussed
in the Prospectus under the caption "The Exchange Offer -- Purpose and Effect of
the Exchange Offer." The undersigned and each beneficial owner will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Issuers to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuers have given oral
notice (confirmed in writing) or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer because of an invalid tender, the occurrence of certain other
events set forth in the Prospectus or otherwise, any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer -- Withdrawal of Tenders."
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the New Notes issued in exchange for
the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged, in the name(s) of the undersigned. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please send the
certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signature(s). In the event that both
5
<PAGE> 6
"Special Registration Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange in the name(s) of, and return
any certificates for Old Notes not tendered or not exchanged to, the person(s)
so indicated. The undersigned understands that the Issuers have no obligation
pursuant to the "Special Registration Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
Holder(s) thereof if the Issuers do not accept for exchange any of the Old Notes
so tendered.
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, this Letter of
Transmittal or an Agent's Message and any other documents required by this
Letter of Transmittal to the Exchange Agent prior to the Expiration Date may
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 5.
6
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X Date:
- ------------------------------------------------------ -----------------
X Date:
- ------------------------------------------------------ -----------------
(SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
The above lines must be signed by the registered holder(s) as his or her
name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If the Old Notes to which this Letter of Transmittal relate are held of record
by two or more joint holders, then all such holders must sign this Letter of
Transmittal. If this Letter of Transmittal or any Old Notes or bond powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person must (i) so indicate and set forth his or her full title
below and (ii) unless waived by the Issuers, submit evidence satisfactory to the
Issuers of such person's authority to so act. See Instruction 7.
Name(s):------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 7)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF PERSON)
Date
- --------------------------- , 1998
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Procedures for Tendering. This Letter of Transmittal or a facsimile
hereof, properly completed and duly executed, or an Agent's Message and any
other documents required by this Letter of Transmittal 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. In addition, either (i) certificates for tendered
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 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.
The method of delivery of Old Notes and this Letter of Transmittal and any
other required documents to the Exchange Agent is at the election and risk of
the Holder and, except as otherwise provided below, the delivery will be deemed
made only when actually received by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In the case of physical delivery of Old Notes, 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 Issuers.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes if the Issuers' acceptance of such Old
Notes would, in the opinion of counsel for the Issuers, be unlawful. The Issuers
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Issuers' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) shall 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 the Issuers shall determine. Although the Issuers intend to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Issuers, the Exchange Agent nor any other person shall be
under any duty to give any such notification, nor shall any of them 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 the Issuers
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 this Letter of
Transmittal, as soon as practicable following the Expiration Date.
2. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. 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 this 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.
3. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the fourth column of the box entitled "Description of 11 5/8% Senior
Subordinated Notes due 2006" above. The entire principal amount of any Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered and
a certificate or certificates representing New Notes issued in exchange for any
Old Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Old Notes are accepted for exchange.
4. Book-Entry Transfer. Any financial institution that is a participant
in DTC's system may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account at DTC in accordance
with DTC's procedures for transfer. However, although delivery of Old Notes may
be effected through book-
8
<PAGE> 9
entry transfer at DTC, an Agent's Message must be transmitted to and received by
the Exchange Agent on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with. See "The Exchange
Offer -- Procedures for Tendering" in the Prospectus.
5. 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, this Letter of Transmittal or an Agent's Message or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date must tender their Old Notes according to the guaranteed delivery procedures
set forth in the Prospectus. Pursuant to such procedure: (a) such tender must be
made through an Eligible Institution (as defined below); (b) prior to the
Expiration Date, the Exchange Agent must have received from the 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, this Letter of Transmittal (or facsimile hereof) or
an Agent's Message together with the certificate(s) representing the Old Notes,
or a Book-Entry Confirmation, and any other required documents will be deposited
by the Eligible Institution with the Exchange Agent; and (c) such properly
completed and executed Letter of Transmittal (or facsimile hereof) or an Agent's
Message, 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 this Letter of Transmittal must be received by
the Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures." Any Holder who wishes to
tender his or her Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on 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.
6. 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 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 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 DTC 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
the Issuers 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 in Instruction 1, under "Procedures for
Tendering," at any time prior to the Expiration Date.
7. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor is to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
holder or holders and neither the "Special Delivery Instructions" nor the
"Special Registration Instructions" has been completed, then such holder or
holders need not and should not
9
<PAGE> 10
endorse any tendered Old Notes, nor provide a separate bond power. In any other
case, such holder or holders must either properly endorse the Old Notes tendered
or transmit a properly completed separate bond power with this Letter of
Transmittal with the signatures on the endorsement or bond power guaranteed by
an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person must so indicate when signing, and,
unless waived by the Issuers, submit evidence satisfactory to the Issuers of
such person's authority to so act with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 7 must be guaranteed by an Eligible Institution which is a member of
(a) the Securities Transfer Agents Medallion Program, (b) the New York Stock
Exchange Medallion Signature Program or (c) the Stock Exchange Medallion
Program.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc. , a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"). Signatures on this Letter of Transmittal need not be guaranteed
if (a) this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered herewith and such holder(s) have not completed the box set
forth herein entitled "Special Registration Instructions" or the box set forth
herein entitled "Special Delivery Instructions" or (b) such Old Notes are
tendered for the account of an Eligible Institution.
8. Special Registration and Delivery Information. Tendering holders
should indicate, in the applicable box or boxes, the name and address to which
New Notes or substitute Old Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
9. Transfer Taxes. The Issuers 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 hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this 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 on 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 this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Issuers reserve the right, in their sole
discretion, to amend, waive or modify specified conditions in the Exchange Offer
in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent by telephone at 212-658-5931 or by facsimile at 212-658-2292.
12. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
10
<PAGE> 11
IMPORTANT TAX INFORMATION
The Holder is required to give the Exchange Agent the social security
number or employer identification number of the Holder of the Notes. If the
Notes are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Name of Holder (if joint, list first and circle the name of the person or entity whose number you enter in Part I
below).
- -------------------------------------------------------------------------------------------------------------------
Address (if Holder does not complete, signature below will constitute a certification that the above address is
correct.)
- -------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: YOUNG AMERICA CORPORATION AND YOUNG AMERICA HOLDINGS, INC.
- -------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN
FORM W-9 TIN IN THE BOX AT RIGHT AND ------------------------------
DEPARTMENT OF THE TREASURY CERTIFY BY SIGNING AND DATING Social Security Number or
INTERNAL REVENUE SERVICE BELOW. If you do not have a Employer Identification Number
number, see How to Obtain a ------------------------------
PAYOR'S REQUEST FOR TAXPAYER "TIN" in the enclosed
IDENTIFICATION NUMBER ("TIN") Guidelines. Part II -- FOR
PAYEES EXEMPT FROM BACKUP
WITHHOLDING, SEE THE ENCLOSED
GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued for me), and
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service (IRS) that I am subject
to backup withholding as a result of a failure to report all
interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
- --------------------------------------------------------------------------------------------------------------------------
Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in
the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.)
Signature Date
-------------------------------------------------------------- -----------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU UNDER THE NOTES. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
(DO NOT WRITE IN SPACE BELOW)
Certificate Surrendered Old Notes Tendered
Old Notes Accepted
------------------------------------------ ------------------------------------------
------------------------
------------------------------------------ ------------------------------------------
------------------------
------------------------------------------ ------------------------------------------
------------------------
Delivery Prepared By ------------------ Checked By ----------------------------
Date
------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 1
YOUNG AMERICA CORPORATION
AND
YOUNG AMERICA HOLDINGS, INC.
NOTICE OF GUARANTEED DELIVERY
OF
11 5/8% SENIOR SUBORDINATED NOTES DUE 2006
As set forth in the Prospectus dated , 1998 (the "Prospectus"),
of Young America Corporation and Young America Holdings, Inc. (together, the
"Issuers") under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures," this form must be used to accept the Issuers' offer to exchange
their 11 5/8% Series B Senior Subordinated Notes due 2006 (the "New Notes") for
an equal principal amount of their 11 5/8% Senior Subordinated Notes due 2006
(the "Old Notes"), by 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 an Agent's Message (as defined in the
Prospectus) or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date. This form must be delivered by an
Eligible Institution by mail or hand delivery or transmitted, via facsimile, to
the Exchange Agent at its address set forth below not later than the Expiration
Date. All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
THE EXCHANGE AGENT IS:
MARINE MIDLAND BANK
140 BROADWAY
LEVEL A WINDOW
NEW YORK, NEW YORK 10005-1180
ATTENTION: CORPORATE TRUST OPERATIONS
FACSIMILE: 212-658-2292
TELEPHONE: 212-658-5931
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER
OTHER THAN ONE LISTED ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies And Gentlemen:
The undersigned hereby tenders for exchange to the Issuers, upon the terms
and subject to the conditions set forth in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures."
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1998, unless extended by
the Issuers. The term "Expiration Date" shall mean 5:00 p.m., New York City
time, on , 1998, unless the Exchange Offer is extended as provided in
the Prospectus, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
<PAGE> 2
SIGNATURE
<TABLE>
<C> <S>
Date: ------------------------
- ------------------------------------------------------------
Date: ------------------------
- ------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY
</TABLE>
Area Code and Telephone Number:
---------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title), if signing in a fiduciary or representative capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Taxpayer Identification or
Social Security No.:
- --------------------------------------------------------------------------------
Principal Amount of Old Notes Tendered (must be in integral multiples of
$1,000): $
- ------------------------
Certificate Number(s) of Old Notes (if available):
- --------------------------------------------------------------------------------
Aggregate Principal Amount Represented by Certificate(s): $
- ------------------------------------------------
IF TENDERED OLD NOTES WILL BE DELIVERED BY BOOK-ENTRY TRANSFER, PROVIDE THE
DEPOSITORY TRUST COMPANY ("DTC") ACCOUNT NO. AND TRANSACTION CODE NUMBER (if
available):
Account No.:
- -----------------------------------------
Transaction Number:
- -------------------------------------------------------------------------
<PAGE> 3
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, 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 Securities Exchange Act of 1934, as amended, guarantees deposit with
the Exchange Agent of a properly completed and executed Letter of Transmittal
(or facsimile thereof) or an Agent's Message, as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer, or confirmation
of the book-entry transfer of such Old Notes into the Exchange Agent's account
at DTC as described in the Prospectus under the caption "The Exchange
Offer -- Book-Entry Transfer" and any other documents required by the Letter of
Transmittal, all by 5:00 p.m., New York City time, on the fifth New York Stock
Exchange trading day following the Expiration Date.
Name of Eligible Institution:
- ----------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- -------------------------------------------
Title:
- -------------------------------------------
Area Code and
Telephone No.:
- --------------------------------------------------------------------------
Date:
- -------------------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF
TRANSMITTAL.
<PAGE> 1
YOUNG AMERICA CORPORATION
AND
YOUNG AMERICA HOLDINGS, INC.
OFFER TO EXCHANGE UP TO $80,000,000 OF THEIR
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OF THEIR 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.
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Young America Corporation and Young America Holdings, Inc. (together, the
"Issuers"), are offering, upon the terms and subject to the conditions set forth
in the Prospectus dated , 1998 (the "Prospectus") and the
accompanying Letter of Transmittal enclosed herewith (which together constitute
the "Exchange Offer"), to exchange their 11 5/8% Series B Senior Subordinated
Notes due 2006 (the "New Notes") for an equal principal amount of their 11 5/8%
Senior Subordinated Notes due 2006 (the "Old Notes" and together with the New
Notes, the "Notes"). As set forth in the Prospectus, 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, 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 in the Prospectus).
THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE "THE
EXCHANGE OFFER -- CONDITIONS" IN THE PROSPECTUS.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. the Prospectus, dated , 1998;
2. the Letter of Transmittal for your use (unless Old Notes are
tendered by an Agent's Message) and for the information of your clients
(facsimile copies of the Letter of Transmittal may be used to tender Old
Notes);
3. a form of letter which may be sent to your clients for whose
accounts you hold Old Notes registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
4. a Notice of Guaranteed Delivery;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. a return envelope addressed to Marine Midland Bank, the Exchange
Agent.
YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THE EXCHANGE OFFER WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. PLEASE
FURNISH COPIES OF THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR WHOM YOU
HOLD OLD NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE AS QUICKLY
AS POSSIBLE.
In all cases, exchanges of Old Notes accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(a) certificates representing such Old Notes, or a Book-Entry Confirmation (as
defined in the Prospectus), as the case may be, (b) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, or an Agent's
Message and (c) any other required documents.
<PAGE> 2
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 an Agent's Message and in either case together with 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 under the caption "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Old Notes residing in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
The Issuers will not pay any fees or commissions to brokers, dealers or
other persons for soliciting exchanges of Notes pursuant to the Exchange Offer.
The Issuers will, however, upon request, reimburse you for customary clerical
and mailing expenses incurred by you in forwarding any of the enclosed materials
to your clients. The Issuers will pay or cause to be paid any transfer taxes
payable on the transfer of Notes to them, except as otherwise provided in
Instruction 9 of the Letter of Transmittal.
Questions and requests for assistance with respect to the Exchange Offer or
for copies of the Prospectus and Letter of Transmittal may be directed to the
Exchange Agent by telephone at (212) 658-5931 or by facsimile at (212) 658-2292.
Very truly yours,
YOUNG AMERICA CORPORATION
YOUNG AMERICA HOLDINGS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE ISSUERS, OR ANY AFFILIATE THEREOF, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE> 1
YOUNG AMERICA CORPORATION
AND
YOUNG AMERICA HOLDINGS, INC.
OFFER TO EXCHANGE UP TO $80,000,000 OF THEIR
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OF THEIR 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.
To Our Clients:
Enclosed for your consideration is a Prospectus dated ,
1998 (the "Prospectus") and a Letter of Transmittal (which together constitute
the "Exchange Offer") relating to the offer by Young America Corporation and
Young America Holdings, Inc. (together, the "Issuers") to exchange their 11 5/8%
Series B Senior Subordinated Note due 2006 (the "New Notes") for an equal
principal amount of their 11 5/8% Senior Subordinated Notes due 2006 (the "Old
Notes" and together with the New Notes, the "Notes"). As set forth in the
Prospectus, 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, 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 in the Prospectus).
Old Notes may be tendered only in integral multiples of $1,000.
The enclosed material is being forwarded to you as the beneficial owner of
Old Notes carried by us for your account or benefit but not registered in your
name. An exchange of any Old Notes may only be made by us as the registered
Holder and pursuant to your instructions. Therefore, the Issuers urge beneficial
owners of Old Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee to contact such Holder promptly if they wish to
exchange Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to exchange
any or all such Old Notes held by us for your account or benefit, pursuant to
the terms and conditions set forth in the Prospectus and Letter of Transmittal.
We urge you to read carefully the Prospectus and Letter of Transmittal before
instructing us to exchange your Old Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exchange Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer expires at 5:00 p.m., New
York City time, on , 1998, unless extended. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on , 1998, unless
the Exchange Offer is extended as provided in the Prospectus, in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. A tender of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount
of the New Notes for each $1,000 principal amount of the Old Notes, of
which $80,000,000 aggregate principal amount was outstanding as of
, 1998. 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 of 1933, as amended, 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.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE
"THE EXCHANGE OFFER -- CONDITIONS" IN THE PROSPECTUS.
<PAGE> 2
3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m.,
New York City time, on , 1998, unless extended.
4. The Issuers have agreed to pay the expenses of the Exchange Offer.
5. Any transfer taxes incident to the transfer of Old Notes from the
tendering Holder to the Issuers will be paid by the Issuers, except as
provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Old Notes residing in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
If you wish us to tender any or all of your Old Notes held by us for your
account or benefit, please so instruct us by completing, executing and returning
to us the attached instruction form. The accompanying Letter of Transmittal is
furnished to you for informational purposes only and may not be used by you to
exchange Old Notes held by us and registered in our name for your account or
benefit.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed material
referred to therein relating to the Exchange Offer of Young America Corporation
and Young America Holdings, Inc.
This will instruct you to tender for exchange the aggregate principal amount of
Old Notes indicated below (or, if no aggregate principal amount is indicated
below, all Old Notes) held by you for the account or benefit of the undersigned,
pursuant to the terms of and conditions set forth in the Prospectus and the
Letter of Transmittal.
Aggregate Principal Amount of Old Notes to be tendered for exchange:
$
----------
*I (we) understand that if I (we) sign this instruction form without indicating
an aggregate principal amount of Old Notes in the space above, all Old Notes
held by you for my (our) account will be tendered for exchange.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S)
- --------------------------------------------------------------------------------
CAPACITY (FULL TITLE), IF SIGNING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS, INCLUDING ZIP CODE
Date:
- ---------------------------------------------------------
- --------------------------------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.
